Justice Department investigates Web video group

The corporate wrangling over Web video standards, already a technically and legally complex matter, is getting a lot more complicated with the arrival of a Justice Department antitrust investigation.

Specifically, the DOJ is looking into whether the actions of patent licensing group MPEG LA are stifling a Google video encoding technology called VP8, The Wall Street Journal reported last night. The the California State Attorney General's office also is looking into the matter, the newspaper said, citing unnamed sources.

MPEG LA licenses patents for Web video encoding technology, including today's widely used H.264, on behalf of a sizable group of companies with hundreds of patents it deems to bear on the technology. As an alternative to H.264, Google last May began offering VP8, the technology at the heart of its $123 million acquisition of On2 Technologies in 2010.

At stake in the matter are the financial and legal requirements to digital video, which is getting ever more important as the Internet and the Web rise to prominence as a medium for content. H.264 may be used freely for video that's available freely; by contrast, royalties must be paid to MPEG LA if the content isn't free or if the codec is used in hardware or software products.

MPEG LA, which is based in Denver but has offices around the globe, wouldn't confirm or deny an investigation, but it defended its practices.

"Time and again MPEG LA's model has been tested not just in the marketplace, but in the courts by those seeking any possible way to avoid their intellectual property obligations or other axes to grind, and each time, MPEG LA has prevailed," the organization said in a statement. "It is a successful model that the market has widely accepted and which has been approved by competition authorities around the world, including in the U.S."

VP8 is a video codec, which is technology designed to encode and decode video so it can be stored and sent over networks in compact form. Combined with an audio codec called Vorbis, it forms Google's patent-free, open-source WebM technology, which the Internet giant hopes will unencumber streaming video on the Web. Google wants to lower the barriers to Web video use in the hopes that WebM will help people built video directly into Web pages with HTML5 rather than relying on a plug-in such as Adobe Systems' Flash Player.

The patent problem
Google announced WebM last year, saying people could use VP8 technology royalty-free. But video encoding is a patent-infringement minefield, and VP8 officially entered patent limbo in February when MPEG LA said it was asking for organizations to tell them if they had patents essentially used in VP8.

MPEG LA has said it believes VP8 violates others' patents, and formally assembling a list is an essential step toward offering a VP8 patent pool license similar to the one MPEG LA already offers for H.264 and several other video technologies.

"We do not believe VP8 is patent-free," MPEG LA told CNET. "There continues to be interest in the facilitation of a pool license to address the apparent marketplace desire for convenience in accessing essential VP8 patent rights owned by many different patent holders under a single license as an alternative to negotiating individual licenses."

The question that regulators apparently are interested in is whether MPEG LA is essentially quashing VP8. MPEG LA says it's neutral, offering patent pools for the convenience of those who want to implement the technology without the hassle of negotiating license agreements with multiple patent holders.

The antitrust situation is something of a reprise of the antitrust concerns that On2 raised in 2002 about MPEG-4 video encoding regarding a patent pool. H.264, also known as AVC and MPEG-4 Part 10, was then just getting started.

"MPEG-4 is trying to monopolize the substantially software-based interactive video compression industry, plain and simple," On2 wrote in a 2002 position paper to the Justice Department. "It is a move by a few very large companies to dominate a market and fix prices. Recent pricing policies by MPEG LA for MPEG-4, and the customer reaction to them are ample evidence of this."

More recently, German software company Nero filed an antitrust lawsuit against MPEG LA last May.

"Absolute power has corrupted MPEG LA absolutely," said Nero, which makes CD- and DVD-burning software, in its complaint. "Once MPEG LA obtained monopoly power in the relevant technology markets, it used that power to willfully maintain or extend its monopolies for years beyond their natural expiration...and administer its licenses in an unfair, unreasonable, and discriminatory manner that stifles competition and innovation, and harms consumers."

Neither case went anywhere. The U.S. District Court for the Central District of California dismissed the Nero case in November.

Allies and agendas
Google has lined up several allies for WebM. Browser makers Mozilla and Opera Software have built support into Firefox and Opera, while Google is removing H.264 from Chrome. Another ally is Adobe, which has pledged to add VP8 support into its Flash Player plug-in alongside existing codecs such as H.264.

On the other side of the debate are Microsoft and Apple, which support H.264 for HTML5 video in their Safari and the soon-to-be released IE9 browsers. Those companies also have built H.264 directly into their operating systems. Though they have patents in the H.264 pool that MPEG LA licenses, Microsoft has said it pays MPEG LA twice as much in royalties to ship H.264-enabled products than it receives in royalty payments back. And Apple has only a single patent in the H.264 pool, so it appears its interests in H.264 and MPEG LA are not directly financial.

There are plenty of strategic issues involved, though. H.264 is widely used in everything from Blu-ray players to video cameras. It fits neatly into Apple's desire for seamless, high-quality technology that does its job and stays in the background, and using it in HTML5 video helps further Apple's agenda to build a future that doesn't rely on Flash Player.

In a 2010 letter to the Free Software Foundation Europe, Jobs cast doubts on freely available codecs, though he specifically named only a commercially unsuccessful progenitor to VP8 called Theora. The letter arrived shortly before Google announced its WebM plans for VP8.

"A patent pool is being assembled to go after Theora and other 'open source' codecs now," Jobs wrote in the e-mail. "Unfortunately, just because something is open source, it doesn't mean or guarantee that it doesn't infringe on others' patents."

Apple has a lot of allies in H.264. But it's virtually impossible that the World Wide Web Consortium, which is standardizing HTML5, would endorse H.264 as a the video codec of choice in HTML5 given its patent encumbrances and the W3C's royalty-free standards work.

Microsoft seems more neutral. It advocates H.264 and building H.264 add-ons for Chrome and Firefox on the one hand, but on the other it's helping Google build a WebM browser extension for Windows and says it has no objections if the intellectual property issues are resolved.

The Justice Department, Google and Microsoft declined to comment for this story. Apple didn't immediately comment.

Updated 3:44 a.m. PT and 8:36 a.m. PT with responses from DOJ, Google, Microsoft, and MPEG LA.