H.264 patents: how much do they really cost?

H.264 patents: how much do they really cost?

Summary: The biggest fear I've heard expressed from opponents of the H.264 standard and advocates of competing standards is cost. But are those fears justified? I've taken a closer look at the legal and technical documents involved, and I'm convinced that those fears are vastly overblown. Read on for the details.

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TOPICS: Microsoft, Apple, Legal
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If you've been following the recent controversy over video formats in HTML5, you know that software patents are a key part of Microsoft's decision to adopt the H.264 standard as the native codec to use with HTML5 video in Internet Explorer 9.

The biggest fear I've heard expressed from opponents of the H.264 standard and advocates of competing standards is cost. But are those fears justified? I've taken a closer look at the legal and technical documents involved, and I'm convinced that those fears are vastly overblown. As I explain below, the cost per user is literally pennies, and there's already a cap in place that guarantees the rates won't rise more than 10% in the future. (As a side note, I completely understand and sympathize with the objections that some people have to software patents in general. But here in the real world, those patents exist and are routinely enforced in courts, at great cost to the participants.)

In my previous post on the topic, I spent a full page explaining the role of the MPEG Licensing Authority (MPEG LA), which administers the patent pool for the H.264 standard. It happens that H.264 is a very good way of delivering video, and it's well supported by existing graphics hardware. So that's a strong technical reason to choose it. But the legal reasons are even more compelling. As I explain on page 2 of this post, the H.264 pool represents 1,135 patents from 26 companies in 44 countries. By participating in that patent pool, software developers and device makers companies go a long way toward indemnifying themselves from patent lawsuits by guaranteeing that they are properly licensed for all of those pooled patents.

Yes, it's possible that some company not represented in this list will come up with a patent that it believes is being infringed upon. But from a pure business standpoint, this arrangement makes much better sense for them.

How much do software makers and content providers have to pay the patent pool holders (via MPEG LA)? I reviewed the Summary of AVC License Terms, which sets out the royalties to be paid for different uses of the technology. (You can find all the MPEG LA documents here.) A perusal of the rates in that agreement indicates that the fees are not outrageous at this time. For example, here's a breakdown of the royalties that must be paid if you use H.264 as part of a subscription-based video service. The amounts are charged annually and are based on the number of subscribers:

  • 100,000 or fewer subscribers = no royalty
  • 100,001 to 250,000 subscribers = $25,000
  • 250,001 to 500,000 subscribers = $50,000
  • 500,001 to 1,000,000 subscribers = $75,000
  • greater than 1,000,000 subscribers = $100,000

Do the math. If you have 350,000 subscribers, your annual royalty cost per subscriber is a little over 14 cents, or 1.2 cents per month. Not exactly exorbitant.

What if you're a software developer? Assuming you're building a "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," here's the fee schedule:

  • 0 - 100,000 units per year = no royalty
  • US $0.20 per unit after first 100,000 units each year
  • above 5 million units per year, royalty = US $0.10 per unit.

The maximum annual royalty (“cap”) for an enterprise as of 2010 is $5 million per year. Update: For 2011-2015, the maximum annual royalty has increased to $6.5 million.

If you're distributing fewer than 100,000 copies, you pay nothing. Beyond that, you pay up to 20 cents per copy. Again, that doesn't seem exorbitant to me.

And finally, to answer one question that has come up several times in the comments to my post and in the comments over at the IE Blog: What guarantee do licensees have that MPEG LA won't raise royalty rates by some outrageous amount when the royalty schedules come up for renewal? The current rates are fixed for five years, till the end of 2015, and are renewed again every five years for the life of the patents. That guarantee appears to be in place already in the Summary of AVC License Terms, which sets out the royalties to be paid for different uses of the technology. Here's the language:

[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.

That goes a long way toward making me feel more comfortable that the cost of H.264 content is not going to impact you and me in any significant way, even after 2016.

One reason for Microsoft's decision to adopt H.264, as IE General Manager Dean Hachamovitch explained earlier this week, is that "H.264 … provides the best certainty and clarity with respect to legal rights from the many companies that have patents in this area."

