Elvir Causevic, CEO
Black Stone IP, LLC
December 24, 2015
We read with great interest the announcement of the updated HEVC Advance licensing rates and structure last week. Over a dozen Black Stone IP clients are impacted by HEVC, literally from all sides of the digital media and device businesses. Overall, we believe the published updates signal a meaningful step in the right direction for broad adoption of HEVC technology.
HEVC is a major leap forward in data compression technology. While I understand some of the advanced signal processing paradigms utilized in HEVC (as they were a subject of my own academic research both for my doctoral dissertation as well as my years teaching applied math at Yale), I also learned that HEVC also includes a significant number of truly inventive and innovative advances over historical video codecs.
But as important as the technology itself is the fact that HEVC is a result of a genuine collaborative effort, painstakingly developed by over 20 different groups from all over the world, who then synchronized their efforts through technology-merit-based assessment and standardization processes. This is the kind of open and collaborative development we should support as a matter of policy, while at the same time recognizing and sharing fairly – among all sides of the digital media and device businesses – the value generated for consumers.
That last piece is non-trivial, of course, and the HEVC IP licensing process that has unfolded over the past year highlights some of the difficulties. The formation of the MPEG-LA HEVC pool, the initial announcement by HEVC Advance, and now this latest update on licensing terms from HEVC Advance are three key indicators, as are press and industry reactions (both public and private).
The HEVC Advance updated licensing terms represents a significant step in the right direction, particularly because, based on the public patent lists, HEVC Advance brings together a large group of patents that cover many of the core inventive concepts that distinguish HEVC from prior video codecs.
As should be expected with these kinds of standardization efforts, the industry still has a host of concerns, from what we can see and share. One is the status and positioning of patent owners who have not joined either patent pool thus far. Some of these patent owners are companies who have previously licensed standard essential patents through patent pools, but appear to have been waiting to see how the two HEVC pools develop. In our view, the new licensing terms announced by HEVC Advance, offering a more balanced outcome for both licensors and licensees, and the positive response to those terms by the industry, may be the developments these companies have been waiting for. Others of these patent owners historically have not joined patent pools, instead licensing bilaterally. Each prior generation of standardized video codecs has been successfully implemented and licensed broadly across the industry with this same combination of pool and bilateral licensing, and we think that will be the case with HEVC as well.
Another issue is the potential availability and usage of open source compression models, bringing with it the open-ended question of what risk those open source codecs have from patents, including those owned by companies committed to HEVC1. Yet another is making sure that large and influential players take an unambiguous lead in the adoption of HEVC across all their products and platforms. Predictability is critically important in long range product and service planning in fields like video coding, where there are hundreds of ecosystem participants that depend on each other. Adoption of HEVC by some large and influential players likely would accelerate broad-scale adoption. The following few months will shed a lot of light on these questions.
At Black Stone IP, we are finalizing a market research report that focuses on HEVC technology usage, including an approximate estimate of holdings of essential patents, and we anticipate releasing the report early next year. As may be expected, we have struggled to get accurate counts of patents for several reasons: a) many patent applications are still pending since the technology is relatively young, b) declarations to the standard are inconsistent across the board, c) without careful matching of actual patents to declarations, and without careful analysis of each patent against the standard, it is not possible to know which declared patents are actually essential (indications from past efforts demonstrate large-scale mismatches between declared and essential patents), and d) many AVC/H.264 patents and their continuations may apply directly to HEVC and will likely be declared standard essential. Despite those obstacles, we feel we are finally getting reasonable estimates by just reading lots of patents, at least of relative holdings between patent owners. We hope that this report can help decision-makers craft their business strategies and assess risks around HEVC.