Changes in how you watch movies, stream TV and use video chat are on the way. These will fundamentally affect the economics of how content is delivered to you, as well as the way that the patents underpinning the enabling technology are licensed. This article aims to provide an understanding of the history of HEVC, video compression standards and the associated patent licensing landscape.

1. 36 www.IAM-media.com
May/June 2018
By Erik Oliver and Kent Richardson
Changes in how you watch movies, stream TV and use video chat are on the way. These
will fundamentally affect the economics of how content is delivered to you, as well as
the way that the patents underpinning the enabling technology are licensed
WhatwillTVcostyou?Puttinga
priceonHEVClicences
T
he compression algorithm is a piece of critical
technology that enables users to view videos on a
phone or a computer and now there is a new one
coming our way: HEVC.
How important is the commercial adoption of this
new compression technology? Without compression,
the movie Thor: Ragnarok – which is 130 minutes long –
would be 11.6 TB. With current compression technology
that same movie is about 27 GB; with HEVC it is
approximately 14 GB (see Figure 1).Thus, HEVC
can help consumers to save limited mobile data and
businesses to cut costs on data storage and transmission.
All while delivering equal – or better – quality video.
However, there is no point pretending that
compression technology is easy.The math makes your
head spin, the trade-offs are tortuous and the metrics
to decide what looks good – whatever that means – will
make you question why you ever asked.The implications
for chip designers are staggering. Hundreds of billions
of dollars of semiconductors are produced with specially
designed circuitry and instructions for optimising video
compression and decompression.Those semiconductors
are built into billions of devices every year. How much
circuitry are we talking? We estimate that for 2018, if
you divide up all the transistors manufactured for video
compression, there would be 4,000 transistors per ant.
(There are about 5 quadrillion ants in the world.)
Broad industry adoption of HEVC was kickstarted
by Apple’s July 2017 announcement that its iOS 11
would natively support HEVC. Apple’s membership of
AOMedia became public as of the time of writing. It
is too early to tell whether this membership will cause
Apple, and others, to shift away from HEVC adoption.
There are multiple reasons for slow adoption but a
complex and expensive patent licensing landscape with
three major licensing groups may be one. Compared to a
peak price of $0.20 per handset for an AVC patent pool
licence, a consumer electronics manufacturer planning
to make a handset that supports HEVC would be facing
an estimated $1.60 per handset charge to license HEVC
from the three pools.There would also be additional
royalties for owners of non-pooled patents, which we
estimate would bring the bill to $2.25.
One possible reason for the proliferation of licensing
groups is that historically, licensing patents around
audio/video compression has generated billions of
dollars in revenue. Further, the patent battles are
slated to continue with the latest HEVC standard. If
your company plans to support HEVC, this will be
complicated. Solvable but complicated.
This article aims to provide an understanding of the
history of HEVC, video compression standards and
the associated patent licensing landscape. Given the
complexity of this subject, it focuses on providing a
starting point to guide companies through some of the
relevant patent licence issues.We are not playing favourites
among the pools nor are we criticising any one pool or
its policies. Rather we have focused on the perspective
of HEVC adopters – the customers of the pools. How
will they view the pool’s stated rates and policies? With
that, we will look at how the pools, their pricing and the
licences might affect adopters’ profits and costs.
Brief history of video compression
While HEVC is the sixth major ITU standard for video
compression, it is also the third video compression standard
jointly worked on with the MPEG (operating under the
ISO and the IEC).Table 1 provides a brief overview of key
video compression standards from the ITU and MPEG.
Each of these standards has targeted delivery video at
lower bandwidth requirements, generally at significantly
higher quality. MPEG-2 was notable for its adoption
as the standard format for digital TV broadcasting and
in DVDs. HEVC has now been adopted for the next
generation of digital TV broadcasting (ATSC 3.0 in
the United States).Table 2 highlights several technical
improvements between most of the successive video
standards discussed in Table 1.
Each of the standards builds heavily on those that
came before.Thus, the 2013 HEVC standard does not
stand alone; rather, many of its fundamental concepts
relate to the approaches selected for H.261 back in 1988
– which provides its own set of patent licence challenges.
For example, HEVC builds on the macroblock concepts
that date back to the 1988 H.261, while adding
new, more refined capabilities for segmenting those
macroblocks. For those interested in a more in-depth
technical analysis of the standards, the presentations and
papers by Gary Sullivan are a good starting point (see
Google Scholar: https://goo.gl/QrNzhA).
One further point: standardisation is critical to the
technology industry and the video encoding space in
particular. By standardising the video encoding stream,
more devices can interoperate, which leads to the
promised value highlighted by Intel’s former CEO,
Craig Barrett: “[w]hen you have common interfaces,
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Video patent pools: history
While HEVC is the sixth major standard from the
ITU, it is the third major video coding standard to have
a patent pool associated with it.The first – MPEG
LA’s MPEG-2 pool – was notable for being widely
adopted (it was used in digital TV – including the
ATSC standards in the United States – and also used
in DVDs). MPEG LA provided a one-stop shop for
clearing the overwhelming majority of patent rights for
use of MPEG-2. For decoding hardware products (eg, a
TV, DVD player or computer), the rates were:
• $4.00 (inception in approximately 1997 to 2002);
• $2.50 (2002 to 2010);
• $2.00 (2010 to 2015); and
• $0.50 or $0.35 (2015 onward).
The rates and pricing remain controversial. For
example, in August 2017, Haier – a large consumer
electronics maker and an ATSC and MPEG-2 licensee of
MPEG LA – filed suit over the rates (see Haier America
Trading LLC v Samsung, Case 1:17-cv-921, NY Northern
District, August 21 2017 – the suit covers both the
ATSC and MPEG-2 patent pools operated by MPEG
LA).The Haier suit raises questions about the (lack
of) effectiveness of the screening process for including
patents, inclusion of non-essential patents, the pricing
model (flat fee versus scaled by device cost, especially in
the face of declining device costs) and antitrust concerns.
One of the complaints in Haier concerns the addition
of patents to the pools over time.This will not surprise
astute observers of the video standards world. NTSC
common protocols, then everyone can innovate and
everyone can interoperate. Companies can build their
businesses, consumers can expand their choices, the
technology moves forward faster, and users get more
benefit” (emphasis added). Contrast this with the problem
of incompatible technologies where hardware for one
format (eg, Betamax or HD-DVD) could not work
with another (eg, VHS or Blu-ray). It is expensive for
content providers and others in the ecosystem to support
multiple formats. It is generally preferable to have fewer
divergent standards, as well as higher-quality standards.
We will provide a brief history of video patent pools
before turning to the compression capabilities of each
of these video compression standards, as well as known
licensing fees of established pools, in the context of the
ever-changing consumer electronics landscape.
Glossary of abbreviations and key terms
ŸŸ AOMedia: the Alliance for Open Media.
