DOJ Business Review letter 98-C of 6/26/97 concerning Video Information Patent Licensing
MPEG LA, L.L.C./Cable Television Laboratories, Inc./Trustees of Columbia University/Fujitsu Limited/General Instrument Corp./Lucent Technologies, Inc./Matsushita Electric Industrial Co., Ltd./Mitsubishi Electric Corp./Philips Electronics N.V./Scientific Atlanta, Inc./Sony Corp
Video Information Patent Licensing
Facts: The Trustees of Columbia University, Fujitsu Limited, General Instrument Corp., Lucent Technologies, Inc., Matsushita Electric Industrial Co., Ltd., Mitsubishi Electric Corp., Philips Electronics N.V., Scientific Atlanta, Inc., and Sony Corp. (collectively the "Licensors"), Cable Television Laboratories, Inc. ("CableLabs"), and MPEG LA, L.L.C. proposed an arrangement pursuant to which MPEG LA would assemble and offer a package license under the patents of the Licensors that are "essential" to compliance with the video and/or systems parts of the MPEG-2 standard which will be applied in many different products and services in which video information is stored and/or transmitted, including cable, satellite and broadcast television, digital versatile discs, and telecommunications--and distribute royalty income among the Licensors.
Response: As with any aggregation of patent rights for the purpose of joint package licensing, commonly known as a patent pool, an antitrust analysis of this proposed licensing program must examine both the pool's expected competitive benefits and its potential competitive hazards. In particular, one expects that a patent pool may provide competitive benefits by integrating complementary technologies, reducing transaction costs, clearing blocking positions, and avoiding costly infringement litigation. At the same time, some patent pools can restrict competition, whether among intellectual property rights within the pool, downstream products incorporating the pooled patents or in innovation among parties to the pool. In this instance, the agreements for the licensing of MPEG-2 essential patents are likely to provide significant cost savings to Licensors and licensees alike, substantially reducing the time and expense that would otherwise be required to disseminate the rights to each MPEG-2 essential patent to each would-be licensee. Moreover, the proposed agreements that will govern the licensing arrangement have features designed to enhance the usual procompetitive effects and mitigate potential anticompetitive dangers. The limitation of the patent license portfolio to technically essential patents and the use of an independent expert to be the arbiter of that limitation reduces the risk that the patent pool will be used to eliminate rivalry between potentially competing technologies. Potential licensees will be aided by the provision of a clear list of the portfolio patents, the availability of the patents independent of the portfolio, and the warning that the portfolio may not contain all essential patents. The conditioning of licensee royalty liability on actual use of the portfolio patents, the clearly stated freedom of licensees to develop and use alternative technologies, and the imposition of obligations on licensees' own patent rights that do not vitiate licensees' incentives to innovate, all serve to protect competition in the development and use of both improvements on, and alternatives to, MPEG-2 technology. The Department has no present intention to challenge the proposal.
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