MT5001 - Report On The Technological and Intellectual Property Aspects of MP3

National University of Singapore
MT 5001 IP Management Group Report:
MP3 Case Study
Submitted by:
Names Matriculation No. Contribution to Report

Ng Hui Ming HT062933R 20%
Lee Teck Joo HT063163R 20%
Chut Zhen Biao HT063191M 20%
Lim Ching Wu Leslie HT063039Y 20%
Tan Sung Chyn HT062932E 20%
MT 5001 IP Management Group Report: MP3 Case Study
Table of Contents
1 Executive Summary ................................................................................................................ 5
2 Introduction............................................................................................................................. 7
3 Technological Aspects of MP3............................................................................................... 9
3.1 MP3 Technology............................................................................................................. 9

3.2 Evolution of MP3 – Summary of Major Events on MP3 ............................................. 11
3.3 Why MP3 is Potentially a Disruptive Technology? ..................................................... 14
3.3.1 Technology Disruption ......................................................................................... 14
3.3.2 Business Model Disruption................................................................................... 17
3.4 Growth of MP3 ............................................................................................................. 19
3.4.1 MP3 Technological Life Cycle............................................................................. 19
3.4.2 MP3....................................................................................................................... 22
3.4.3 MP3 Pro ................................................................................................................ 23
3.4.4 MP3 Surround....................................................................................................... 23
3.4.5 MP3 SX................................................................................................................. 23
3.5 Evolution of Substitutable Technologies ...................................................................... 24
3.5.1 Uncompressed Audio Format ............................................................................... 24
3.5.2 Lossless Audio Format ......................................................................................... 24
3.5.3 Lossy Audio Format ............................................................................................. 25
3.6 Patents Portfolio of MP3 Technologies by Various Companies .................................. 26
3.7 Examination of the strategies used by the Patent holders/ Inventors and other CD
Incumbents................................................................................................................................ 28
3.8 Collaborative Relationships between Key Players in the Industry............................... 30
3.8.1 Thomson with Sisvel ............................................................................................ 30
3.8.2 Thomson/Sisvel with Microsoft............................................................................ 31
3.8.3 Thomson with Creative Technology..................................................................... 33
3.8.4 Sisvel with Motorola............................................................................................. 33
3.8.5 Sisvel with Sony Ericsson..................................................................................... 33
3.8.6 MP3 continues to Flourish .................................................................................... 33
4 Intellectual Property Aspects of MP3 ................................................................................... 35
4.1 Patent Disputes.............................................................................................................. 35

4.1.1 Fraunhofer IPR Enforcement................................................................................ 35
4.1.2 Sisvel and SanDisk Disputes ................................................................................ 36
4.1.2.1 Case Analysis and Discussion .......................................................................... 37
4.1.3 Microsoft vs Alcatel- Lucent Dispute................................................................... 38
4.1.3.1 Case Analysis and Discussion .......................................................................... 40
4.2 Copyright Disputes ....................................................................................................... 43
4.2.1 MP3 Technology as a Facilitating Tool for Infringement .................................... 43
4.2.2 Infringement by Web services Provider MP3.com............................................... 44
4.2.3 Infringement by online E-retailers AllOfMP3.com .............................................. 46
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4.2.4 Infringement by Virgin France ............................................................................. 47

4.2.5 Digital Rights Management (DRM) ..................................................................... 49
5 Recommended IPR Infringement Mitigation Measures ....................................................... 52
5.1 Co-development of Technology ................................................................................... 52

5.2 Filing for Patents in Other Parts of World .................................................................... 52
5.3 Sending Letters to Potential Infringers ......................................................................... 52
5.4 Take Action to Sue in order to Create Awareness........................................................ 54
5.5 Consideration of Different Types of IP Rights ............................................................. 55
6 Conclusion ............................................................................................................................ 56
7 Appendix A. List of Patents by Fraunhofer/ Thomson......................................................... 57
8 Appendix B. List of Patents held by Audiompeg ................................................................. 62
9 Appendix C. List of Patents held by Sisvel .......................................................................... 65