ŸŸ ASP: average selling price.
ŸŸ ATSC: Advanced Television Systems
Committee, developer of standard for over-
the-air digital television in the United States.
ŸŸ AVC: advanced video coding, alternatively
H.264 or MPEG-4 (part 10).
ŸŸ FRAND: fair, reasonable and non-
discriminatory.
ŸŸ HEVC: high efficiency video coding,
alternatively H.265 or MPEG-H (part 2).
ŸŸ HEVC Advance: private company – HEVC
Advance LLC – based in the United
States that serves as a patent licence
administrator for an HEVC pool.
ŸŸ ISO: the International Organisation for
Standardisation.
ŸŸ IEC: the International Electrotechnical
Commission.
ŸŸ ITU: the International
Telecommunication Union.
ŸŸ LTE: long-term evolution technology.
ŸŸ MPEG: the Moving Picture Expert Group.
ŸŸ MPEG LA: a private company – MPEG LA,
LLC – based in the United States that
serves as a patent licence administrator
for many pools, including the MPEG-2
pool, the AVC pool and an HEVC pool.
ŸŸ NDA: non-disclosure agreement.
ŸŸ NTSC: the previous US standard for
analogue broadcast TV, named after the
National Television System Committee.
ŸŸ SEP: standard-essential patent.
ŸŸ US Patent and Trademark Office.
ŸŸ VC-1: a standard originally developed by
Microsoft for Windows Media Video 9 but
standardised by the Society of Motion
Picture and Television Engineers (SMPTE)
as SMPTE 421; it is also supported by
Blu-Ray discs.
ŸŸ Velos: a private company – Velos
Media LLC – based in the United States
that serves as a licensor and licence
administrator for an HEVC pool.
Thor: Ragnarok, a 130-minute uncompressed movie, 11,600 GB:
Compressesto27GBcurrently And down to 14 GB with HEVC
FIGURE 1. Video compression reduces data requirements
by 1,000x
Standard Publication
year*
Commentary
H.120 1984 Early compression technique, not widely adopted.
H.261 1988 Often viewed as basis of modern video compression techniques.
MPEG-1 1993 Inherits many features from H.261 while adding several
technical features.
H.262/MPEG-2 1995 Used in DVDs and broadcast digital TV, high similarity to (MPEG-)1.
H.263 1996 Many similarities to MPEG-1 and H.261 with enhanced capabilities.
Used in videoconferencing systems. Interrelated to MPEG-4 (Part
2) (1999), which has H.263 baseline with additional features.
H.264/MPEG-4
(Part 10)/AVC
2003 First test models in 1999; drafts in 2002; widely adopted on the
Internet and mobile devices, as well as Blu-ray players.
H.265/MPEG-H
(Part 2)/HEVC
2013 First test models in 2010; drafts in 2010-2012; selected for use in
next-generation digital TV (eg, ATSC 3.0).
TABLE 1. Overview of key video compression standards
* Publication year of first version of standard by ITU (or ISO)
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boxout for a discussion on whether the AVC pool rate
was set artificially low.)
Bear in mind that if your device supports multiple
standards, you will need to license each one separately.
So for a device that supports MPEG-2, AVC and
HEVC together, you would need to pay the fees for
each separately to the appropriate administrator(s) or
independent patent owners.
Before exploring the HEVC patent licensing
landscape in more detail, the backdrop of the changing
consumer electronics landscape merits investigation.
Consumer electronics: pricing and performance
under Moore’s Law
Discussing video compression standards without
reference to the changing consumer electronics landscape
can be challenging. Consumer electronics, particularly
computers, exist against the backdrop of Moore’s
Law which, loosely speaking, predicts that computing
capabilities double in performance every two years.
Figure 2 shows trends for computer prices from 2002 to
2015.The downward pressure on personal computer prices
– even in the face of inflation – is extreme, with the price
of a computer dropping from $1,000 to $277 from AVC’s
launch in 2003 to HEVC’s launch in 2013. Significantly,
a $277 computer bought in 2013 is significantly more
powerful than its more expensive 2003 predecessor.
Figure 3 shows the processor performance over the period
from 2002 to 2015 in millions of instructions per second
(MIPS). Around the time that AVC was launched,
processors were clocking it at about 10 MIPS, but by the
time of HEVC’s launch 130,000 MIPS processors were
readily available.Thus, over the same 10-year period where
the computer dropped in price by nearly one-quarter, the
processing power available went up by a factor of 10,000.
encoding for analogue TV signals in the United States
was first promulgated in around 1941 (for black and
white TVs) and then modified in around 1953 to add
colour. Nonetheless, patent licensing for improvements
on NTSC had a much longer life than 20 years, even
given the addition of colour.
Nonetheless, the fact that there are live patents after
more than 20 years should raise questions that require
answers from patent owners.Thus, even MPEG-2 –
which is now over 20 years old – was not completely
unencumbered by patents in 2017. MPEG LA continues
to run a licensing pool for MPEG-2 that included seven
unexpired patents as of July 2017 and charged $0.50
per device for a patent licence (notably, the remaining
patents have early priority dates in this case but greater
than their 20-year lives due to country-specific laws
in the United States, Malaysia and the Philippines). A
lower-priced $0.35 tier is also available for companies
that waive early termination rights.
The issue of listing patents with priorities post-dating
the standard can be at least partially answered: standards
are not fixed in time. Even the MPEG-2 standard has
been amended since its 1995 release, with the most
recent amendment dating from 2012. Also, the vast
majority of patents historically in the MPEG-2 pool had
priority dates falling roughly between 1990 and 1995.
Thus, any late patents may actually represent innovations
related to amendments to the standard.
Turning away from MPEG-2, we arrive at the second
widely adopted video coding standard: AVC.