That's an understatement. Microsoft has been sued more times than I can count on patent issues. They recently lost a bitter fight with i4i, one that will probably cost them $290 million if (as expected) it is upheld on appeal. And every video playback technology decision involves hundreds and hundreds of patents.

As I mentioned in my earlier post, I've downloaded the PDF file containing the complete list of "essential patents" for the Advanced Video Coding (AVC) technology that is the core of the H.264 standard. I have also downloaded the Summary of AVC/H.264 License Terms and looked carefully at it. I used Excel 2010 to convert the patent list to a table for further analysis. Here's a summary of the details from that list.

First up, a list of the 26 companies that have added their patents to the pool, with a number that represents how many patents have been contributed by each one:

  • Panasonic Corporation (377)
  • LG Electronics Inc. (198)
  • Toshiba Corporation (137)
  • Fraunhofer‐Gesellschaft zur Foerderung der angewandten Forschung e.V. (82)
  • Microsoft Corporation (65)
  • Samsung Electronics Co., Ltd. (57)
  • Sharp Corporation (54)
  • Koninklijke Philips Electronics N.V. (42)
  • Sony Corporation (29)
  • Mitsubishi Electric Corporation (18)
  • Fujitsu Limited (16)
  • The Trustees of Columbia University in the City of New York (9)
  • NTT DOCOMO, INC. (9)
  • Dolby Laboratories Licensing Corporation (7)
  • France Télécom, société anonyme (7)
  • Robert Bosch GmbH (5)
  • Electronics and Telecommunications Research Institute (4)
  • Scientific‐Atlanta Vancouver Company† (4)
  • Telefonaktiebolaget LM Ericsson (3)
  • Hitachi, Ltd (2)
  • Victor Company of Japan, Limited (2)
  • DAEWOO Electronics Corporation (2)
  • Siemens AG (2)
  • Nippon Telegraph and Telephone Corporation (2)
  • Apple Inc. (1)
  • Sedna Patent Services, LLC (1)

That is a veritable who's who of the consumer electronics industry, with Microsoft prominently represented.

And where are those patents from? Using an Excel PivotTable, it was very easy for me to extract the country codes for each patent and create a separate table breaking that down:

Countries with more than 100 patents

  • JP (226), US (169), KR (130)

Countries with 51-100 patents

  • CN (54), GB (51)

Countries with 21-50 patents

  • DE (44), FR (44), IT (38), NL (34), ES (26), MX (23)

Countries with 11-20 patents

  • AU (20), HK (19), SE (19), FI (16), CA (16), ID (16), RU (15), TW (14), DK (14), AT (14), HU (12), BE (12), CZ (11), TR (11)

An additional 18 countries were represented with 1-10 patents. That's 44 countries in all. Any big company that decides to use a competing video standard without licensing the H.264 technologies from MPEG LA runs the risk of being sued in any or all of those countries. That's a chilling prospect, and it probably explains why 810 companies (so far) are already listed as H.264 licensees by MPEG LA. That list includes plenty of big names, most notably Apple, Microsoft, and Google.

Note: This post has been edited to add details about the royalty schedule and the frequency of updating.

Topics: Microsoft, Apple, Legal

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66 comments
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  • The pricing does seem reasonable

    I wrote recently that if the MPEG-LA promised (in the legal sense) not to increase the fees unreasonably then that would remove a lot of the fears. I hadn't realised until now that they already had. :)

    (At least according to the FAQ you state; I have not bothered to look up the contracts.)

    As it happens, someone in the IEBlog comments pointed the same FAQ out just now and I'm forced to agree that it does seem reasonable, at least on the face of it.

    Also, I'm sure this is wrong but my understanding is that the fee is currently zero for non-commercial use, so if it's not allowed to rise by more than 10% every five years then it can never be non-zero for non-commercial use. :)
    LeoD
  • Google may offer the best hope

    It appears that Google may offer the best hope, for an alternative to H.264. They have:

    - the authority to open source VP8.
    - deep enough pockets to defend against patent lawsuits.
    - the resources to design around any patent infringements.
    - YouTube, which could give VP8 enormous momentum over night.

