By dropping H.264, is Google avoiding a trap or walking into one?

In Google's 250-word announcement about its decision to remove support for the H.264 codec from its Chrome browser, the word open appears eight times. There is no mention of money.

In fact, it's not about money. Google's royalty fees for the H.264 codec are literally a rounding error on top of a rounding error.

But that hasn't stopped Google's defenders from bringing up MPEG LA and its licensing fees as a primary reason behind this controversial decision. One of the clearest such statements I've read so far was from Brian Proffitt at ITworld, who titled his post "Chrome H.264 video decision a vaccination against license trap," with the subhead "Google promotes open, but also gets out of MPEG LA royalty trap."

H.264 can [be] expensive for software and hardware developers to license if it doesn't fall into this narrow line of use. MPEG LA, the keeper of the H.264 codec, told Mozilla to cough up $5 million to license H.264 in the Firefox browser--which is why there's no H.264 support in Firefox.

[...]

Google was looking down the road at millions of dollars in licensing fees and the possibility of never getting away from H.264, if it gets more widely deployed.

That sounds awful, unless you actually know what the MPEG LA licensing terms are. In his post, Proffitt talks at great length about royalties for distributors of video content. Those terms might apply to Google's YouTube subsidiary, but they do not apply to developers of software like Chrome.

I wrote about this at some length last year, and called those fears "greatly overblown." I just reread the MPEG LA licensing terms to confirm that my facts are accurate. Here's what's really going on:

• MPEG LA charges consistent licensing fees to software developers. H.264 support in Google Chrome (for which Google currently has a license from MPEG LA) falls into the category of "branded encoder and decoder products sold both to end users and on an OEM basis for incorporation into personal computers but not part of an operating system."
• For Google, the license fee is laughably small. Proffitt tsk-tsks at "millions of dollars in licensing fees" as if it represents a burden. Oh really? Google hasn't yet reported its financials for 2010, but the combined profits for the four quarters ending on September 30, 2010 were $17.68 billion. The maximum annual license fee for a product like Chrome (or Firefox) is $6.5 million. By my calculation, that figure is less than 4/100 of 1% of Google's profits.
• There's no royalty trap. The fear implicit in this entire argument is that when the H.264 license has to be renewed in 2016, MPEG LA will unconscionably raise those rates. If that fear were legitimate, would more than 800 companies, including Google, have already decided to license H.264? Maybe they actually read the license agreement, which specifies that "the License will be renewable for successive five-year periods for the life of any Portfolio patent on reasonable terms and conditions. ... [F]or the protection of licensees, royalty rates applicable to specific license grants or specific licensed products will not increase by more than ten percent (10%) at each renewal."

In fact, by saving a few pennies now, Google might be walking into a much more vicious trap. Yes, it purchased the assets of On2 Technologies and released the formats (renaming VP8 to WebM incorporating VP8 into its newly branded WebM container format) and the underlying patent portfolio as open source. But Google's license for third parties to use those patents doesn't include any indemnification from patent infringement, as open-source patents expert Florian Mueller noted last year:

For WebM/VP8, there's a vague assurance by Google that its own patents, which are licensed on a royalty-free basis, are all you need. But Google doesn't publish a detailed analysis, nor do the license terms include indemnification. So it's pretty much a "trust us" story. I've seen opinions that agree with Google's view, and others who disagree. If Google offered indemnification, that would change the situation, but they don't.

Mueller's post goes into great detail about the continuity of MPEG LA licensing and is a must-read if you're interested in this topic.

As Mueller notes, AVC/H.264 is in extremely widespread use today. Any third parties that wanted to claim patent infringement would certainly have done so already. The same is emphatically not true for the patents underlying WebM, which have been obscure up till now but are about to be catapulted into the mainstream by a company with very deep pockets and very big ambitions.

My colleague Stephen Shankland at CNET spoke with Steven J. Henry, an intellectual property attorney at Wolf, Greenfield & Sacks, who warns of the risk that Google is taking. "A codec is like a mechanical device with hundreds of parts. Any one or more could be the subject of a patent," he told CNET. And patent holders may wait for years before "springing the trap."

Google clearly believes it can prevail in a long and potentially costly patent battle. The real question is whether any major allies will agree to join them or stay away to avoid becoming a co-defendant.