MPEG LA also served as the administrator for the
AVC patent pool.The rate is $0.20 per device but there
are some volume-based pricing tiers, as well as a cap
on total licence fees. Compared to MPEG-2, the AVC
patent pool was more affordable. (See “Other issues”
Sources: Adapted from presentations by Gary Sullivan, co-chair for ITU-T VCEG, in “Overview of Intl Video Coding Standards”, July 2005 and “Developments in Video Coding Standardization”, February 2015
H.261 MPEG-1 H.262/MPEG-2 H.263 H.264/AVC H.265/HEVC
ŸŸ Macroblock motion
compensation
ŸŸ Discrete cosine
transform
ŸŸ Scalar quantisation
ŸŸ Zig-zag scan
ŸŸ Run length
ŸŸ Variable-length coding
H.261 features plus:
ŸŸ Bi-directional motion
prediction
ŸŸ Half-pixel motion
ŸŸ Slice-structured coding
ŸŸ DC-only ‘D’ pictures
ŸŸ Quantisation weighting
matrices
MPEG-1 features plus:
ŸŸ Interlaced-scan
support
ŸŸ Improved DC
quantisation precision
ŸŸ Scalability (SNR,
spatial, breakpoint)
ŸŸ I-picture concealment
motion vectors
H.263 plus MPEG-1/2
features plus:
ŸŸ 3D variable length
coding of DCT
coefficients
ŸŸ Median motion vector
prediction
ŸŸ Optional, enhanced
modes
H.263 features plus:
ŸŸ Coding efficiency
enhancements
ŸŸ Error resilience
ŸŸ Segment coding of
shapes
ŸŸ 0-tree wavelet coding
of still textures
ŸŸ More (including
optional features)
H.264 features plus:
ŸŸ High-level structure,
segmentation and
transformation options
ŸŸ Intra-/Inter-picture
prediction and entropy
and transform coding
changes
ŸŸ More (including
optional features)
TABLE 2. Key improvements of major video standards
Sources: MPEG LA and HEVC Advance websites as of January 2018 combined with estimates for Velos as discussed below. As Samsung and ETRIs patents are currently in both MPEG LA and HEVC Advance pools until
2019, adopters paying for both pools will receive a credit and only pay for the patents once
Standard AVC HEVC
Licensing group MPEG LA MPEG LA HEVC Advance Velos estimate Total estimate
Number of WW Patents 3,704 4,417 3,321 3,200 10,938
Handset royalty ($) – highest rate $0.20 $0.20 $0.65 $0.75 $1.60
$ per 1,000 patents for handset $0.05 $0.05 $0.20 $0.23 $0.27
Handset cap $10 million $25 million $30 million Unknown $55 million plus
Sample total royalty for 10 million units $1.5 million $2.0 million $6.5 million $7.5 million $16.0 million
TABLE 3. AVC and HEVC licence rates and estimates
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7,680 x 4,320 pixels. So that is a factor of 16 times more
pixels per videoframe; in fact it is slightly higher due to
increased bit depths.
Against this backdrop, what does the patent and
licensing landscape for HEVC look like?
HEVC licensing demands
The known public demands (and estimates) for licence
fees for AVC and HEVC are summarised in Table 3. We
know that some of the public data is inaccurate or out of
date (see “Moving target analysis” boxout). Nonetheless,
for this analysis we will use the public data as is (data
retrieval dates are noted), even though that may skew
the estimates slightly. Relatedly, while Velos’s data is
not publicly available, we have estimated its holdings
and royalties, as discussed further below. Also, given the
relative newness of HEVC as a standard, there are still
pending patent applications around the world that are
not yet reflected in the pool’s lists.
We analyse the rates through several different lenses
in Table 3 to provide context on how the different rates,
caps and patent holdings interact with the pricing.Thus,
compared to a peak price of $0.20 per handset for the
sole AVC pool, a consumer electronics manufacturer
Figures 2 and 3 together translate the dilemma for
consumer electronics manufacturers operating in the
environment of Moore’s Law into economic terms:
deliver laptops, mobile phones and tablets with twice
the computing power for lower prices year after year
after year. While we do not show the graphs for this, the
storage capacity of computers and network bandwidth
across the network has been following a similar curve.
It is worth contrasting this with expectations for
higher-resolution video over that same period (eg, from
1080p in 2003 to, say, 8K presently).The 1080p video
would be 1,920 x 1,080 pixels, while the 8K video is
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2002
2003
2004
2005
2006
2007
2008
2009
201
AVC launch 2003: $1,000 computer
HEVC launch 2013: $277
(a significantly
better computer)
AVC launch
2003: 10 MIPS
10,000x improvement i
at HEVC launch 2013: 1
Price
Performan
FIGURE 2. Computer prices 2002-2015
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
AVC launch 2003: $1,000 computer
HEVC launch 2013: $277
(a significantly
better computer)
AVC launch
2003: 10 MIPS
10,000x improvement in processors
at HEVC launch 2013: 130,000 MIPS
Price
Performance
FIGURE 3. Computer performance 2002-2015
Source: US Bureau of Labour Statistics: ”Long-term price trends for computers,
TVs, and related items” (The Economics Daily, October 13 2015) Source: Millions of instructions per second (MIPS) data from Intel, AMD and Wikipedia
Video compression basics
Audio and video compression use mathematical techniques to achieve significant savings
in file sizes. This quick summary focuses on the video component. Uncompressed video is
made up of multiple still frames – these frames are the starting point for compression.
ŸŸ Each still frame can be broken into smaller blocks. The visual imagery in those blocks
can be estimated or compressed using complex mathematical equations. This is lossy
compression – the reconstituted still image will not be identical to the source still image.
ŸŸ The blocks themselves can also be compared for similarities and redundancies
eliminated, thus providing further compression. For example, a blue sky in the
background will have a lot of redundancy.
ŸŸ Next is handling motion – if you start looking at the differences between two successive
frames of a moving picture, there is often little change from frame to frame. Thus, if the
movement of the handful of blocks with changes can be estimated, it is not necessary to
retransmit the whole compressed frame but rather just the heavily changed blocks and
the movement of blocks.
This is a quick, not-too-mathy summary of the fundamentals of video encoding. The
downside is that it might leave you scratching your head: why or how do newer compression
standards do better than older ones? The answer is in the details. Briefly: HEVC offers more
flexibility or uses different mathematical compression approaches than AVC at each step to
enhance the amount of redundancy that can be identified and compressed out.
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Table 4 provides a framework for measuring the scale
of risk from companies outside the three pools.The
court ruled against the contribution approach in TCL
Communications v Ericsson (SACV 14-341 JVS and
CV 15-2370 JVS; December 2017 finding of facts by a
magistrate judge in the District Court for the Central
District of California). We are using contributions
here primarily as a way of assessing the potential size
of portfolios of unaffiliated companies.This table
synthesises an analysis that the Velos pool is sharing
(upon request) about the adopted contributions by the
HEVC technical committee. In brief, Velos manually
reviewed the meeting minutes of the HEVC technical
committee (over 20 meetings) to analyse the disposition
of the thousands of proposed technical contributions
for inclusion in HEVC.They counted only those
contributions that were adopted and not later removed.
A single contribution from multiple parties was counted
as a contribution for all of the parties (eg, if companies
X, Y and Z contributed proposal #1234, then each of the
three companies would be counted as having made one
contribution). Contributions are a useful way of thinking
about sources of intellectual property in the standard.
Contributions are not a guarantee that the contributor
is the sole inventor of intellectual property in the
contribution but intuitively it should correlate.