10 Appendix D. List of Patents in dispute between Microsoft and Alcatel-Lucent .............. 68
11 Appendix E. List of Patents related to WMA and held by Microsoft............................... 69
12 Appendix F. Enforcement Letter by Fraunhofer and Thomson........................................ 70
13 Appendix G. List of Licensees.......................................................................................... 73
List of Figures
Figure 1. MPEG Audio Encoding................................................................................................... 9
Figure 2. Compression Algorithms Proposed............................................................................... 12
Figure 3. MP3 Disruption of CD Audio ....................................................................................... 16
Figure 4. Relationships Between the Different Parties in the CD and MP3 Business Value Chain
............................................................................................................................................... 18
Figure 5. S-Curve of MP3............................................................................................................. 19
Figure 6. The Growth of MP3....................................................................................................... 20
Figure 7. Theoretical Patent/Assignee Technology Life Cycle .................................................... 21
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Figure 8. First Wave of MP3 Patent Creation............................................................................... 21
Figure 9. Second Wave of MP3 Creation ..................................................................................... 22
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1 Executive Summary
Since the introduction of the MP3 (MPEG Layer 3) audio encoding, the technology has found
widespread use in areas such as games, online sharing/ purchase of music and portable MP3
Players. Aggressive competition between market players to maximize profits associated with this
technological innovation had inevitably created numerous intellectual property rights
infringement issues. This paper will discuss the MP3 innovation and its associated IP issues, with
focus on the following areas:
• An introduction on disruptive technology in relation to MP3 technology and its potential
in displacing the sustaining Compact Disc (CD) technology. A brief description of MP3
technology (key technology components), including its historical development that is
required for the understanding of the relevant IP strategies and the issues to be discussed.
• Description of the list of patents held and managed by the IP holding/ licensing company
(Thomson) for the MP3 founding company (Fraunhofer IIS).
• Description of cordial/competing relationships among the key players in the industry, and
the various strategies adopted e.g. research and development of alternative encoding
technologies (AAC, WMA, etc) by the Apple and Microsoft or licensing of the MP3
technology (e.g. Sony, Samsung, etc) would also be discussed.
• Past and current IP disputes that have occurred or are on-going (MP3.com for copyrights,
SanDisk patent infringement case which injunction was given in favor of the innovators
and a subsequent court over-rule, and $1.6 billion Microsoft-Alcatel-Lucent patents
infringement case).
• Copyrights issues associated with the misuse of MP3 (e.g. illegal sharing of music, etc).
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• The team’s recommendations on how to mitigate existing/ potential MP3 IP disputes and
misuse.
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2 Introduction
The successful invention of MP3 technology has created new opportunities to sell music
alongside with the traditional recording music business. MP3 uses open standard technology and
is able to compress raw music files to about one tenth their original size while still providing
near CD quality sound. With MP3, a four-minute song can be downloaded in less than 15
minutes compared to more than 3 hours for the same song in CD audio format via Internet with a
low-speed modem. Thus, the huge compression gain makes e-retailer of MP3 music viable and it
has then posed a serious threat to the well-established traditional recording music business.
A total of 16 industrial renowned companies (e.g. AT&T, Philip) and research institutes (e.g.
Fraunhofer) were involved in the creation of MP3 technology. However, the ownerships of who
owns which patents were not explicitly clear. To aggravate the situation, some of the Research
Institutes (RIs) and industrial companies had outsourced their MP3 patents to IP holding
companies (Fraunhofer & Thomson and Philip & Sisvel) to manage and the acquisition/merging
of companies (Alcatel-Lucent-AT&T) during this period of time had further complicated the
ownerships of MP3 technology. This evolution has led to future MP3 technology IPR disputes
and confusion (e.g. Sisvel & Scandisk, Microsoft & Alcatel-Lucent cases).
On the other hand, the economic benefits of MP3 technology have enticed many market players
such as Napster, MP3.com, Apple and Microsoft to sell MP3 music via the Internet. Napster and
MP3.com have created a business model that allows subscribers to share and stream MP3 audio
music on line. This business approach was deemed illegal by Recording Industry Association of
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America (RIAA) as it encouraged the illegal used/shared of audio music without the permission
from the music owner. Both Napster and MP3.com were sued by RIAA for infringing the
copyright laws. In contrast, Apple and Microsoft chose to license music from the traditional
recording companies with the condition that both have to implement Digital Rights Management
(DRM) measure to safeguard their music against theft and curb illegal proliferation of MP3
music which may hinder the recording music business. However, each e-music retailer has their
proprietary way of implementing the DRM and this led to the problem that iMusic purchased
from Microsoft’s Zune store can only be played on Zune players and music purchased from
Apple’s iTunes store can only played on iPods. The recording companies are happy with the
existing situation as the DRM measure could be viewed as creating barriers to the proliferation
of MP3 music and this move has made the traditional recoding music business via retailers
sustainable.
