Nero Sues MPEG LA, Alleges Greed & Abuse of Power

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German software maker Nero has sued the MPEG LA licensing group, alleging that the group is abusing its monopoly power to rake in money for its video codec patents. The court filing itself is pretty juicy, including mentions of fast sports cars, sexual affairs and millions in supposedly unwarranted executive bonuses. “[A]bsolute power has corrupted MPEG LA absolutely,” it reads, and then goes on to portray the licensing group as driven by greed. The matter at the core of the lawsuit, however, is a little more prosaic:

Nero is the maker of a number of CD, DVD and Blu-ray burning applications — software for which it has to acquire licenses from MPEG LA. The company distributes much of its software as trialware, in which a user can download it for free, try it for 30 days, and then buy a key if he wants to continue to use it.

Nero says in its complaint that its limited free trials are being treated as sales and returns under its licensing agreement with MPEG LA, meaning that the company didn’t have to pay its $2.50 per distributed copy if a consumer didn’t buy and unlock the product. However, it alleges that MPEG LA changed its mind on this provision years after the companies entered into the agreement, and the group is now asking for millions in royalties — millions that Nero doesn’t want to pay.

To make its case, Nero references communication between MPEG LA and the Department of Justice that dates back more than ten years. Back then, the DOJ was looking into investigating MPEG LA, but eventually decided not to after the licensing body promised to adhere to some pro-competitive guidelines, which included making sure that its MPEG-2 patent pool was restricted only to essential licenses. However, the MPEG-2 patent pool, which every company making DVD copying or playback hardware or software must license, has swollen from 27 to 800 patents since then.

Nero now alleges that this is because many of the original MPEG-2 patents are set to expire later this year. MPEG LA, the company says in its complaint, added more patents to the pool to keep royalties flowing — even after the original patents expire. The software maker also alleges that MPEG LA charges its licensees different rates, favoring companies that also have a stake in the licensing pool, and that it dodges DOJ-recommended oversight by using MPEG LA stakeholders instead of independent experts to review its patent pools.

And now for the gossip: Nero put a lot of effort into painting MPEG LA as greedy bastards, but it didn’t really have to try all that hard. The software maker mostly relied on a lawsuit MPEG LA filed a few years back against its former CEO and COO, detailing how those execs allegedly awarded sports cars as bonuses.

MPEG LA’s founder and former CEO Baryn Futa allegedly hired an administrative assistant, only to start an affair with her and in turn award her the COO position, complete with an annual salary of $2.4 million (her initial salary was about $45k), with more than $1 million in bonus payments for various residences. From the lawsuit:

“MPEG LA used its illegal profits to pay exorbitant, Enron-esque salaries, bonuses and perquisites to its C-level officers (some of whom had an ownership interest in MPEG LA during the relevant period)… such practices reflect a culture of greed …”

MPEG LA didn’t respond to our request for comment. The lawsuit was coincidentally filed a few days before Google open sourced its VP8 video codec as part of its WebM Project, which is supposed to give hardware and software vendors an alternative to the H.264 video codec. H.264 is also licensed by MPEG LA, and the licensing body has since threatened Google with a patent lawsuit.

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