We received similar data (but for contributions to the
main profile only) from HEVC Advance.The two pools’
contribution counts, while different, were directionally
quite similar. HEVC Advance’s data reflected more
reassignments from patent transactions showing the
purchase of patents from unaffiliated entities primarily
by the Dolby entities and GE. Surprisingly, unaffiliated
companies represent a large percentage of contributions,
with 37% of all adopted contributions when both
main and extensions are considered. Looking briefly
at the pools, when both main and extensions are
considered, Velos has the highest percentage of adopted
contributions by far (39%). In contrast, for main-only, the
gap was narrower, with the Velos and HEVC Advance
pools being nearly equal after account was taken of
reassignments of patents from unaffiliated contributors.
Returning to the purpose of contribution analysis:
estimating unaffiliated patents.This can be done by using
the average number of patents listed (or estimated) per
pool to compute a ratio of patents per contribution.
The average contribution ratio (20.6 per contribution)
across the three pools can be multiplied by the number
of unaffiliated but adopted contributions (305) to arrive
at an estimated number of unaffiliated patents of 6,295.
This would dwarf any single pool taken alone in size.
For reference, companies with five or more
contributions that are unaffiliated with the pools are
planning to make a handset that supports HEVC
would be facing an estimated $1.60 per handset charge.
As explained below, that becomes an estimated $2.25
handset charge once unaffiliated companies are included.
Table 3 uses the maximum rate for handsets. For
example, HEVC Advance has a rate structure with
tiered regional rates and lower prices if only the main
profile for HEVC is implemented (as opposed to also
implementing all of the optional extensions). Depending
on your specific handset configurations and shipping
locations, you might see lower rates than this table
suggests. If your company made and sold 100% of its
handsets in China and included none of the extensions,
the HEVC Advance rate would be $0.20 per handset
before discounts. As this brief discussion suggests, it
is key to accurately modelling your company’s handset
volumes and necessary features.
The third pool from Velos includes several companies
with significant patent holdings: Ericsson, Sharp, Sony,
Panasonic and Qualcomm. Notably, Velos is more than
just a pool since it directly owns, licenses and can directly
litigate at least some of the patents (though one of the
MPEG LA pool holders appears to be an MPEG LA
subsidiary with former Panasonic patents).The USPTO
patent assignment database shows assignments of over
100 patent assets into Velos Media LLC from members.
We used the midpoint of $0.20 (MPEG LA price) up
to $1.30 (twice the HEVC Advance price) to model
Velos’s rate in Table 3 at $0.75. We modelled the total
Velos controlled/administered patents as follows: starting
with the assignments listed in the USPTO database,
we performed an International Patent Documentation
patent family expansion to identify approximately 800
patents and publications assigned to Velos. We then
assumed that the participants retained relevant assets
as well, which we would estimate as between three and
five times the amount transferred to Velos.Thus, we
modelled the pool multiplying by four in Table 3 and
estimated 3,200 total patent assets. We acknowledge that
this creates a bit of an apples-to-oranges comparison
between the Velos pool and the other two pools.
However, it is a useful starting point for analysis.
As with AVC, some companies will opt to sit outside
of the pools for HEVC. Many have been concerned that
Technicolor, a large historical participant in video codec
patent pools, has opted to sit outside the three pools
at this time.This specific example may be somewhat
mitigated by the fact that Dolby (in HEVC Advance)
has bought a number of patents from Technicolor. As this
article went to press,Technicolour announced a deal with
InterDigital, a known patent licensor, to own and manage
the Technicolor patents (see this issue’s Insight piece on
InterDigital’s acquisition of Technicolor’s licensing arm).
Either way, there will be additional licensing demands
from companies outside the pools. By way of example
from AVC, Motorola was a notable patent owner which
opted to license directly.The litigation stemming from
Motorola’s licensing programme includes a case brought
by Microsoft asking Motorola to set a rate for AVC
(Microsoft Corp v Motorola Inc, 2:10-cv-01823-JLR). In
that case, the court used principles of proportionality to
set a licence rate for Microsoft that was less than 1% of
Motorola’s original ask (2.25% of ASP or $4.5 on a $200
ASP smartphone; the award was $0.00555 per handset
or a 0.002% royalty on a $200 ASP smartphone).
Sources: Velos-provided analysis of HEVC meeting minutes decisions available at http://phenix-int-evry.fr/jct/ combined with
ROL Group allocation of companies to pools according to January 2018 data. Totals are for the main profile and all extensions
Pool Three pools Unaffiliated
Number of adopted contributions 530 305
Percentage of total adopted contributions 63% 37%
Patent count 10,938 6,295
Patents per contribution 20.6 N/A
TABLE 4. HEVC adopted contributions
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the HEVC Advance rate ($0.65 per device). Using
these assumptions, we estimate that the total bill for
HEVC would be $2.25 per handset. On a $200 ASP
smartphone, this would be a 1.1% royalty.
Before we discuss how to navigate the landscape, an
exploration of the pool’s patent holdings is useful.
HEVC patent landscape
Unlike private patent negotiations, historically the video
patent pools have made the patents licensed readily
available to the public. In the case of HEVC, both
MPEG LA and HEVC Advance have websites that list
the patents available for license. A third pool, Velos, does
not currently publicly list its patents for license.
The availability of public lists provides an easily
accessible avenue for a number of different analyses.
Three main areas are particularly valuable:
• patent priority year distribution, to compute remaining
life;
• geographic distribution of patent coverage, to check
alignment between patent coverage versus your
practise of the patents; and
• distribution of ownership, to assess the value of direct
licensing instead of pooled licensing.
Each of these will help with risk and cost assessments
and will be considered in turn.
Before diving into the analysis, one other point is
worth mentioning.Technically, the HEVC standard,
like prior video compression standards, only specifies the
format and mechanism for decoding video.This means
that companies encoding video into HEVC format (or
transcoding existing video into HEVC format) may
do so in any of a number of ways provided that the
result is a compatible decodable HEVC stream. For
this reason, this discussion of licensing focuses on the
decoding or user device side. While streaming services
still face demands for licences for their encoding and
transmission, we will not be covering those demands
in detail here. Suffice it to say, patent owners and pools
claim to have patents on the only, or most desirable, ways
to prepare HEVC-compatible encoded video files.
Figure 4 shows the distribution of earliest priority dates
for US-issued HEVC patents in public lists of patent
pools (eg, MPEG LA and HEVC Advance; Velos does
not currently publicly list the patents that it licenses).
The long backwards reach of priority dates (back to
around 1996) highlights the dependencies between HEVC
and prior standards, as discussed in connection with Tables
1 and 2. Notably, over 10% of the US patents have priority
dates dating back to the AVC, or earlier, compression
standards.This is particularly important with regard to
patent overlap with earlier video standard licences. Pool
overlap for the US patents listed for HEVC (MPEG LA
and HEVC Advance only) that are already being paid
for via the MPEG LA AVC pool list is at over 10%.
