To ensure equipment from different manufacturers work together, industries agree to use standards. Manufacturers freely comply with standards because it ensures their products work with other devices consumers already have or will likely buy. Colorado’s booming tech sector is a part of this ecosystem: Colorado’s tech industry employs 162,600 people, ranking third highest nationwide. This sector is directly affected when the standards process becomes dysfunctional.
Patented technologies can be used in standards, and companies that contribute them to a successful standard can be rewarded. But the market also provides balance—if patent holders try to set licensing fees too high, their standard faces rejection. Yet, sometimes there are exceptions.
Because the FCC regulates broadcast TV, it can mandate a TV standard. It chose a standard developed by the Advanced Television Systems Committee (ATSC) for use in cable boxes and “cable-ready” TVs that defines how the device tunes to each channel. By law, it must be used in digital televisions, converter boxes and other products containing digital television receivers.
This has proved too much of a temptation for abuse.
The ATSC standard is essentially a government-granted monopoly. Denver-based MPEG LA, which manages the ATSC patent pool, charges $5 per unit. In Europe, Japan and China, such standards cost $1.03, 98 cents and 16 cents per unit, respectively.
In 2009, the Coalition United to Terminate Financial Abuses of the Television Transition estimated that U.S. consumers pay about $20 to $30 more per digital set than non-U.S. consumers.
The FCC requires ATSC-compliance in all digital TVs, whether or not they will be connected to a cable or satellite TV system. As more consumers “cut the cable cord,” they are paying for irrelevant components.
The price distortion created by mandated use of patents has not gone unnoticed. In a Senate hearing , Suzanne Munck, Chief Counsel for Intellectual Property at the Federal Trade Commission, cautioned that patent holders could “use the leverage that they may acquire as a result of the standard setting process to negotiate higher royalty rates…than they could have credibly demanded beforehand.”
MPEG LA’s role compounds matters further in that it is among the most aggressive patent pool administrators. It has an established reputation for forcing companies to purchase irrelevant patents in bundles, discouraging market introduction, and for suing companies that attempt to market a product that incorporates techniques similar to those in its portfolios.
Smaller companies and start-ups are the easiest targets. In June 2013, four patent owners within the ATSC patent portfolio license sued Craig Electronics, Curtis International and ViewSonic for infringing on ATSC. This suit is likely an attempt to coerce the companies to buy the inflated ATSC license package rather than face enormous legal costs trying to defend their claim.
In Washington, federal agencies must be aware of how potential government-mandated standards can cause abuse. Given how TV viewership is changing, perhaps the FCC should review ATSC requirements to make sure that U.S. consumers are not losing from the monopolistic behavior of the ATSC patent pool.