AT&T threatens lawsuits against MPEG-4 licensees, including Apple, DivX

Posted by Humphrey Cheung, Scott M. Fulton, III

San Antonio (TX) - In a report released yesterday, PC Magazine revealed it had learned that in December 2005, legal representatives of the new AT&T Inc. sent letters to several companies that utilize video encoding standards, including Apple, DivX, Nero, and Sonic Solutions, warning them that their use of the MPEG-4 codec may be infringing on its intellectual property rights.

PC Magazine obtained a copy of this letter, other copies of which were also sent to national retailers who sell products with these brands, clearly threatening the manufacturers with lawsuits if they do not enter into a licensing agreement with AT&T. A spokesperson for Nero told the magazine that Nero complied with AT&T's request.

Yesterday's news probably came as a shock to the MPEG Licensing Authority, which is the principal source for video software and hardware firms to license the broad portfolio of patents that are necessary for any program or device to play MPEG videos. AT&T is not a member of this consortium, nor has it given any indication in the past that it is separately entitled to royalties from innovations not covered by the MPEG LA portfolio.

AT&T's threatening letters may be particularly distressing for Apple, whose QuickTime standard is a derivative of MPEG-4 - up until now, it was considered a legal derivative. The extent to AT&T's threats will impact the burgeoning video iPod economy is unknown, except to say that Apple's customers will probably be impacted in some fashion. But also conceivably, anyone who produces and distributes a digital MPEG-4 video - including consumers - may find themselves owing a small fee, just as Web sites that distributed GIF images found themselves owing Unisys several years ago.

It's a very familiar story for many blog authors who have witnessed the entire technology industry's slow degradation into one big intellectual property fracas. In a message entitled "Giant Trolls: Who Owns Your Home Videos?" the IP blog Right to Create commented:

Much like GIF, JPEG and MP3 today, the patent trolls have shown corporate America how to rake in money...The scary thing is, corporate America is learning. When Microsoft and AT&T start playing the shakedown game with their massive portfolios, it is time to fret and worry.

Political author Dave Pell, on his blog Davenetics, tries to characterize AT&T using less hyperbolic language, but can't avoid reaching much the same conclusions:

MPEG-4 is part of a standard that already has a patent licensing body, that tries to round up all of the associated patents, with agreements to license them at reasonable and non-discriminatory rates (in other words, open to everyone who pays the rate). AT&T chose to stay out of that - which, again, is their choice. However, it's becoming all too common for companies to do this. They believe they have patents related to standards, and then sit out until the standard has become adopted - and then swoop in and try to start charging everyone. All this does is make the process of standardization much more difficult.

Finally, a blog about data compression appropriately entitled The Data Compression News Blog, writes:

Doesn't all this make the "standards" lose their standard appeal? Maybe you will be better off using a proprietary format. That way the format owner is the one who has to take care of such liabilities, and most proprietary formats are technically superior to open standards anyway. Of course, interoperability and vendor lock-in issues are there but now it seems to be a fair trade off.

And suddenly, even this story seems to be headed toward another ironic full circle back to Microsoft.