The patent licensors would argue that a field-of-use
limitation to the prior AVC standard limits your usage
and thus there is no double payment. However, as a
practical matter (and the difference in costs is discussed
more below) this smacks of double payments. Most
devices and software will need to support AVC side
by side with HEVC for an extended period. In many
cases the AVC-duplicative patents are being practised
by HEVC to achieve the same purpose as they were in
listed in Table 5.These 14 companies represent over 80%
of the unaffiliated but adopted contributions. As with our
discussion of Table 6 (below), these are companies where
a cross-licence may be particularly helpful in reducing
patent exposure without signing up for a patent pool.
That in turn gives us the insight to estimate the likely
patent demands from the unaffiliated contributors.
Given the quantity of contributions and estimated
holdings among a group of sophisticated patent
licensors, we estimate that the unaffiliated parties,
in aggregate, will seek an amount comparable to
Nokia
Microsoft
Interdigital
TI
USTC
LG
Motorola
Canon
Broadcom
BlackBerry
Toshiba
MovieLabs
Huawei
Harmonic
TABLE 5. Unaffiliated
companies with five
or more adopted
contributions
MPEG LA HEVC Advance Velos
Samsung Samsung Ericsson
NTT Docomo Dolby (Int’l & Labs) Sharp
M&K Holdings General Electric Sony
JVC Kenwood Mitsubishi Panasonic
SK Telecom ETRI Qualcomm
Infobridge Pte HFI (MediaTek) Velos
M&K Corp Philips
NEC Corp
Tagivan II (MPEG LA)
ETRI
Intellectual Discovery
Fujitsu
TABLE 6. Licensors with at least 50 listed assets by pool
Sources: MPEG LA and HEVC Advance websites as of January 2018 and public data
on Velos participation. Lists are by declining number of listed assets (except for Velos,
which is in alphabetical order). Samsung and ETRI are in both the MPEG LA and HEVC
Advance pools until 2019, at which time they will likely be in HEVC Advance only
Moving target analysis
This analysis is not static. The number of assets in HEVC Advance tripled in the five months
from the start of our analysis to the publication deadline. This affects all of the financial
models. To be clear, this is a challenge for the pools. Keeping the data current poses a
frustrating operational challenge to any patent owner. It also is critical to effectively getting
your message out.
Consider the top-line differences from our original data pull at the start of September
2017 compared to the current data (notably Samsung’s and ETRI’s patents are still part of
MPEG LA at least until 2019).
We did also briefly conduct
the analysis on a patent
family basis and the shift is
somewhat less dramatic.
Prospective adopters could
create more detailed models
using the lists in conjunction with the number of patent families, number of contributions
and estimates of growth rates to better anticipate the likely changes over time.
More generally, the information needs to be easily accessible by potential adopters. None
of the pools currently provide the data in public, easily accessible forms (eg, formatted
spreadsheets online versus PDFs that are not as easy to work with). Without easy access to
basic patent portfolio information, the pools risk alienating their prospective licensees.
The obvious problem for anyone looking to negotiate or renegotiate a licence with a pool is
how to track what the state of the world was, what it is and what it is likely to become. It turns
out that this can be critical. We are undertaking to track this information so that models can
be made that, for example, project future portfolio holdings when a renewal comes due.
MPEG LA HEVC Advance
Original data pull (August 2017) 1,872 1,119
Current data pull (January 2018) 4,417 3,321
Change +2,545 +2,202
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patent owners in each pool have at least 50 assets (for
Velos, all five licensors are listed as well as Velos itself,
which is a patent owner). Notably, while the pools are
quite large, there is a high concentration of ownership
among approximately 25 companies. In fact, for each
AVC – although they are being used to achieve greater
coding efficiency. Either way, from the perspective of
an HEVC adopter, having over 10% of your HEVC
payments going towards patents that are already covered
by an earlier $0.20 payment is problematic.
Second, the priority year distribution is such that 50%
of the patents in the pool will not expire until 2029. It is
important to check for inclusion of assets with priority
years after the standard’s first publication. For example,
approximately 10% of US patents in the MPEG
LA AVC pool have an earliest priority date after the
standard’s first publication. No such assets exist within
the HEVC pools yet, but this should be watched.This is
not a problem per se due to continuing development of
the standards – although it does require explanation by
the patent licensors. As we saw in the discussion of the
MPEG-2 patent pool history above, fees can become
exorbitant later in the lifecycle when few patents remain,
particularly when considered on a per-patent basis.
Next, we analyse geographic coverage. As shown in
Figure 5, the two pools with public asset lists have very
different geographic coverage. Consider whether your
business is conducted mainly outside the countries where
the pools have meaningful patent coverage and whether
the requested rates line up with your use of the patents.
Both pools have the greatest concentration of patents in
China, Europe, Japan and the United States. However,
neither pool currently has meaningful patent holdings in
emerging markets, such as India or Brazil.
Prior video codec pools imposed licensing fees based
on either the country of manufacture or the country of
use. However, with more functionality being supported
primarily through software implementations with
hardware optimisations, how justifiable is such an
approach? For example, if the devices will be nearly
exclusively used in countries where there is no or
minimal patent protection, is a full rate fair? Also, when
looking at Figure 5, bear in mind that this is a snapshot
in time.The pipeline of pending applications may fill in
more of the gaps in the coverage provided by both pools.
The next thing to consider is the concentration of
ownership of patents in the three pools.This is relevant
because MPEG LA and HEVC Advance both allow
for (and discount) direct licences.Table 6 shows that the
FIGURE 5. Geographic distribution of assets in MPEG LA and HEVC Advance HEVC patent pools
MPEG LA – HEVC pool
HEVC Advance – HEVC pool
1
5
10
20
30
50
100
200
300
400
500
>500
Number of assets <=
800
700
600
500
400
300
200
100
0
200220012000199919981997 2003 2004 2005
Approximately 12% of all US patents in these HEVC pools overlap
with patents listed in the MPEG LA AVC pool, mostly pre-2005
Firsttestmodels
Firstpublished2013
2006 2007 2008 2009 2010 2011 2012
FIGURE 4. Earliest priority year of US patents in MPEG LA and HEVC Advance HEVC patent pools
Source: MPEG LA AVC and HEVC and HEVC Advance HEVC patent lists analysed with Derwent Innovation for earliest priority year. Note: a third HEVC patent pool from Velos does not provide a patent list and is not analysed
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licensors are able to seek royalties on more types of
devices compared to when $0.20 was set as the pool
rate for AVC – devices which are shipped in vastly
higher quantities.
Finally, there are several real advantages to avoiding
litigation (eg, a shorter time to close licences and the fact
that litigation is slow and expensive).
Further, because the HEVC pool efforts have
fragmented, there is a less transparent, multi-stop
licensing process. Contrasting HEVC with AVC (or
even MPEG-2), there is no longer a one-stop shop
at which one can buy a licence for the overwhelming
majority of patents for the compression technology.
