LICENSE AGREEMENT

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MPEG-2 PATENT PORTFOLIO LICENSE

Coverage

Each patent in the MPEG-2 Patent Portfolio is essential for implementing the main profile of the MPEG-2 Video (excluding scaleable extensions) and Systems standard specifications: ISO/IEC IS 13818-1 Information Technology - Generic Coding of Moving Pictures and Associated Audio Information including annexes C, D, F, J, and K; ISO/IEC IS 13818-2 including annexes A, B, C, D but excluding scaleable extensions; and IS 13818-4 but only as it is needed to clarify IS 13818-2 ("MPEG-2 standard"). (Note: As of January 1, 2006, parties using the MPEG-2 Systems Standard in products without MPEG-2 video encoders or decoders will benefit from and will be covered under the MPEG-2 Systems Patent Portfolio License, in addition to other licenses that may be required (e.g., for non-MPEG-2 video codecs).)

The various sublicenses granted by the License (Sections 2.1 - 2.5) are worldwide, nonexclusive and nontransferable, but a Licensee can extend coverage to its Affiliates (sections 1.1 and 2.9). Licensors are obligated to include all MPEG-2 Essential Patents wherever they issue and cannot withdraw coverage of patents to Licensees that already have signed up during a period when a particular Licensor and/or patent(s) was in the Portfolio. New Licensors and essential patents may be added at no additional cost during the term, and coverage is for the entire term.

Product Categories and Royalties

Click here to download a document summarizing MPEG-2 product categories and royalties.

Under the MPEG-2 Patent Portfolio License the party that offers MPEG-2 Royalty Products (Section 1.25) for Sale (Section 1.30) to the end user is responsible for royalties on the various categories of end product (in hardware or software) sold or placed into the stream of distribution. Section 3 of the License agreement provides the schedule of royalties that apply to the sublicenses granted under Section 2:

(1) For MPEG-2 decoding products in hardware or software (such as those found in set-top boxes, DVD players and computers equipped with MPEG-2 decode units), the royalty is US $2.50 from January 1, 2002 and $4.00/unit before January 1, 2002. (Sections 2.2 and 3.1.1).

(2) For MPEG-2 encoding products in hardware or software, the royalty is US $2.50 from January 1, 2002 and $4.00 before January 1, 2002 for each encode unit (Sections 2.3 and 3.1.2). This does not grant a license to use MPEG-2 encoding products to encode/produce DVDs or other MPEG-2 packaged medium for other than personal use of Licensee’s customer, however; the grant to encode/produce DVDs or other MPEG-2 packaged medium for other than personal use of Licensee’s customer is covered by the sublicense for MPEG-2 packaged medium, and the royalties for that sublicense are assessed on the MPEG-2 packaged medium itself (see (5) below). Encoding product Licensees are required to give notice (covering the exclusion from the sublicense granted by Section 2.3) that encoding products may not be used in any manner for encoding MPEG-2 Packaged Media without a license under applicable patents (Section 7.16).

(3) For MPEG-2 distribution encoding products (e.g., for real time terrestrial, cable, satellite etc. broadcast and/or distribution), the royalty is US $2.50 from January 1, 2002/$4.00 before January 1, 2002 times the number of channels for providing encoded video information that can be encoded in parallel (Sections 2.3 and 3.1.3).

(4) For MPEG-2 Transport or Program stream products such as file servers or multiplexers that multiplex or demultiplex MPEG-2 bitstreams, the royalty is US $4.00 times the greater of the input or output transport or program streams relevant to the specific device (Sections 2.5 and 3.1.5). (Note: As of January 1, 2006, MPEG-2 Transport or Program stream products such as file servers or multiplexers that multiplex or demultiplex non-MPEG-2 bitstreams also will be covered under the MPEG-2 Systems Patent Portfolio License at US $0.50 per device.)

(5) For MPEG-2 Packaged Media, the royalty is US $0.03 from March 1, 2003/$0.035 from September 1, 2001 to March 1, 2003/$0.04 before September 1, 2001 for the first MPEG-2 Video Event, plus $0.01 for each additional 30 minutes or portion recorded on the same copy, but not to exceed (a) US $0.03 from March 1, 2003/$0.035 from September 1, 2001 to March 1, 2003/$0.04 before September 1, 2001 for a single Movie, (b) US $0.02 for the second Movie recorded on the same copy as the first Movie, and (c) US $0.01 for each copy having a normal playing time up to and including but not more than 12 minutes of video programming encoded into an MPEG-2 compliant format (Sections 2.4 and 3.1.6-3.1.8). "MPEG-2 Video Event" (Section 1.28) is a unit of video information having a normal playing time of any length up to and including 133 minutes, and "Movie" (Section 1.10) is a single motion picture and related materials but not a second motion picture whether or not related. (Note: There is also an alternative which applies only to MPEG-2 Packaged Medium that complies with DVD Specifications for Read-Only Disc Version 1.01 instead of that provided in Sections 2.4 and 3.1.6-3.1.8 of the License: US $0.03 from March 1, 2003/$0.035 from September 1, 2001 to March 1, 2003/$0.04 before September 1, 2001 per disc having a single encoded layer, US $0.06 per disc having two encoded layers, plus US $0.02 per disc for each encoded layer more than two but not to exceed US $0.03 from March 1, 2003/$0.035 from September 1, 2001 to March 1, 2003/$0.04 before September 1, 2001 for a single Movie.)

