Speaker 22: 1 Speaker 23: 1 Speaker 24: 1 Patent t Pools: Formation and Management Bill Geary MPEG LA, LLC Susan Gibbs Via Licensing Corporation Garrard R. Beeney Sullivan & Cromwell LLP October 3, 2008 Patent Pools: Formation and Management Introduction of MPEG LA, Via Licensing and Sullivan & Cromwell LLP Formation Issues Legal Practical Management Issues Legal Practical Conclusions Today Tomorrow 1
Speaker 22: 2 Speaker 23: 2 Speaker 24: 2 MPEG LA, LLC Background Began with MPEG-2 digital video compression standard Single biggest challenge to MPEG-2 adoption was access to essential intellectual property rights (IPR), which was owned by many parties. This created potential for confusion, conflict and cost, making it virtually impossible for the Standard to be used. MPEG LA provided an alternative license as a solution U.S. Department of Justice Business Review Letter in 1997: http://www.usdoj.gov/atr/public/busreview/215742.htm European Commission (EC) Comfort letter: EC Press Release IP/98/353 of April 15, 1998 2 MPEG LA: Current MPEG LA Licenses MPEG-2 Program started in 1997 ATSC Program began end of September 2007 AVC/H.264 a/k/a MPEG-4 Part 10 Program started in 2005 VC-1 Program began mid-march 2007 MPEG-4 Visual - Part 2 Program started in 2004 MPEG-2 Systems Program began end of April 2006 IEEE 1394 Program started in 1999 25 patent holders 887 patents in 57 countries 1502 licensees 7patentholders 93 patents 65 licensees 23 patent holders 460 patents 466 licensees 17 patent holders 448 patents 64 licensees 28 patent holders 787 patents 681 licensees 8 patent holders 179 patents 51 licensees 10 patent holders 256 patents 389 licensees 3
Speaker 22: 3 Speaker 23: 3 Speaker 24: 3 MPEG LA: Licenses in Development MPEG LA is facilitating the development of patent portfolio licenses for Blu-ray Disc TM New models in the making, e.g., licenses under multiple standards implemented in certain products Applications in new industries, e.g., wireless communication, biopharma 4 Via Licensing Corporation subsidiary of Dolby Labs, founded in 2002 Based in San Francisco; branch offices in Brussels, Hong Kong, Tokyo, Toulouse Providing the global marketplace with cost effective and convenient access to intellectual property Over 50 licensors, over 250 licensees ViaSecure.com extranet secure portal for Licensees & Licensors 5
Speaker 22: 4 Speaker 23: 4 Speaker 24: 4 Some of our licensors: 6 Licensing Program Development and Management Program development Identification and solicitation of essential patent holders Development of the program terms and conditions Ongoing management and maintenance of the program Market analysis Training and support of sales force Reports to licensors Marketing and IT projects Program changes to adapt to changes in technology or market 7
Speaker 22: 5 Speaker 23: 5 Speaker 24: 5 Legal and Compliance Two lawyers Two Global Compliance experts Audit firms in Hong Kong and Mainland China 8 Via s Programs current & future Seven pools in operation Three pools in development New pools (and other IP licensing projects) under investigation 9
Speaker 22: 6 Speaker 23: 6 Speaker 24: 6 Sullivan & Cromwell LLP Background International law practice Offices located around the world IP Property Practice 10 Pool Formation Legal Issues 11
Speaker 22: 7 Speaker 23: 7 Speaker 24: 7 Formation Legal Issues, The MPEG-2 Business Review Letter (6/27/97) Is the Pool open and was the standard setting process fair? What is the relationship between patents and field of use? value of Essentiality Is the Agent independent and non-exclusive? Are royalties predicated on actual use? Is there an independent right to development? What are the limits of the grant back clause? Is there a Yanking clause? Are the terms nondiscriminatory? RAND Steps in place to avoid collusion? firewall / effect on downstream product markets Are terms / patent / portfolio transparent 12 Additions of the DVD Letters (1998, 1999) Commercially Essential MPEG-2: Technically Essential Commercial as a Practical Matter No Commercially Viable (or realistic) Alternative Licensor / agent Royalty Sharing 13
Speaker 22: 8 Speaker 23: 8 Speaker 24: 8 More Recent Developments Business Review Letters IEEE-SA 3G Supreme Court Additions Quanta v. LG Electronics exhaustion MedImmune v. Genentech challenges Ebay v. Mercexchange L.L.C. - injunctions DOJ/FTC 14 Pool Formation Practical Issues 15
Speaker 22: 9 Speaker 23: 9 Speaker 24: 9 Pool Formation: Practical Issues Factors Conducive to Pool Formation Patent Thickets (interdependence of complementary patents owned by multiple patent owners) Drive need for multiple, inefficient bilateral licensing transactions Impede technology adoption, interoperability and use Restrict freedom of movement for technology implementers Increase potential for conflict and threat of holdout Multiple essential patent owners and potential licensees Identifiable royalty products Technology of value to mass market 16 Pool Formation: Practical Issues Factors Adverse to Pool Formation No patent thickets Bilateral licensing transactions may be more efficient Patent pools not suited to all technology situations End goal of minimizing royalties below the market rate Excludes strong licensors who may be needed in a realistic alternative pool license Royalty products in which the licensed standard is not easily identifiable; creates difficulty in licensing Insufficient compensation for Licensing Administrator; offers little incentive to pursue licensing 17
Speaker 22: 10 Speaker 23: 10 Speaker 24: 10 Pool Management (Additional) Legal Issues 18 Management Legal Issues Flow of Information Enforcement Compliance Litigation Portfolio Management [Tax] 19
Speaker 22: 11 Speaker 23: 11 Speaker 24: 11 Pool Management Practical Issues 20 Pool Management: Practical Issues Concepts That Work in Practice Nondiscriminatory royalties Similarly situated licensees pay the same royalties Licensors and licensees pay the same royalties Not only is it fair, but it greatly reduces negotiation and litigation costs Simple licensing terms easy to understand and apply 21
Speaker 22: 12 Speaker 23: 12 Speaker 24: 12 Pool Management: Practical Issues Concepts That Work in Practice (continued) Transparency licensing website with up-to-date essential patent list, licensor list, licensee list, and access to license terms and agreements Independence of licensing administrator neither licensor or licensee, evenhanded terms fairly applied Proper balance of royalty, revenue, administrative fees, and incentives for patent owners Selling Licenses Expanding the Market 22 Conclusions Today Tomorrow 23
Speaker 22: 13 Speaker 23: 13 Speaker 24: 13 A Few Formation and Management Legal Conclusions At Least For Now TODAY Legal freedom to meet legitimate business concerns at formation Rule of Reason Presumption re: package licensing Importance of Enforcement: traditional approach 24 Formation and Management: Non-Exclusive TODAY Independent or walled-off agent Essential Patents non-substitutes? Independent patent evaluation No discrimination MFN Common rates Termination Right of independent development Limited grant back 25
Speaker 22: 14 Speaker 23: 14 Speaker 24: 14 Formation and Management: (continued) TODAY Royalty for one or more Confidentiality / Fire Walls Litigation care / portfolio management 26 Patent Pools: Formation and Management Front Burner Issues TOMORROW Scope of License: one standard? Enforcement: more robust? FRAND Licensing? Back Burner Issues Portfolio Composition: non-assertion? Legal Environment: what s left? 27
Speaker 22: 15 Speaker 23: 15 Speaker 24: 15 Patent Pools: Formation and Management 31/366084 v6 / LG2602