The MP3 technology has also faced numerous displacement challenges. Unhappy with the
monopoly of MP3 technology in digital music due to the huge lock-in users and the need to pay
royalty for the MP3 patents, companies such as Microsoft and Sony have also switched to
develop alternative proprietary technologies such as WMA and ATRAC in attempt to replace
MP3. However, they are unsuccessful and MP3 continues to diffuse.
Despite the numerous barriers imposed on MP3, it related technologies and applications have
continued to grow. This paper shall provide a detailed discussion and analysis on the
technological and the intellectual property aspects of MP3 that evolved over the past 20 years.
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3 Technological Aspects of MP3
3.1 MP3 Technology
MPEG-1 Audio Layer 3, commonly known as MP3 is a standard format for compressing digital
audio. It is a lossy digital audio encoding algorithm which has the ability to squeeze an audio
file into one tenth of its original size while still maintaining near CD audio quality. This high
compression gain allows 12 hours of high quality music to be stored on a single CD compared to
74 minutes for audio CD format. Normally, the components that make up the piece of audio will
inevitably contain some inaudible signals to human hearing. To compress audio, MPEG encoder
first applies a psycho-acoustic model to identify these inaudible signals and remove them from
the uncompressed audio. This reduction technique contributes to the first stage of the
compression gain. The signals that passed through will be further compressed using standard
lossless data compression technique, Huffman coding, to achieve the 2nd stage of compression
gain. The audio encoding process is shown in Figure 1.
Figure 1. MPEG Audio Encoding

(Source: [1])
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As individual hearing ability is different, the removable of inaudible signals may present some
imperfection to some high sensitivity music listeners. However, human hearing sensitivity does
fall within a finite range thus enabling the MP3 encoding process to be manipulated to suit the
need of the majority of people.
The output of the MPEG audio encoder is frame-based and thus provides the provision to insert
additional meta-data information in the form of text, graphics. CD audio, on the other, stores this
information on the hardcopy user-manual that makes it more inconvenient for consumers. The
MP3 standard allows music industry to include almost any type of data including song title,
duration, copyright information, lyrics, album artwork and even links to artist’s Web sites which
may increase customer experience.
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3.2 Evolution of MP3 – Summary of Major Events on MP3
For more than 20 years, many renowned companies and research institutes have been relentlessly
engaged in the creation of MP3 technologies. Since the invention in 1995, complementary assets
such as MP3 player, on-line music industry and CD to MP3 converter associated to MP3 have
begun to proliferate. As there are numerous parties involved in creating the invention and
subsequently deploying the technological innovations, it is important to capture the major events
surrounding the MP3 evolution for the past 30 years since 1970s when the idea of audio coding
research first conceived.
1970s – Prof Dieter Seitzer of Erlangen-Nuremberg University in Germany assembled a group of
Research Scientists and Engineers (RSEs) to explore the concept of compressing music over
phone lines. The first DSP to carry out the compression process was developed [2].
1987 – An alliance formed between Erlangen-Nuremberg University and the Fraunhofer Institute
to carry out research work financed by the European Union as part of the EUREKA research
program [2]. Led by Prof Heinz Gerhaeuser from Fraunhofer Institute, the project team invented
a working real-time hardware system using multiple Digital Signal Processors (DSPs) with audio
and data I/O interface cards.
1988 – The International Standardization Organization (ISO) established the Motion Picture
Expert Group (MPEG) to develop a digital coding standard for video and audio interactive
communication.
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1989 - A total of 14 audio compression algorithms were proposed and regrouped according to
their similarity. Four coding concepts MUSICAM, ASPEC, ATAC and SB/ADPCM emerged
as shown in Figure 2. After thorough evaluations, MUSICAM and ASPEC emerged to be the
two most suitable concepts for further exploration. Thomson, Fraunhofer, France Telecom and
Philips were the key players in proposing the coding concepts. The cooperation in developing
MP3 technology has led to future disputes on the ownership right of the MP3 patents.
Figure 2. Compression Algorithms Proposed

(Source: [3])
1991 – MUSICAM and ASPEC algorithms were further combined as one for the reasons that
both have their own superiority [2]. The merging created a family of three coding schemes.
Layer 1 was a low complexity variant of MUSICAM, Layer 2 was an optimized version of
MUSICAM and Layer 3 was mainly based on ASPEC.
