German outfit Nero is suing the MPEG-LA, the outfit which looks after the patents on e MPEG-2, MPEG-4 Visual (Part 2), IEEE 1394, VC-1, ATSC and AVC/H.264 standards.
Court documents claim that the the licensing body has abused its monopoly power, and that is has not honoured agreements made with the US Department of Justice.
In 1997, the MPEG-LA asked the US Department of Justice not to start any antitrust investigations against the licensing body. It was concerned that all the patents it was sitting on was making it appear like a monopoly and it did not want to be carved up by the DOJ.
At the time the DOJ could not be bothered if the MPEG-LA stuck to certain guidelines.
The first condition was that only 53 essential patents would be part of the MPEG-2 pool and that independent experts would "weed out nonessential patents" from the pool. The DoJ insisted that licensing terms should be "fair, reasonable, and nondiscriminatory".
Nero said that none of these safeguards were honoured. The court document claims that the absolute power that the MPEG-LA has has corrupted it. The "independent expert" attends business settlement meetings on behalf of the MPEG-LA, and has testified before US congress on behalf of the outfit.
According to the outfits website his job title is "MPEG-LA's US patent counsel" which is hardly independent. Instead of 53 essential patents the "independent expert" added about 800 more patents to the pool and extended the old, 53 essential patents which had expired.
Nero claims that MPEG LA has "extended the duration and scope of its monopoly power in the relevant technology markets for the licensing of patents relating to the MPEG-4 Visual and AVC [H264] standards by adding nonessential patents to its MPEG-4 Visual and AVC pools, which now contain more than 1000 and 1300 patents, respectively."
In addition the outfit has "formulated and imposed licensing terms that are unfair, unreasonable, and discriminatory", the court documents claim.
The way they have done this is charging different royalty rates from licensees for the same MPEG-2 license and by not making any downward adjustment in line with the "rapid and dramatic" decrease in costs of implementing the MPEG-2 standard.
Meanwhile the MPEG-LA collects royalties for the same device multiple times by charging for the internal hardware, software, monitor, etc. Nero does not explain this to its licensees.
As a result MPEG-LA has a total market share, since every device or piece of software even remotely related to video needs a license from it.
At the heart of the suit is the fact that the MPEG-LA used to tell people that they did not have to buy licences for trial software. Nero asked if trial software would constitute a sale and the MPEG-LA confirmed this answer "verbally, in writing, and by conduct".
In February 2008, the MPEG-LA reversed this position abruptly, demanding royalties for trial software, thereby changing its licensing agreements. When people started to complain about this the MPEG-LA used a legal loophole to prevent clients proving to the court that it had agreed to let then use the software on a trial basis
The MPEG-LA has replied that Nero had not abided by the terms of the license it has taken and all this is legal grandstanding to come out as the good guy. Garrard Beeney, the lawyer representing the MPEG-LA told OS News this is pretty common in license fee disputes.
The case has become important because Apple'a recent moves would hand over video on the web to the MPEG-LA and give it even more power. The outfit has indicated that it is thinking of going nuclear against the rival Google standard which it claims is infringing its patents.
If half the stuff in Nero's complaint is true, it would be like handing control to Microsoft at the height of its arrogance, or Apple now.
Basically everytime you create an internet device you will be required to hand over as much money as the MPEG-LA demands for what ever it wants. For some reason the DoJ has let this happen and Steve Jobs's push towards HTML5 will give the body even more control.
One of the reasons for this might be that Apple happens to hold at least one license that is controlled by the MPEG-LA but that would be cruel and self serving..