Deny CUT FATT Petition on DTV Patents, Key Licensors All Urge FCC

Americans are overpaying for DTV sets because of exorbitant royalties being levied by patent holders that license the technology on unreasonable and discriminatory terms, said the petition, which Vizio and Westinghouse filed under a group they called the Coalition United to Terminate Financial Abuses of the Television Transition (CUT FATT). As a result, Americans pay $20 to $30 a TV set for intellectual property rights that cost only about $1 elsewhere in the world, the self-styled CUT FATT group said.

But the FCC’s DTV policies and rules “have enabled a vibrant market where both well-established and new DTV set manufacturers are competing successfully,” Zenith said, echoing other patent holders that submitted comments. Privately administered DTV patent pools, which offer comprehensive licenses to hundreds of essential DTV patents on RAND terms, have allowed scores of manufacturers, including Vizio and Westinghouse, “to deliver tens of millions of affordable DTV sets to U.S. consumers,” Zenith said.

Though the FCC has “expertise on communications matters,” it’s not well-versed “in the intricacies of patent law and the determination of patent royalty rates,” Zenith’s affiliated LG Electronics USA said in a joint filing with Philips North America. “Moreover, the complex and closely intertwined issues of patent validity, claim construction and the setting of reasonable royalty rates require careful deliberation for just a single patent,” LG and Philips said. Here, CUT FATT “asks the FCC to investigate and impose royalty rates associated with hundreds of essential DTV patents,” they said.

MPEG LA “administers voluntarily assembled patent pools” on MPEG-2, it told the commission. The current royalty is $2.50 per unit for a DTV set or other “decoding product,” it said. “The license contains provisions that do not allow royalty rates to increase during the current term of the license or increase by more than 25 percent at the time of renewal every five years,” it said. “Demonstrating the efficient workings of the marketplace, MPEG-2 licensors on their own volition have from time to time agreed to reduce the royalty rates in response to conditions in the marketplace.”

For example, the royalty rate for MPEG-2 decoding products before Jan. 1, 2002, was $4 a unit, it said. “Indeed, royalty rates have been reduced on several occasions for other product categories as well,” it said. “This alone should provide comfort to the commission that the market is currently working well at self regulating, and that government intervention is both unwarranted and would set dangerous precedents that likely would retard innovation.” Likewise with the ATSC patent pool, which MPEG LA began administering two years ago, it said.

Funai, which has been locked with Vizio in a nasty DTV patent fight at the ITC and PTO and in the courts, urged the FCC, with tongue in cheek, to decline CUT FATT’s “invitation to become another forum for patent licensing disputes.” CUT FATT “has not even attempted to establish a jurisdictional basis” for the FCC to get involved, “and it cannot do so,” because the “regulatory scheme” its petition calls for “does not satisfy the test for ancillary jurisdiction,” Funai said.

The current system “is working to promote DTV innovation and availability to consumers,” Funai said. “As a result, U.S. consumers already are benefitting from a market for DTVs that is both competitive and innovative, with multiple suppliers offering a wide variety of DTVs at prices that have decreased dramatically over the years.” CUT FATT’s proposal “would do nothing to promote the DTV transition, in which Funai is participating by offering consumers both DTVs and a significant number of low-cost digital converter boxes,” it said. Granting the CUT FATT petition “thus would be a waste of the commission’s scarce resources,” it said.

Harris disagreed, saying it backs CUT FATT’s petition for declaratory relief and a rulemaking, though it’s neutral on CUT FATT’s “specific recommendations.” As more patent holders “have started to seek unreasonable rates for the sale and use of DTV equipment,” the RAND royalty structure “has become an issue that the commission must address if the DTV transition is to be successful,” Harris said.

For many years, the licensing of DTV patents “operated successfully in line with the commission’s objectives,” Harris told the FCC. “However, in the past few years the DTV patent environment has changed,” it said. “As highlighted by the CUT FATT petition and the experiences of Harris, numerous ‘essential’ DTV patent holders in the United States have been engaging in various forms of ‘patent holdup’ forcing DTV equipment manufacturers to pay unreasonable patent royalty rates. Clearly, the current rules governing the DTV patent licensing system are insufficient to ensure the ‘reasonable and nondiscriminatory licensing of relevant patents’ as the Commission had initially envisioned and promised.”

The commission’s failure to grant CUT FATT’s petition would permit DTV patent holders, such as Rembrandt, with which Harris is locked in a patent battle, “to convince courts to adopt dangerous, far-reaching precedent that violates the commission’s intended RAND patent licensing framework,” Harris said. “Placing basic RAND limits on DTV patent licensing practices will prevent ‘essential’ DTV patent holders from ‘holding up’ the business, development and innovation of the entire DTV industry,” it said.