1992 – The MPEG group and ISO tasked group concluded the first compression technique
MPEG-1 for the use in Video CD.
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1995 – The established compression algorithm was named as MP3. MPEG Layer 3 was selected
as the audio format for the WorldSpace satellite digital broadcasting system.
1996 - United States patent issued for MP3.
1998 onwards – The era of MP3 began. The portability of MP3 was also introduced with the
launch of headphone stereos that used solid-state flash memory to store and play the compressed
music files both in US and Korea [2]. The popularity also led to the companies venturing into
the development of other kinds of portable devices compliant with MP3 format. It became a
shift in the culture when more consumer electronic devices were produced to include MP3
capability. Enabled by the Internet boom and the introduction of portable MP3 player, MP3 has
flourished. At this time, the IPR disputes associated to MP3 increases. For example, Fraunhofer
Institute, one of the co-founders of MP3 technology started to enforce their patent rights. All
developers of MP3 encoders or rippers and decoders/players now have to pay a licensing fee to
Fraunhofer. The court case between Recording Industry Association of America (RIAA) and
developer of portable MP3 player, Diamond Multimedia Player on the charge of portable player
will encourage more piracy.
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3.3 Why MP3 is Potentially a Disruptive Technology?
3.3.1 Technology Disruption
Although MP3 is able to produce near CD audio quality, it is dependent on the encoding rate
selected. The lossy MP3 compression will produce some loss of fidelity and become more
noticeable as the compression ratio is increased. At such, MP3 music is considered slightly
inferior compared to the lossless CD audio. The market players of MP3 capitalize this invention
through digital music distribution, taking the advantage of Internet to diffuse MP3 music as
opposed to traditional CD audio distribution, where consumers have to purchase album CD via
the retailer shops. The CD audio mainstream markets are the traditional recording industries such
as Universal, Sony and Warner to provide consumer with home stereo high-resolution
performance and high-end entertainment. CD market is a mature industry well equipped with
established complementary assets such portable CD audio players, automobile CD players and
wide coverage retailer distribution channels.
Enthusiast who wanted to listen to music on their PCs originally adopted the MP3 format in
which they downloaded MP3 songs from the Internet and through peer-to-peer sharing
mechanism. However, this first MP3 adoption wave was not sufficient strong to replace the
mainstream CD markets as MP3 lacks the portability and MP3 audio standard was not supported
by the traditional recording industry. Gradually, the improvement on the performance of the
MP3 complementary assets such as high-speed PC, high capacity hard disk and high-speed
Internet modem have greatly lifted the MP3 penetration rate and it began to erode the CD
markets. Consumers who have PCs and access to Internet are able to effortlessly acquire music
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from the cyberspace and store it in personal music Jukebox. Sales of CD started to decline as
MP3 community started to expand and consumers began to enjoy the right and benefit of
selecting and purchasing songs they like to listen over Internet instead of paying the entire CD
album. The successful development of Rio MP3 portable players in 1999 by Diamond
Multimedia accelerated the proliferation of MP3 music as it can be made as portable as CD.
According to Recording Industry Association of America (RIAA), the CD sales to 15-to –24
year-old buyers are slumping and because of the proliferation of MP3 players, electronic music
distribution and changing consumer behavior arose because of the availability of MP3
technology.
However, it is still not easy to listen to the music on the PC in a non-PC environment. In
addition, always-on broadband access is not widely available or installed. One-line MP3 music is
still not supported by the incumbents i.e. recording industries, as they fear losing the control of
the traditional distribution channels and have mounted various aggressive counter-responses to
create barriers for MP3 market entrance including selling single track CD song online. Also,
consumers who want to rip CD song have to go through a two-step process of using a computer’s
CD-ROM drive to copy songs from audio CDs and subsequently converting them to MP3
format.
In the meantime, MP3 has continued to capture the imagination of many companies that see an
unparalleled opportunity to benefit from yet another Internet business opportunity. Thomson is
exploring a portable audio product that will use flash memory but has not decided on which
compression scheme it will use. Microsoft WebTV Network has announced that future upgrades
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to its products will include the ability to download MP3 digital audio at a rate of two minutes for
a full CD, with a total capacity of up to 1,000 hours of music [4]. The victory of the Rio player
and the MP3 format in the courts could unleash a flood of MP3-based products in 1999 [5].
Overtime, MP3 has the potential to disrupt the CD-audio market as shown in Figure 3.