    The Xiph.Org Foundation & Theora, on the other hand, could potentially be drowned in legal proceedings, should the MPEG LA decide to go after them.

    It will be interesting to see how the MPEG LA is viewed by anticompetitive/antitrust authorities around the world, should they appear to be bullying other video codec alternatives.
    linuser
    • I agree....

      I honestly hate to say it but Google is the only entity here thats going to save your freedom to encode or decode video. I know they are doing it for their own gains but its certainly better than supporting a group of companies trying to take your freedom.
      storm14k
    • The hardware monopoly is part of it, too

      Since manufacturers want protection from this
      racket, they won't be making devices that provide
      hardware support for Theora or other free codecs.

      That's an antitrust issue right there. Patents are
      supposed to advance innovation, not retard it.
      epitax
    • And when they loose those patent lawsuits...

      What then?
      Bruizer
    • RE: RE: Google? ....actually then VP8 would belong to the public!

      @linuser Not if..... but when Google Open Sources VP8. It will in months, be the widest distributed encoder/decoder in the World. HOW? ....right now, there is no greater video content provider on the web than Google YouTube. The main reason Google bought ON2, was because VP8 offers the greatest reduction in bandwidth use. With comparable quality to H.264 encoding they're using now. They are the largest H.264 video distributors in the World, dwarfing everyone else (the same as they are in Search)!<br><br>What does anyone think Courts can do about Google wanting to save Bandwidth money on that and converting it all to VP8? Do they think the courts can make them pay more to serve all their H.264 video content on YouTube over VP8? I somehow doubt that completely. Not only that, but as soon as it's Open Sourced, how likely is MPEG LA group to go after Google? When it then belongs to the people as Open Source. Are they forgetting that you really can't sue Linux itself, unless you want to sue everybody. So suing Google would be just opening up a can of worms. It's like suing MPEGA LA for their patents. Ridiculous.... because all the patents have been passed to the holding company and it works like an Insurance company.<br><br>The IBM lawsuits have already proved that suing a company for Open Source is a ridiculously stupid idea and they weren't even sued for Linux, but for code they inserted into it for proprietary software.<br><br>That's Google's whole philosophy. Open Source it, they are basically giving it away in their Skunkworks Labs (family of companies you can't sue Google over these, like Android). That remain outside their own Corporate Control and Responsibility!<br><br>So suddenly, we have Google YouTube converting all of their H.264 videos to VP8 to save bandwidth and VP8 has the largest distribution of content in the World. Since the W3 is trying to use Open Standards free of license encumberments to keep all members happy, VP8 will be the instant nominee to be the video format of choice in HTML5 Final Standards.<br><br>OBTW.... Android is a skunkworks project and that's Google donating it's money, developers and time to an Open Source Project without expecting any returns. Apple can't sue Google over Android, because they don't own it. Even if they could, they would have a hard time proving Apple's iPlatform OS began development, before Android's Concepts were drawn up (2yrs prior to Google's purchase in 2005). That 2 whole years before the iPhone was even launched..... and No Doubt Apple were only drawing up their iPhone hardware in 2003, let alone the name or OS! ;)
      i2fun@...
      • RE: H.264 patents: how much do they really cost?

        @i2fun@... Being open source does not mean that the technology belongs to the public. That's public domain. Open source software belongs to the company who makes/modifies it.

        But implementing open source technology does not protect anyone from getting sued. I can create software or standards and release it as open source, but it can still be limited by others' patents. VP8 is not an open standard until it has been ensured that no patents are infringed if one implements it.
        Joshua Issac
  • VLC

    download are around 80;000.000 units a year

    this would meen a royaltee fee of the max $5.000.000
    per year. And this is for h264 only, you have to add
    all other video audio codecs, plus container format,
    network protocols;

    videolan is a NPO financed through contribution. No
    way they can budget $10M in patent fees which by the
    way do not exist ( software are patented through other
    categories - entry device, electric data treatment,
    procedures and methods )
    s_souche
    • THANK YOU!!!

