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Sisvel's Role in the IFA Raid

by Jeffrey Chang

Last weekend in Berlin, shortly after the doors opened on IFA, over 200 armed German customs agents stormed in and confiscated hundreds of display electronics from participating exhibitors' booths, claiming illegality due to patent infringement or non-royalty payments. This event marks the second high profile exhibition "raid" this year in Germany (Cebit in March), and the second time at an IFA event. This time 69 exhibitors were left with bare booths and empty tables, including, surprisingly, big shots like Hyundai and MSI. Perhaps least surprising to many, was that the action came at the request of Italian patent group, Sisvel.

Who is Sisvel? And what exactly is the issue at hand?

Sisvel is an Italian patent licensing group that holds, among many others, exclusive licensing rights for MPEG audio patents developed by major corporations such as Philips, France Télécom, Matsushita, and JVC.

In this particular instance, Sisvel filed complaints to German authorities that certain products being displayed at IFA contained Sisvel-managed patent technologies that had not been licensed. Since in Germany marketing products with unlicensed technologies is illegal, German customs confiscated the products (reports claim Sisvel provided a list of exhibitors and products).

These events have incited much discussion (and derision), about Sisvel, German law, and the affected exhibitors. Did they deserve such embarrassment? Why such aggressive behavior by Sisvel? What purpose did this action serve?

First, however, a brief history lesson:
The major technologies in question are the much-contested, financially-lucrative MPEG audio patents. Audio compression technology traces back to the mid-1980s where it was developed by researchers from several companies/organizations including the Fraunhofer Society of Germany, Bell Labs, Royal Philips Electronics and France Télécom. Most people know these technologies today through the ubiquitous MP3.

When digital audio and digital audio players exploded in popularity, these companies saw valuable licensing opportunities. The three key patent holders, the Fraunhofer Society, Philips, and Bell Labs (whose patents are now owned by Alcatel-Lucent) worked out agreements with licensing companies: the Fraunhofer Society with Thomson, Phillips with Sisvel, and Alcatel-Lucent handling licensing “in-house”.

Over the years, as each group tried to claim ownership of MPEG audio licensing rights, their bickering has resulted in manufacturer/market confusion, multiple licensing fees and lawsuits galore. Sisvel, licensor of key (but not all) MPEG audio-patents, has systematically and aggressively gone on to demand licensing fees from nearly a thousand businesses and manufacturers, many who have been caught unawares. (Some have fought back, but unsuccessfully. A simplified explanation of Sisvel’s argument can be found here).

So to return to our earlier questions, did these exhibitors deserve such embarrassment?
Unfortunately with the muddled state of ownership in MP3 licensing rights, coupled with differing laws in different countries, many businesses simply can not know all the proper licenses that may be required for a product. The embarrassment faced by the IFA exhibitors seems equal part the fault of the companies, for not thoroughly researching the situation (or attempting to avoid royalty fees), and equal part fault of Sisvel, for not properly educating the market (or making the situation more complicated by claiming ownership of still-contested technologies).

But why such aggressive behavior by Sisvel? And what purpose did this action serve?
More than a few people have complained that Sisvel is simply exploiting German law to scare vendors and put them under public pressure to purchase licenses. Sisvel could have easily notified the companies before or even after IFA. For these companies, a successful booth showing at IFA would have only increased sales and consequently, in the long-term, increased the number of license fees Sisvel could demand.

However, for Sisvel, a high-profile, media-attracting debacle does much to help spread news at a relatively low (monetary) cost. More conservative, business-friendly ways do exist to extract royalty payments, but big splashes seem more effective (Reference Alcatel-Lucent’s strategy to first target the “big guys”, then watch the little guys fall in line). Interestingly enough, as these MPEG audio patents near expiration within the next few years, Sisvel’s incentive is to act for the “short-term”. These extreme actions could be construed as a calculated attempt maximize the reach of its “pay-up (now), or else” message.

Ultimately, like all patent licensing companies, Sisvel’s motivation and purpose is collecting royalty fees, which is perhaps why terms like “Patent Troll” are being thrown around. However, as a licensing company working on behalf of the patent owners, Sisvel’s actions have managed to bring in revenues that are rightfully owed to the owners and ostensibly will be used to finance further innovation. Controversy exists because Sisvel is just one of a slew of MPEG audio technology patent holders who have been claiming a cut of the digital media revolution’s profits. Legal and technical reasons aside, Sisvel’s “shoot first, ask later” approach have succeeded brilliantly in setting Sisvel in the precedent of who must be paid.

Despite drawing the ire of manufacturers, businesses, and bloggers worldwide, Sisvel has proven that it is fully within its right to demand licensing fees, and it has shown a willingness to enforce and maximize these rights. This has also brought further dividends, as several corporations, impressed with Sisvel’s ability to collect royalty fees, have licensed out their patents to Sisvel (re. DVB-T, and MPEG LA). In Germany, this news prompted many companies to publicly questions the necessity of participating in these exhibitions, lest they dare suffer again the embarrassment, and then the consequences.

Patent References:
European Patent 0402973 / App.#90201356
European Patent 0599824 / App.#94200239
European Patent 0599825 / App.#94200240
European Patent 0660540 / App.#95200565


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