Established CD
Technology
Performance
MP3 Technology
Mainstream
Customer
Need
Niche
Customer
Needs
Time
Figure 3. MP3 Disruption of CD Audio
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3.3.2 Business Model Disruption
We can also view the disruptive effects of MP3 on CD with regards to the business model.
Figure 4 depicts the relationships between the following parties:
the music companies (content providers)
the CD players manufacturers (incumbents),
the CD distributors and retailers (incumbents)
the web-based retailers (insurgents)
the portable MP3 players manufacturers (insurgents)
the MP3 inventors (insurgents)
MP3 offers an alternative distribution channel of music via the Internet (dotted flow). Players
like Apple, Microsoft and Sony has set up their online music stores like iTunes, Zune online
store, and Connect respectively. In doing so, the online stores will need to pay the MP3 inventors
(Thomson, Fraunhofer, etc) for using the MP3 technology (and hence their patents).
In addition, they are required by the music record companies (Sony BMG, EMI, Universal and
Warner) to incorporate Digital Rights Management (DRM) into their MP3 players and related
accessories (e.g. software applications) [6] before they can distribute the music online (rights
pertaining to copyrights of the music). The online music store players will also have to fulfill
certain service level requirements in coming up with patches to loopholes in their DRM
system.We also note that as of now, the majority of the music is still being distributed via CD
using traditional retailers like HMV and other physical stores (solid line).
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Recording Companies/
MP3 Patents by FI, Audio Content Provider Original CD
Thomson, Sisvel, (e.g. Universal, Sony Patents by Sony
Audiompeg BMG, EMI, Warner) and Philips
License the right
License the right to use CD for License the
License the right to use MP3 for License the storage and right to use
to use MP3 in distribution of audio distribution of CD playback
hardware content over content to content technology in
Internet distributors the hardware
MP3 Players
Manufacturers Web Based CD Distributors CD Players
Provider/ Retailers and Retailers Manufacturers
(e.g. Napster, (HMV, etc)
MP3.com, Apple
iTunes, Microsoft
Zune, Sony
Connect)
End Users
Figure 4. Relationships Between the Different Parties in the CD and MP3 Business Value Chain
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3.4 Growth of MP3
3.4.1 MP3 Technological Life Cycle
The growth of MP3 can be explained using the technological life cycle. S-curve is often used
to describe how new technology is adapted. Initially people are slowed to begin to use the
technology but once it is accepted growth is rapid. Finally, growth slows down when the
market is saturated or newer technology comes along. Patents can be used to plot the S-Curve
to visualize the progress of the technology. The total number of patents each year from 1984
to 2006, based of the patents licensed by Fraunhofer/Thomson, Sisvel and Audiompeg, are
used to plot the S-Curve as shown in Figure 5. During the growth stage, the number of
patents increases and decrease during the decline stage.
Figure 5. S-Curve of MP3
From 1998 to 2006, the improvement on MP3 audio technology and the growth of its
associated applications are remarkable. In 1999, the portable MP3 players were
commercialized, allowing consumers to listen to MP3 audio beyond their PC. Other
complementary assets such as CD audio to MP3 converters were also developed to aid the
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adoption of MP3 audio. Web retailers selling MP3 music have flourished. Figure 6 provides
a snapshot on the development of MP3 technology in this growth period.
Figure 6. The Growth of MP3
Using the number of patents and number assignees each, the technology life cycle can be
visualized as shown in Figure 7.
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Figure 7. Theoretical Patent/Assignee Technology Life Cycle
Figure 8 shows the first wave of patent creation. The graph plotted is not as smooth as it is in
theory. However, it still shows the growth and declining trends of the MP3 technology.
Figure 8. First Wave of MP3 Patent Creation
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Figure 9 shows the second wave of MP3 creation due to patents of the improvement
made to the MP3 technology, MP3Pro, MP3 Surround and MP3 Sx. The distortion of the
two graphs is due to the fact that the rate of decline may not follow that of theory and
patent data used are mainly on the key patents across this duration. Therefore some minor
patents may be missing.
Figure 9. Second Wave of MP3 Creation
The followings are the summary of the improvement done on MP3 technology:
3.4.2 MP3
Thomson has served as the licensing representative of MP3 patents and software of the
Fraunhofer Institute. Both of the organizations are the co inventors of this MP3 standard.