To make it easier for MPEG LA’s customers to account for their MPEG-2 Packaged Medium royalties, effective September 1, 2005, Licensees may elect a simplified option for reporting MPEG-2 Packaged Medium royalties under which they pay US $0.03 for each MPEG-2 video disc regardless of its specific content or playing time (except where the playing time is 12 minutes or less in which case the royalty would continue to be $0.01). By choosing this option, Licensees may avoid having to distinguish between Movie and non-Movie content or otherwise accounting for the non-Movie playing time of MPEG-2 Packaged Medium, except where the playing time is 12 minutes or less. Please note, for example, that while the above current License provisions allow Licensees to pay US $0.03 for two DVD discs consisting of one Movie and related materials, choosing the new option will require Licensees to pay US $0.03 for each disc regardless.

MPEG LA also offers to all Licensees an Addendum to the MPEG-2 Patent Portfolio License that will reduce royalty rates for MPEG-2 Packaged Medium products from January 1, 2007 forward. For those Licensees who elect to sign the Addendum, royalties for MPEG-2 Packaged Medium would be reduced over a period of five (5) years as follows:

January 1, 2007 - to US $0.028 per MPEG-2 Video Event* or disc

January 1, 2008 - to US $0.026 per MPEG-2 Video Event* or disc

January 1, 2009 - to US $0.024 per MPEG-2 Video Event* or disc

January 1, 2010 - to US $0.022 per MPEG-2 Video Event* or disc

January 1, 2011 - to US $0.020 per MPEG-2 Video Event* or disc

Under the Addendum, Licensees electing the reduced royalty rates would agree to keep the License in place through December 31, 2012. For those Licensees who do not select the reduced royalty rate option by signing the Addendum, the current royalty rates described in the preceding paragraphs above will continue to apply through the current Term which ends December 31, 2010.

*MPEG-2 video information with normal playing time up to and including 133 minutes. As described in the first paragraph of section (5) above, subject to royalty for additional running time limited by single Movie, second Movie and 12 or fewer minutes exceptions

(6) A royalty of $2.50 (US) from January 1, 2002 /$6.00 before January 1, 2002 per unit applies to Consumer Products (defined in Section 1.5) such as camcorders, read/write DVD players, computers and/or software, etc having both encoding and decoding capabilities (Section 3.1.4).

A party that makes an MPEG-2 Intermediate Product (defined in Section 1.20, with emphasis on the last nine words "but which is not a product that is Sold") may avail itself of the Intermediate Product License in Section 2.1, allowing it to make MPEG-2 intermediate products that perform any of the above functions (e.g., OEM products, ICs, circuit boards, subassemblies and firmware and software that are sold for the purpose of integration into a product intended for end-users), but their customers may not use these products unless the applicable royalty is paid. (As noted above, a royalty is applied on MPEG-2 end products, not on the intermediate product; and MPEG-2 Intermediate Product suppliers are required to give notice that MPEG-2 Intermediate Products may not be used without a license under applicable patents [Section 7.16].) Companies may be end-sellers of some products (in which case they are responsible for royalties) and intermediate product suppliers of others (in which case the product does not bear a royalty). In addition, there is nothing that precludes a supplier or other third party from paying applicable royalties to MPEG LA on the end seller’s behalf, but that is a matter between the MPEG-2 end-seller and its supplier; the end-seller is responsible for assuring that they are paid to MPEG LA.

License Term

Coverage is from June 1, 1994 to December 31, 2010 under the License as amended (Section 6.1). (For Licensees that were under License for the term June 1, 1994 to January 1, 2000, coverage under their renewal licenses is from January 1, 2000 forward.)

Following that, Licensees have the right to renew for successive five-year periods for the life of any MPEG-2 Patent Portfolio Patent, subject to reasonable amendment of royalty terms and rates (not to increase by more than 25%). Exempted from the 25% ceiling increase is a request by MPEG LA for a two-tier royalty rate for MPEG-2 Packaged Medium in the event a Movie of the same title is offered simultaneously to consumers for sale or rental at different prices.

Other important provisions

A Licensor may instruct the Licensing Administrator to remove its patents from coverage as to a particular Licensee if that Licensee brings a lawsuit or other proceeding for infringement of an MPEG-2 Related Patent or an MPEG-2 Essential Patent against the Licensor and has refused to grant the Licensor a license on fair and reasonable terms and conditions under such patents on which the lawsuit is based (one example of which is the Licensors' per patent share of royalties payable under the License). The reason for this provision (Section 6.3) is that the License is to protect companies from being sued for using MPEG-2 but should not be used to protect a Licensee so that it can sue others; it encourages negotiation and innovation in support of the standard.

Any Licensee is free to add MPEG-2 essential patents to the Portfolio that it or an affiliate may own on the same terms and conditions as all other Licensors (Section 7.4). If a Licensee chooses not to do so, however, it must agree to license such patents to any Licensor or Licensee on fair and reasonable terms (one example of which is the Licensors' per patent share of royalties payable under the License). The purpose of this provision (Section 7.3) is to assure, for the benefit of all Licensees, that a Licensee does not take advantage of the MPEG-2 Patent Portfolio License, on the one hand; yet refuse to license its own MPEG-2 essential patents on fair and reasonable terms.

A most favorable royalty rates protection is included to assure Licensees that no Licensee will get more favorable royalty rates than another (Section 7.7).

Licensee information is treated as confidential (Section 5).