Undoubtedly, many manufacturers may have resented
the amount of the royalties for the past compression
standards. However, it was simple and transparent.
Manufacturers could easily build the cost into the bill
of materials for their products. We believe that licensing
may be slowed or stalled today because of the complex
HEVC licensing environment.
On balance, given the patent overlaps with AVC
(Figure 4), the disparate per-patent asks (Table 3), the
impact of declining prices and Moore’s Law (Figures 2
and 3) and a general reluctance to take patent licences, it
seems likely that many prospective licensees will find the
current asks well above their understanding of the proper
FRAND rate.
Managing a shifting landscape
We recommend that companies adopt a process aligned
with Figure 6 to evaluate HEVC adoption.
Measure benefits, costs and options
Given the high potential cost of HEVC adoption
(estimated at $1.60 per handset for the three pools
and $2.25 with unaffiliated companies included),
will your devices and services benefit accordingly?
First and foremost, it is necessary to determine the
benefits of HEVC adoption for your product or service.
Second, plan for some costs of using HEVC in your
business plans, bill of materials and profit margins. We
periodically see companies that had not planned for
some licensing payments caught out when licensing
demands arrive. Simply planning for some payments to
use HEVC is a key step to supporting the business.
Next, plan to build support for multiple codecs to
reduce dependency on HEVC and provide negotiating
flexibility. One emerging alternative to HEVC – the
AV1 standard from AOMedia, which is still under
development – has gathered 30 leading companies,
including streaming media content companies (Amazon,
Netflix and Hulu), and hardware and software companies
(Adobe, AMD, Apple, ARM, Broadcom, Cisco, Google,
Intel, Microsoft and NVIDIA). AOMedia aims to
make AV1 a royalty-free, next-generation video codec
with quality and compression capabilities comparable
to HEVC. We are not here to advocate for the AV1
standard; we are merely pointing out how a prospective
HEVC adopter may view the situation. Similarly, we
would be remiss not to point out that the royalty-free
pledge is from the standard promulgators, not all patent
owners in the world.
Returning to HEVC licensing, consider the licensing
posture of the HEVC pools with a company in two
scenarios. First where a company goes all in for HEVC
of these pools, the patent owners in Table 6 account for
90% of the listed patents. If your company enters a direct
patent cross-licence with these companies, you may be
able to drastically manage your cost – and risk – from
the HEVC licensing pools. (See also the discussion of
Table 5, with regard to unaffiliated companies and the
discussion of Path 1.)
Before turning away from the portfolios, one last point
is worth mentioning.This analysis has treated all of the
patents as equivalent. However, intuitively we know that
this is not the case. For example, one patent might be
on an adopted vectorisation contribution covering how
to decode video, while another might form the basis for
the contribution for improved prediction algorithms.
The second patent on the prediction algorithms might
be seen as the heart of improvements of HEVC over
AVC. If you were able to license and pay for the patents
individually, you would not pay the same amount
for these two examples.The pools might do well to
distinguish their contents to emphasise a value beyond
cost per number of patents licensed.
A ranking of SEPs has been attempted in some court
cases. For example, the December 2017 finding of facts
in TCL Communications v Ericsson grappled with expert
rankings for SEPs in the LTE arena. Ultimately, the
court was not persuaded to use the rankings in that case.
However, both pools and potential adopters could do more
work in this area to demonstrate value and model fees.
FRAND rates
Setting the correct rate – more formally, the FRAND
rate – for a standard is challenging.Too low and
innovators are undercompensated; too high and
manufacturers avoid the standard. As such, it may be
helpful to consider some general guiding principles:
• Manufacturers need a way to price the cost of using
the standards into their product development.
• Licensors for HEVC need to recognise that it is one
of many included standards in the stack (eg, that same
phone will face patent licensing demands for LTE,
WiFi and others).
• Ultimately, the manufacturers need to be able to make
a profit.
This leads to the question: how do we use these
principles to set a fair price?
Merely contrasting the combined impacts of
Moore’s Law and falling prices with the more modest
compression improvements in HEVC (over AVC)
risks missing improvements that have accrued to
manufacturers due to greater manufacturing efficiencies
(eg, lower-cost supplies, improved automation, increased
number and types of electronics sold).
However, even ignoring Moore’s Law and declining
system prices, there are other factors to consider.
There are more alternatives to HEVC today than
there were when $0.20 was set as the pool rate for AVC
(including AVC itself). In addition, HEVC patent
Measure benefits, costs
and options
Wait on sidelines as
long as possible
Pick your entry point
FIGURE 6. HEVC licensing and adoption process
Analysing the leading HEVC patent pools | Feature

9. 44 www.IAM-media.com
May/June 2018
provided HEVC functionality. It may be the case that
this is already licensed, although it is important to clarify
this with your vendor. Further complicating this analysis
is that it may depend on whether the operating system
vendor has paid a licence only for its own hardware as
opposed to third-party hardware. A potential hazard
here is that your own independent implementation or
the use of an open-source implementation of HEVC
would not be licensed.To clarify, if you believe that
Apple already paid for the iPhone to be licensed for the
iOS implementation of HEVC, that licence would not
cover your independent, or open-source, HEVC decoder.
The next three paths are those available for everyone
else. For example, a small mobile phone manufacturer
wanting to make a phone with HEVC support would
need to pick among them.
In the second path – negotiate first – you as a
company proactively seek out and enter licences with all
or some of the pools before launching your products with
HEVC. We recommend approaching the negotiation
with the pools in a manner akin to negotiating the
licensing demands from large corporate patent asserters.
Each pool claims to be responsible for licensing a large
quantity of SEPs and it – like a corporate patent asserter
– needs to prove the value. However, this analogy is
not perfect. First, the counter-assertion track will not
directly work against the pools themselves. Second, pools
may claim a need to maintain uniform rates. However,
it is early in the adoption cycle and few non-pool
participants of significant scale have signed up.
What would approaching the negotiation like a
corporate counter-assertion look like? The pools should
be responsive to requests to substantiate the value they
are delivering.This is especially true given the vast
amount of money that each of them wants to collect.
Typically for a licensing engagement of this scale, we
would expect them to provide the following:
• An overview of the technical features in HEVC that
their licensed patents are fundamentally enabling.
• At least 10 or more claim charts for patents in the
pool mapped to the standard.The claim charts should:
be from a diverse group of patent owners in
the pool;
cover a diverse set of sections of the standard;
explain the contributions of the patent owner to
the standardisation process (or be accompanied
by an explanation that a third party’s contribution
to the standardisation process led to adoption of
a technique that the patent owner had invented
before the contribution);
explain why the patented claims are truly standard
essential, mandatory and deployed; and
withstand analysis by, and questions from, your team.
and second where it selectively uses HEVC only while
continuing to use AVC, AV1 and other formats when
possible.The second scenario puts the company in a
stronger posture for negotiations.
