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Google’s Afraid Its Free Beer May Have a Price Tag

By Jonathan J. Ballerano *

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The Free Software Foundation says that free software is about “liberty, not price” — more akin to “free speech” than “free beer.” In other words, free software is a matter of granting access to source code and allowing others to modify it as they see fit, rather than keeping it behind lock and key and granting only limited rights to execute a program.

Get off your pulpit and grab a Solo cup, because Google Inc. is making an unprecedented push for “free beer.” The most striking example of this initiative is Google’s Android, now the best-selling smartphone platform in the US, which is licensed free of charge. But “free beer,” unlike “free speech,” can be undermined by hidden costs: if software infringes an undiscovered patent, the patent holder may demand a royalty. A comprehensive search is no guarantee that the coast is clear. Even independent creation is no defense to infringement, though a number of scholars are fighting for an exception to encourage licensing and protect innovators from unfair liability.

Google wants its latest brew, the VP8 video codec, to be the first “free beer” digital video compression technology. This would be a boon for the open Internet, even if only for the principle of open-source software. It is also no small investment: Google spent over $100 million to acquire the technology before releasing its source code for free. VP8 is pitted against AVC/H.264, the current leader in digital video coding, which is used in cable boxes, iPhones, Blu-Ray discs, and many other systems.

The big difference between the two is that H.264 is an industry standard while VP8 is merely a public specification. While public specifications rely on independent implementation, industry standards rely on collaboration. Many parties with patents related to a technology are also members of a related standards organization, most of which require members to license essential patents on reasonable and nondiscriminatory terms. Standardization also brings attention to the new technology so that interested parties may decide whether to set up a licensing mechanism.

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Enter MPEG LA, LLC, a one-stop intermediary for patent pools related to H.264 and other industry standards. MPEG LA can effectively serve both patent holders and potential licensees by providing each with a single transaction: licensors negotiate with the MPEG LA, and licensees purchase a clearly defined package from a known source. Economic incentives encourage all patent holders to participate, since it is expensive for companies to establish and enforce their own licensing mechanisms. MPEG LA is merely an intermediary, and cannot enforce the patents it licenses.

To Google’s dismay, MPEG LA issued a call for patents essential to the VP8 codec. While this raises doubts as to the viability of VP8 as a “free beer” product, MPEG LA’s interest in H.264’s dominance also raises antitrust concerns. The Wall Street Journal reported that the U.S. Justice Department is investigating these potentially unfair practices, but MPEG LA made no threat and has no power to litigate; it merely provided a forum where potential essential patent-holders could assemble.

While H.264 has been tied to a multitude of essential patents, licensees can rest assured that the owner of a previously unenforced patent would rather negotiate with the MPEG LA than attack a single licensee. The VP8 license has the opposite effect: patent holders are encouraged to negotiate with licensees, who fear litigation, rather than Google, who would put up a fight. VP8 licensees are only protected from Google and other VP8 licensees; Google offers no indemnification against future infringement claims. Even if Google attempted to purchase or license other essential patents, lawsuits against licensees may translate to leverage at the bargaining table.

Furthermore, VP8 licensees may be encouraged to sell VP8-related patents to non-practicing entities. When a VP8 licensee initiates patent litigation against any other party’s use of VP8, its license will terminate and it will be liable to Google for any further use of VP8. Thus, a licensee essentially forfeits its right to collect licenses or royalties related to VP8. It may seem like patent holders must choose between using VP8 and monetizing patents related to it, but the VP8 license only prohibits lawsuits instituted by a licensee’s “agent or exclusive licensee.” By selling VP8-essential patents to an entity that will never license VP8 (in exchange for a license), a VP8 licensee may be able to have its cake and eat it too.

Another interesting twist is that Google fired the first shot a month before the patent call, by dropping support for H.264 from its web browser, Chrome. Google did this in the name of openness and performance, but it is disingenuous on both counts (not to mention that these were reasons for adding H.264 in the first place). H.264 is an open standard, and there is a “free beer” open-source implementation of the standard, called x264, that anyone can use or modify. Furthermore, H.264 has a performance edge because hardware manufacturers have licensed H.264 to implement high-performance decoding that frees up the CPU, increasing battery life. WebM decoding will require new hardware, obviating all of this work and license-paying that was made as part of an industry-wide effort. Ironically, Chrome continues to license Adobe’s proprietary Flash Player, for which Adobe licenses H.264 (the extra software layer makes it inherently less efficient than decoding built into the browser).

The lead developer of x264 thoroughly reviewed the VP8 specification, finding not only performance flaws but also patented H.264 technologies. He also drew parallels to Microsoft’s failed attempt to produce a patent-free video codec:

Even if VP8 is worse than H.264, being patent-free is still a useful attribute for obvious reasons . . . Microsoft did [something] similar a few years ago with the release of VC-1, which was claimed to be patent-free — but within mere months after release, a whole bunch of companies claimed patents on it and soon enough a patent pool was formed
. . .
VP8 is simply way too similar to H.264 . . . Even VC-1 differed more from H.264 than VP8 does, and even VC-1 didn’t manage to escape the clutches of software patents.

H.264 is also friendly to sources of free Internet video. Last year, MPEG LA announced that it would no longer charge royalties for video that is free to end users, such as the video provided by Google’s own YouTube service (royalties are still required for the devices used to encode and decode the video). Some projects like Firefox are still holding out, foregoing a paid license to an open standard in favor of a free license to Flash Player.

It looks like Google is trying to rely on the difficulty of ad-hoc patent licensing to maintain the illusion that VP8 is patent- and royalty-free. MPEG LA may be doing Google a favor by conducting a search and analysis of essential patents and weeding out frivolous claims. If any viable patent claims exist, Google could either purchase or license them. And if the claims do nothing but cloud a truly patent-free technology, Google can step up and indemnify its licensees.

The call for patents just ended on March 18. Things are about to get interesting…

*Jonathan Ballerano is a second-year student at the Wake Forest University School of Law. He holds a Bachelor of Science in Computer Hardware Engineering from the University of Florida. Upon graduation in May 2012, Mr. Ballerano intends to practice intellectual property law.