Patents for MPEG-2 Technology
1997 WL 356954 (1997)
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Rule of Law:
A patent pool that aggregates complementary, technically essential patents for a technology standard is procompetitive and does not violate antitrust laws, provided it is structured with safeguards such as non-discriminatory licensing, use of an independent expert to determine essentiality, and terms that do not stifle innovation.
Facts:
- The MPEG-2 standard for digital audio-video compression was jointly adopted by international standards organizations (ISO and ITU-T).
- Compliance with the MPEG-2 standard required the use of numerous patents held by many different entities, creating a potential 'patent thicket' that could block implementation of the standard.
- An 'Intellectual Property Working Group' was formed by interested parties to find an efficient way to make essential patent licenses available on fair and reasonable terms.
- The working group engaged an independent patent expert who reviewed approximately 8,000 patent abstracts to identify which patents were truly 'essential' for compliance with the MPEG-2 standard.
- Based on the expert's findings, a group of essential patent holders including Columbia University, Fujitsu, and Sony proposed to form a joint licensing entity, MPEG LA, L.L.C.
- The proposed program would allow MPEG LA to offer a single portfolio license for all the pooled essential patents to any interested party on non-discriminatory terms.
- Under the proposed agreement, each patent holder retained the right to license its patents independently outside of the portfolio.
- The license agreement included a 'grant-back' provision requiring any licensee holding an essential MPEG-2 patent to offer a license on that patent to the licensors on fair and reasonable terms.
Procedural Posture:
- A group of nine companies and one university (the 'Licensors'), along with other entities, submitted a request for a Business Review Letter to the Antitrust Division of the U.S. Department of Justice.
- The request sought a statement from the Department regarding its antitrust enforcement intentions concerning a proposed joint patent licensing program for MPEG-2 technology.
- The Antitrust Division reviewed the request, the proposed agreements, and the structure of the patent portfolio program.
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Issue:
Does a proposed patent portfolio licensing program, which aggregates patents essential to the MPEG-2 technology standard under a single administrator for joint licensing, constitute an unreasonable restraint of trade in violation of antitrust laws?
Opinions:
Majority - Joel I. Klein
No, the proposed patent portfolio licensing program does not violate antitrust laws. Patent pools can be procompetitive when they integrate complementary technologies, reduce transaction costs, and clear blocking positions. This arrangement is likely procompetitive because it combines complementary patents, determined by an independent expert to be essential to the MPEG-2 standard, rather than aggregating competing technologies. Key safeguards prevent anticompetitive effects: the limitation to essential patents ensures the patents are not substitutes for one another; the continued role of an independent expert guarantees this limitation; the non-discriminatory licensing terms ensure rivals are not disadvantaged; and the individual patent holders retain the right to license their patents separately. Furthermore, the grant-back provision, limited to essential patents, is procompetitive as it prevents licensees from holding the standard hostage and further reduces transaction costs, without creating a disincentive to innovate.
Analysis:
This business review letter provides a foundational framework for analyzing the antitrust implications of patent pools, particularly those formed around a technology standard. It establishes that such pools are not per se illegal and can be highly procompetitive if structured properly. The Department of Justice's approval heavily emphasizes the importance of objective, expert determination of 'essentiality' to ensure the pooled patents are complements, not competitors. This guidance has become a roadmap for companies in high-tech industries, encouraging the formation of similar patent pools that facilitate technology adoption while mitigating antitrust risk.
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