Performing a detailed analysis at this step enables a
company to:
• understand clearly whether it needs to adopt HEVC
(eg, does it benefit sufficiently, what are its chief
competitors doing, will it be able to deliver the
necessary features with or without adoption);
• prepare a clear roadmap so as to have a higher ground
in negotiations;
• arm itself with the data to negotiate with the pools for
a fair fee structure, including:
is it already licensed to large portions of the pools?
are the rates fair across all of the pools?
are its products made, shipped and sold where the
pool has coverage?
• determine whether its suppliers should be covering
these licences; and
• compare what the different pools say they cover.
With this analysis complete, the company can turn to
the next step: waiting.
Wait for as long as possible
If HEVC support is not a must-have feature, the best
advice is to sit on the sidelines. AVC will continue to
provide extremely high-quality video, especially for
mobile environments, cost effectively for years. While
sometimes early adopters can secure more favourable
rates and terms, at other times careful waiting allows you
to better understand the landscape. For example, if as a
prospective adopter you view pool X’s rates as too high,
waiting and letting other companies fight the pricing
issue may provide beneficial. Once waiting is no longer
an option, the process shifts to picking an entry point
into the licensing process.
Pick your entry point
Having chosen to adopt HEVC, how you go about the
adoption and where you sit in the ecosystem are crucial.
There are four primary paths from which a company is
likely to pick:
• determine that it is sufficiently licensed;
• negotiate first;
• litigate first; or
• launch and wait to be sued.
Two types of company are most likely to fall into the
first category – already sufficiently licensed companies
with an extensive array of patent cross-licences with the
major HEVC patent owners and software companies
producing applications that run on other companies’
platforms. Additionally, companies with extensive
patent portfolios but which currently lack cross-licences
with the major HEVC patent owners may be able to
navigate this path to some degree as well, although it will
be riskier.
For companies with extensive cross-licences, if you
have sufficient patent licensing coverage you may assess
the percentage of HEVC patents you already have
licensed and determine that you have adequate coverage.
For software companies deploying into a mobile
platform, you can often leverage operating system- Source: Unwired Planet v Huawei decision and ROL Group analysis
Standard LTE (handsets) HEVC
Highest estimated patent count (declared) 141,000 N/A
Highest estimated patent count (pooled and unaffiliated) N/A 17,000
Highest estimated family count 19,000 1,500
Winnowed family count after court’s analysis Unwired Planet: 400
Huawei: 1,800
???
TABLE 7. Comparison to Unwired Planet
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10. 45www.IAM-media.com
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Table 3 and the comparison of the so-called ‘$ per 1,000
patents for handset’ row. Specifically, as Table 3 shows,
different owners are valuing their patents at vastly
different rates with no clear external-facing explanation.
Even in the United States, you could proactively force
the issue into court. It may be possible with impleader
or joinder to bring all three pools (including their
licensors) into court in one litigation.This approach
may be particularly desirable if your primary concern
is to set a fair rate as opposed to litigate validity.The
recent findings of fact and memorandum of law in TCL
Communications v Ericsson from the US District Court
in California appear to suggest that parties in FRAND
negotiations would do well to consider using US courts
to help set the rate.
The concern about setting a fair rate feeds into the
question of how many SEPs there are for HEVC.
The care taken in the screening process by the pools
varies. For example, Haier has raised a perceived low
quality of review as an issue in its case against MPEG-
2 and ATSC patent licensors.The Unwired Planet
court in the United Kingdom faced the challenge of
a massive number of declared patents (over 100,000
patents from nearly 20,000 families).Table 7 sets out
the largest numbers in Unwired Planet and compares
them against those for HEVC.The vast reduction from
nearly 20,000 families considered for LTE down to a
mere 2,000 at the highest level may overestimate the
reduction possible here, but it does highlight the risks
of over-declaration. We listed the high-watermark rows
in our table for LTE and HEVC separately to show
why Table 7 may overestimate the potential reduction
possible from this analysis. Specifically, unlike the
pure self-declaration found in Unwired Planet, the
pools for HEVC do exercise a screening function;
thus the 17,000 patents we estimate have a potentially
different character from the 141,000 declared to the
European Telecommunications Standards Institute
for LTE. Notably, the Unwired Planet numbers align
fairly well with the expert conclusions and holdings
for the number of SEP patents for LTE in TCL
Communications. (One note of caution here on US
courts: TCL lost a jury trial on a non-SEP Ericsson
patent earlier in December.That Texas jury awarded
much higher damages against TCL – $75 million
for past use of one non-SEP patent – compared with
approximately $17 million by the judge in California for
past use of all the SEPs.)
The comparison with LTE licensing dovetails nicely
into a consideration of how our estimate of $2.25 in
HEVC licensing compares with the fees for other
standards. For 2015, the patent licence fees for the LTE
stack had a cumulative royalty per phone of $7.25 based
on an industry wide ASP of $221.80 – approximately
3%. (See the Hoover Institution Working Paper 16011,
“A New Dataset on Mobile Phone Patent License
Royalties” by Galetovic et al (p 12)).This suggests a
significantly lower estimate for per-handset royalties
than previous studies but is aligned with public data
about licensing revenues for the major LTE patent
licensors. Further, it provides some perspective: all
of LTE communication – a vastly more complicated
standard – is approximately 3% royalty for a $221.80
ASP phone.The estimated rates for HEVC would put
the bill around approximately 1% of the same phone.
• A royalty proposal that reflects and acknowledges the
business realities of profit margins, royalty stacking,
comparability and proportionality.
Of the three pools, Velos and HEVC Advance
are willing to provide claim charts under NDAs. (At
the time of writing, we learned that some of HEVC
Advance’s claim charts will be available without an
NDA.) Although we have not heard of MPEG LA
providing claim charts, they may be available.
The third path is to litigate first. It may be that
upon reviewing the requested rates and considering
the global case law climate, litigation may be desirable
with some or all of the pools (including their licensors
where necessary).
For example, outside the United States, the UK
patent litigation landscape may be attractive following
the decision in Unwired Planet International Ltd
v Huawei Technologies Co Ltd (2017 EWHC 711
(Pat)).The court in question recognised the need
for a worldwide but regionally adjusted set of rates
that respected comparability (nearest licensing deals)
and proportionality (thinking about what portion of
the patents for the standard are being licensed).The
proportionality issue aligns with the issue raised in
Other issues
Within the confines of this article there are many areas where we were not able to provide a
tremendous amount of focus. Other areas to consider include:
ŸŸ What, if any, is the patent pipeline for the pools? The analysis herein was static and does
not include a forward look at any additions. For example, is Company X – which is already
in the HEVC Advance pool – sitting on five families of pending applications that when
issued across 20 to 30 counties would be added? Multiply that by between 30 and 50
companies and the calculations we made about pool composition could change over the
next few years.
