Nero AG opens antitrust case against MPEG LA

I sent him an email thanking him for his contributions and groveling for his insight ;).

When you cut past the surface elements here, this antitrust counterclaim does appear to be as much a form of aggressive defense to a contract claim being asserted by MPEG LA against Nero as it does a legitimate claim that Nero believes it can win.

Nero complains that it used term-limited free trials for its software and that MPEG LA went for years counting this as a sale and a return (once the free trial expired and the customer did not buy), only to shift its policy in its written license agreements in 2008 and begin to count this type of situation as a sale without a return. Thus, under the new policy concerning term-limited free trials, Nero incurred liabilities for royalties and got no credit for returns. When audited by MPEG LA, Nero was found to owe some $12 million plus interest, or over $15 million total to MPEG LA for unpaid royalties.

MPEG LA sued to collect the unpaid royalties and, in response, NERO filed this counterclaim alleging abuse of monopoly power by MPEG LA under section 2 of the Sherman Act.

Under section 2 of the Sherman Act, a party holding monopoly power incurs liability if it intentionally dominates its market through some form of misconduct (e.g., price discrimination). Of course, no misconduct exists simply from the fact that one of MPEG LA's licensees breaches its obligation to pay royalties. And it does seem pretty much undisputed the Nero did fail to pay the royalties claimed here. Nero argues essentially that it received verbal and other assurances that effectively modified what the license agreements said on their face and that it does not therefore owe the royalties. However, it mentions that MPEG LA is hiding behind the parol evidence rule, which is a rule of law that forbids admission into evidence of statements extrinsic to a contract that contradict its express and unambiguous term. That is, Nero is trying to say that it is not bound by what the contracts say because MPEG LA gave it assurances to the contrary of the express contract language, and, of course, such assurances normally are not admissible into evidence - meaning that Nero is probably stuck.

As a result, Nero is putting up an aggressive defense trying to cast doubt on the whole patent pool licensing structure by which MPEG LA functions. The theory of its antitrust case is essentially that the Department of Justice initially expressed concerns about how MPEG LA might misuse its monopoly power and only gave clearance for the MPEG-2 patent pool based on the express conditions that MPEG LA would have the portfolio reviewed continually by an independent expert to ensure that it contained only essential patents, that it would be fair in its royalty pricing, and that it would not discriminate among licensees on terms and pricing. The DOJ reserved its rights to file an antitrust enforcement action in the event such conditions were not met. Nero alleges that MPEG LA has violated all of these conditions by using its own company lawyer as the person who reviews the portfolio, by loading the portfolio with many hundreds of non-essential patents whose inclusion is for the illegal purpose of extending its monopoly control over the MPEG standards long beyond the period after which the initial patents were to have expired, and also by discriminating among licensees in terms and pricing (giving favorable terms to licensors who hold patents in the pool while dinging others such as Nero). As a result, Nero alleges that MPEG LA is illegally using its monopoly power under Sherman Act section 2 and should be enjoined from continuing to enforce its patents.

It is hard to evaluate the merits of this claim except to say that the circumstances of the case make one doubt that the claim will be likely to stick. It was raised after-the-fact as part of an attempt to defend what otherwise appears indefensible. Moreover, if the DOJ feels its conditions have been violated, it is the proper entity to bring enforcement action and, at least to date, it has not done so. Finally realities tend to prevail in the law and the chaos that would ensue from a court enjoining MPEG LA from being able to administer its patent pool would be great - and no court will do this unless there are hugely compelling reasons to do so. Thus, Nero would seem to have quite a significant burden of proof to meet here to get a court to invoke such a harsh remedy. In theory, it might do so but it would seem to be a very uphill fight.

Note: I am not an antitrust lawyer and may be missing nuances here but these are my observations derived largely from a reading of the counterclaim. Don't know that any of this gives special insight but this is my best shot.

It's ironic that now that Scribd is no longer PDFs, people want the content in PDF form.

Scribd also has pyscho dancing scrollbars now, at least on Firefox.

That's from the time that the whole web industry, including Apple, was fighting against the MPEG-LA terms. Something I find amusing every time I hear it claimed that they'd never do anything crazy with web licence rates in 5 years time.