MPEG-LA hit by antitrust suit over video codecs

German software maker Nero has filed an antitrust complaint against MPEG-LA, the company that oversees licensing for the H.264 video codec favoured by Microsoft and Apple.

MPEG-LA (MPEG Licensing Authority) controls the licenses for the pools of patents needed to use the MPEG-2, MPEG-4 and AVC/H.264 video standards. As such, it collects royalties from the sale or distribution of almost every PC, DVD, DVD player, digital TV set, TV set-top box, still camera, video camera, iPhone and BlackBerry in the world.

Nero, best known for its CD burning software, alleges that MPEG-LA abuses its monopoly power in these technology markets. The company filed its antitrust complaint in California district court in Los Angeles on 14 May, seeking unspecified monetary damages and an injunction to halt the alleged anti-competitive actions.

"Absolute power has corrupted MPEG-LA absolutely," Nero maintained in its complaint. "Once MPEG-LA obtained monopoly power in the relevant technology markets, it used that power to wilfully maintain or extend its monopolies for years beyond their natural expiration... and administer its licences in an unfair, unreasonable, and discriminatory manner that stifles competition and innovation, and harms consumers."

MPEG-LA charges licensees different amounts for the same MPEG-2 patent, collects administration fees and royalties multiple times for the same device, and does not communicate its policies adequately to certain licensees, according to Nero.

"By remaining silent on vital aspects of its licensing programs, MPEG-LA has created a system that favours some licensees, such as insiders (ie, licensors), and disfavours others, such as outsiders (ie, non-licensor licensees)," Nero's complaint read.

"As a result, outsiders such as Nero have great difficulty planning technology changes and embarking on programmes to research, develop and implement technological innovations — and are charged supracompetitive royalties on distributions as to which they never agreed to pay royalties — while other licensees, such as insiders, do not face such problems."

According to Nero's complaint, MPEG-LA only obtained monopoly power in the relevant audio and video codec markets after getting assurances in 1997 that the Department of Justice (DoJ) would not launch antitrust proceedings against it.

These assurances were conditional on patent pools not being used to stifle competition, Nero stated. It added that MPEG-LA suggested to the DoJ at the time that the pool for MPEG-2 contained no more than 53 essential patents.

MPEG-LA subsequently added around 800 patents it deemed to be essential to the MPEG-2 pool, so as to extend the duration of the codec's licence, Nero said. The company did the same thing with the MPEG-4 pool, which now includes more than 1,000 patents, and the AVC/H.264 pool, now with over 1,300 patents, according to the filing.

AVC/H.264 is the video codec of choice for Microsoft, which will support it natively in Internet Explorer 9, and for Apple, which is backing it as a superior alternative to Flash. While Google also supports H.264 in Chrome, it recently open-sourced its own alternative, VP8, in a bid to provide a free alternative to the proprietary and paid-for H.264.

As part of its complaint, Nero said that MPEG-LA used its own patent counsel, Kenneth Rubenstein, as "a so-called 'independent' expert" to evaluate the essentiality of patents.

MPEG-LA had not responded at the time of writing to a request on Tuesday for comment on Nero's allegations. The next stage in the case will be for MPEG-LA to answer Nero's complaint.