ŸŸ Relatedly, given the rapid pace of change and the number of patents issuing from pending
applications, the appeal of contribution analysis may be apparent. This also suggests
that pools or licensors could better inform adopters by providing insight or projections of
their future covered patents (even though the pools’ rates do not change as patents and
licensors are added – or removed), with the pool size informing expectations about how
much to pay each pool.
ŸŸ Was the MPEG LA pool rate for AVC an aberration? In discussions with some patent
licensors in the various video-coding pools, a recurring comment arose that the AVC
rate was set artificially low in a way that favoured manufacturers over innovators and
contributors to the standard. A more complex story about the interplay between MPEG-2,
AVC and VC-1 licensing also emerged in other discussions around this issue.
ŸŸ Encoding (and transcoding) patents – do the current pools include patents directed to
encoding (and transcoding)? If so, how are they being charged for and, given that there
is no standard for encoding (and transcoding), what is the justification for including
such patents?
ŸŸ In our discussions, some asked whether Velos qualified as a patent pool and whether the
traditional Department of Justice safe harbour guidance issued to MPEG LA for antitrust
immunity from MPEG-2 pooling applied to Velos’s practices. It is unclear if this would
be a successful path in negotiations and we refer to Velos as a pool in the sense that it
aggregates the rights for the standard. We also note that MPEG LA appears to directly own
patents in its HEVC Pool via the Tagivan LLC.
ŸŸ Content delivery fees – MPEG LA and HEVC Advance have fees associated with streaming-
media content delivery. What is the basis for those fees?
ŸŸ Other product fees and rate tables – HEVC Advance, in particular, has different fees for
different hardware device types as well as regional pricing differences. Those should be
explored against your product and region mix.
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Feature | Analysing the leading HEVC patent pools
that not also suggest (at least to a degree) that those
licensors should stand behind those claims if a third
party later claims that it has a patent on that specific
section? Or at least rebate or discount a portion of the
fees paid by the company? If nothing else, a pool offering
such a feature would be better differentiated on features
other than price.
Luck favours the prepared
How you watch your 4K or 8K content depends on a
highly complex video compression technology. HEVC
appears to be a leading contender to enable your next
binge watch – it certainly has hundreds of billions of
dollars riding on it.
This article provides:
• a data-driven estimate of the likely asks for HEVC
licensing across both the patent pools and the
unaffiliated patent owners – $2.25;
• a framework for thinking about pricing in the pools –
we used Moore’s Law, declining prices for consumer
electronics and LTE handset royalty estimates as a
backdrop for analysing pool pricing;
• a process for picking your entry point into HEVC
adoption and licensing;
• a glimpse into the complexity and the number of
parties licensing HEVC patents, meaning that some
fights may be inevitable; and
• an introduction to thinking about how a data-driven
analysis can help your company shift the costs and
profits available to you from HEVC adoption.
We hope that the complexity of the patent landscape
for HEVC has not caused you to mentally rewrite the
sentence from our opening to read: “HEVC patent
licensing is difficult, the math makes your head spin, the
trade-offs are torturous and deciding what to do may
make you question why you ever asked.”
Rather, we hope to bring to mind the advice of Edna
Mode: “Luck favours the prepared” (The Incredibles,
2004). We have reframed the decision to adopt HEVC
to one based in analysis and readiness: careful analysis
combined with a well-planned strategy and execution
will radically alter your cost structure for – and profits
from – adopting HEVC.
While we recognise that we are comparing HEVC
asks with estimates of actual LTE payments, given the
way that the pools operate, the pools’ asks and actuals
should be the same.The spread suggests an opening
for parties who are willing to push this issue. Patent
licensors have often been unsuccessful in obtaining their
preferred rates.
The fourth and final path is to launch and wait to be
sued. For a small company, launching first may allow
it sufficient time to assess the market demand, need,
value and ability to charge for HEVC. For example, if
the company launched a new streaming product and
learned that it could not charge sufficiently more for
HEVC (over AVC) to cover the expected royalties, it
could discontinue the product.This path may mean that
the company finds itself a defendant in a patent lawsuit
brought by one or more of the patent licensors or pools.
We are not proposing that companies engage in so-
called ‘efficient infringement’ and avoid compensating
HEVC patent owners or a fix for the overall patent
system. Instead, we are acknowledging that some
companies will follow this path.To ignore that would
be to miss a common strategy that both prospective
licensees and pools need to consider.
Path considerations
Given the money and risks involved, we suspect that
most companies will either knowingly (or unknowingly)
adopt a hybrid approach that combines a mixture of
paths two, three and four. For example, a small company
might license with only one pool and choose to ignore
the others (paths two and four). A larger company, on
the other hand, might license with a different pool but
then litigate with the other two (paths two and three).
Either way, given the pricing it seems unlikely that
companies will run to license with all three pools.
Which pool(s) get picked will vary based on the
proportion of contributions, the licensing strength of the
companies contributing, the ability to enforce, the scope
or breadth of the patent claims and the geographies
covered. Bear in mind that companies may continue
to face significant risk from the patent owners of the
pools from which they chose not to take a licence.
Additionally, while we mentioned several cases that have
set favourable rates for technology users in aggregate,
the case law pendulum may swing back in ways that
favour patent owners. If that happens, later adopters may
end up disadvantaged.
One other option for potential licensees is to become
licensors (eg, by buying relevant patents in the space
and joining one of the pools). With tens of thousands
of patents for sale each year, the patent market is a
viable alternative for those who find themselves short
of patents. ROL Group has already seen patents with
HEVC claim charts being marketed by brokers.
Another consideration for negotiations is to see
whether any of the pools will step up to help address
overlapping patent claims. For example, will HEVC
Advance help me if MPEG LA members come after
me? Not broadly, but on a section-by-section basis of
the standard. For example, HEVC Advance’s public
materials link certain assets to specific sub-sections of
the HEVC standard. One could interpret that as an
assertion that their licensors are the true inventors of the
key technology in those narrow, detailed sections. Does
If you use compression technology in any of your products and are thinking about
licensing patents related to HEVC, bear in mind the following:
ŸŸ Measure the benefits, costs and options:
Estimate the benefits of HEVC adoption.
Plan for some costs in your bill of materials and profit margins.
Deeper analysis will radically shift your cost and profit structure from adoption.
ŸŸ Wait on the sidelines for as long as possible:
Existing and alternative technologies may be good enough.
Later adopters may benefit from rate reductions and battles won by earlier adopters –
though the opposite may be true if case law swings in ways that favour patent owners.
ŸŸ Pick an entry point:
The optimal strategy will be company-specific.
Given the number of pools and unaffiliated parties, some fights may be inevitable.
Action plan
Erik Oliver and Kent Richardson are founding partners of
Richardson Oliver Law Group, Los Altos, United States