The HEVC Soap Opera: Keeping Track of Players and Costs

If you write soap operas or reality TV programs for a living, you should check out the activities of the HEVC IP owners for inspiration. Since HEVC’s inception, we’ve had two new pools, a breakup (Technicolor from HEVC Advance), and now one patent owner, Samsung, that joined the HEVC Advance pool while still a member of MPEG LA. Take away the beaches and the bods, and Survivor really has nothing on these HEVC IP owners.

Let’s start with Samsung. On April 5, HEVC Advance announced that “Samsung has become both a Licensor and Licensee of the HEVC Advance HEVC/H.265 Licensing Program. As a Licensor, Samsung will make its essential patents available through the HEVC Advance patent pool, which provides a transparent and efficient licensing program for HEVC/H.265 essential patents.”

There’s just one problem: Samsung was and continues to be a member of the MPEG LA pool. According to someone familiar with the terms of MPEG LA’s HEVC License, “an HEVC Licensor’s sublicense grant to MPEG LA is nonexclusive. While an HEVC Licensor may not voluntarily terminate MPEG LA’s HEVC program as Licensor or Licensee before January 1, 2020 (and any MPEG LA Licensees as of such date would continue to be covered under the terminating Licensor’s patents in any case), nothing precludes a Licensor from licensing its HEVC essential patents bilaterally or through other means. Regardless, royalties payable by Licensees under MPEG LA’s HEVC License are not affected; they are the same whether one or more patents is used. And in fact, Samsung continues as both Licensor and Licensee to MPEG LA’s HEVC program.”

At first glance, this would seem to mean that you’d be paying for the Samsung portfolio twice, but that isn’t the case. According to the IP-Watchdog website, a principle called pre-netting dictates that, “in cases where licensees hold pre-existing patent licenses with patent pool licensors, pre-netting subtracts what would be due the licensors when calculating royalty payments. This step ensures that licensees pay only for what they use and encourages broader participation in the pool.”

So if you license from MPEG LA first, you should be entitled to pre-netting from HEVC Advance, and vice versa. By my count, Samsung has about 1,150 of the more than 3,300 patents listed by MPEG LA on its site, obviously a substantial number. Before adding the Samsung patents, HEVC Advance had 951 patents, so Samsung will represent a substantial number there as well. So pre-netting should result in significant cost savings, though it will be interesting to learn if this process goes as smoothly as it sounds.

The other news is the formation of a patent pool by Velos Media, representing “the entire portfolio of HEVC standard-essential patents from Ericsson, Panasonic, Qualcomm, Sharp, and Sony.” Although royalty pricing hasn’t been set, the Velos website says, “Between them, these companies represent more adopted contributions to the HEVC standard than any other individual company or joint licensing program.” If Velos’ IP owners really believe their own valuation statements, then HEVC licensees could be looking at another $40 million royalty cap, if there’s a cap at all, and those publishing HEVC content could face a new set of fears about potential royalties. That’s on top of the $60 million+ already in place, plus the $9.75 million+ many are paying for H.264. All this is before any royalty imposed by Technicolor, which also has not published its rates. While the Velos group appears to incorporate the last of the HEVC IP holdouts (which is a good thing), the total cost for HEVC could be over $100 million/year. According to patent attorney David W. Long, these IP owners maybe be able to claim royalties for up to 6 years prior to the date a lawsuit is filed.

Meanwhile, the Alliance for Open Media’s AV1 seems to be surging, fresh off Bitmovin’s live AV1 encoding/decoding demonstration at NAB. Given how hard HEVC IP owners are working to make their technology commercially unpalatable, I wouldn’t be surprised if Bitmovin had the most crowded booth in the show.

[This article appears in the June 2017 issue of Streaming Media Magazine as "The HEVC Soap Opera."]