      He is tossing these numbers out there like this is just small change.

      Look I don't run around on this whole freedom of software kick all the time but this is one of those times where people need to wake up and think. Well of course Bott is just doing his job for MS but everyone else needs to think. This patent pool is forming to make sure YOU or NO ONE ELSE can encode or decode video without owing them money. We do all this talk about our so called rights and freedoms being trampled here in the U.S. by government but then applaud companies coming together to take your freedom away from you. Only in America.
      storm14k
    • What if VLC cost $1?

      If they had to, VLC could charge $1 per copy, handle their admin fees and invest the rest.

      It'd still be practically free so I can't say I would care much.

      Of course, I would start to care if nine other patent pools did the same and any app which handled video, and didn't use the free decoders which Windows provides, cost $10.

      Main problem I see is knowing how many people are using something that is currently given away for free. How do you know if you're supposed to be paying this stuff? I put a bunch of little tools on my web site and have no idea if 5 people are using them or 5 million. (I imagine it's closer to 5, but I don't bother to track that stuff.)

      (Heh, I'm not sure why we are talking about this in the future tense considering that VLC already plays H.264 and the MPEG-LA's fees are already in place.)
      LeoD
      • Why should VLC pay anything, if it runs an OS with an H.264 already?

        Seems to me like I already paid that fee when I bought my OS. Why should I have to pay again to VLC, just because MPEG-LA can't manage who has paid?
        fred64
    • This is why codecs should be modular

      MPlayer has modular codecs, but I am not sure about VLC. If the codecs are modular, then all you have to do is ship the free codecs with the program and offer the others as paid add-ons, either through directly through VLC or if they have a problem with that then though a third party.
      Michael Kelly
    • Does VLC do encoding?

      If not, then it can take advantage of the decoder in Windows or OS X for free. (They might even be able to add the code to their own product for free.) It's the decoder AND encoder that incur licensing.
      Ed Bott
      • As far as I know

        VLC and MPlayer both use their own independent codec sources.
        Michael Kelly
        • What stops them from using an OSes codec? -nt-

          nt
          Bruizer
      • H.264 support is quite recent

        seven and snow leopard. before that is was not
        part of standard OS.

        VLC from can encode and decode. They just
        announced support of blu ray grade h264 thx to
        x264 codec
        s_souche
        • OS X has had H.264 since 2005.

          Don't know about Windows but I was thinking Vista had support as well
          as XP (after later SP).
          Bruizer
      • H.264 introduced in Windows 7

        It was not supported in Vista or earlier.
        Ed Bott
      • Unbelievable

        @Ed Bott

        VLC cannot "take advantage of the decoder" because it is not compatible with the GPL.

        Under the license terms I read just this morning if you personally own a camcorder or similar device you are only allowed to use the codec for personal use only. If you try to make money from video you shot with your device (including ad revenue) you may be liable to pay MPEG-LA royalties.

        This is a disaster for we the people. This is a legal extortion racket. We consumers should immediately call for an anti-trust investigation of MPEG-LA.

        You are the worst kind of sycophant Bott. What do you get in return for continually sucking up to these freedom-destroying companies Bott?

        Software patents are an utter corruption of our system and should be abolished.

        The current situation with patents and copyright is exactly what the founders tried to protect against.
        Tim Patterson
  • Fair enough ...

    This certainly sounds OK to me. I already have licensed support on Linux via MPEG-LA licensed Fluendo codecs. As much as I detest software patents, I really think that this approach is the future. Much of software is now available for free and without a lot of strings attached, but reality dictates that there are still things that we will have to pay for, although not a lot. We have come a long way toward affordable software, and the ultimate solution will be a mix of free and not so free software. And, of course, high end software will always be expensive. You get what you pay for.
    George Mitchell