Since the launch of the MP3 licensing program in 1995, Thomson has played an instrumental
role in making MP3 the audio standard. There have been at least 300 licensing agreements
with the companies, with over 300 million licensed MP3 players worldwide.
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3.4.3 MP3 Pro
In 2001, Thomson announced the arrival of MP3 Pro, the next generation following MP3. It
offered two main advantages, namely, enhanced sound quality and improved compression,
thus, brought forth genuine CD quality. This new technology was brought in by Swedish
partner Coding Technologies who has initially developed it for a hearing device meant for the
deaf. Coding Technologies has in turn combined its works with Thomson and Fraunhofer
and resulted in MP3 Pro. This turned the hope of storing 24 albums into a CD into reality.
The files were more compact with better quality and complete with backward and forward
compatibility [7].
3.4.4 MP3 Surround
On 2nd December 2004, Thomson, Fraunhofer Institute and Agere Systems jointly announced
the launch of MP3 Surround [8]. This MP3 Surround promised 5.1 channel surround quality
sound for a broad spectrum of applications, including web based music distribution,
broadcasting system, PC related audiovisual or gaming applications, consumer electronics
and automotive systems.
3.4.5 MP3 SX
On 3rd January 2006, Fraunhofer Institute and Thomson announced the addition of a new
element – MP3 SX to the MP3 Surround software. MP3 SX enhances the MP3 files from
stereo to surround sound without changing the original stereo MP3 quality.
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3.5 Evolution of Substitutable Technologies
To break the monopoly of MP3 adoption, some of key market players such as Microsoft and
Sony had created their own compression algorithm in attempt to displace MP3. Although the
performance of these emergence technologies is potentially better than MP3, they are mostly
proprietary in nature which hinders their adoption. There are 3 main groups of audio formats,
namely, the uncompressed, the formats with lossless compression and lastly, the formats with
lossy compression like MP3. There will be an example for each type of compression format
as illustrated below.
3.5.1 Uncompressed Audio Format
Waveform Audio Format (WAV) – It is usually stored as a .wav on Windows or as .aiff on
Mac OS. The files are virtually the same quality as data on audio CD and thus offering the
best quality. At the same time, since it is uncompressed, the files are very large. Thus, it is
not quite suitable for exchange in the internet era.
3.5.2 Lossless Audio Format
Windows Media Audio (WMA) – It is a proprietary compressed audio file format developed
by Microsoft. It was initially intended to be MP3 competitor but it has not attained the level
of popularity yet. Microsoft has promised this to be almost CD quality with just one third of
the source file’s size. It also offers the advantage that the copyright protected songs cannot
be published further due to the Digital Rights Management. This could be a reason why
thought music and movie corporations have decided in favor of WMA instead of MP3, but it
also explained why it is not that popular with consumers yet.
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3.5.3 Lossy Audio Format
OGG – The development of the OGG standard took place back in 1993. At that time, the
project was known as Vorbis. It was an open source, lossy audio codec project headed by
Xiph.Org Foundation and intended to serve as a MP3 replacement to overcome the license
payment issue. OGG has a clear advantage over other lossy audio formats in that it is patent
free and has open source implementations. Thus, it is free to use, implement, or modify as
one deems fit. It produces smaller files of high quality. By recent years, it is as well known
as MP3.
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3.6 Patents Portfolio of MP3 Technologies by Various Companies
The patents related to the key technologies behind MP3 can be broadly classified into several
categories, namely:
Encoding/ decoding (including error detection/ correction)
Data compression
Sound Quality Improvement
Signal transmission
Fraunhofer Institute, being a research institute has collaborated with Thomson for it to license
the patents. From [9], the list of patents by Fraunhofer Institute/ Thomson can be found in
Appendix A.
The dispute over who really invented MP3 (and hence can claim the exclusive rights to it or
earn royalties) arose when companies like France Telecom, TDF, IRT, and Philips claimed to
hold some of the patents related to technologies used in MP3. These patents are licensed by
companies like Audiompeg and Sisvel. Generally Audiompeg holds patents filed in US while
Sisvel holds patents filed in non-US countries (e.g. countries in Europe). A more recent case
will be Alcatel-Lucent sueing Microsoft and winning the case.
From [10], the descriptions of the patents licensed by Audiompeg are as stipulated in
Appendix B.
The patents licensed by Sisvel are mainly filed in European countries (taken from [11]) and
the descriptions are found in Appendix C.
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The recent case between Microsoft and Alcatel-Lucent is over two patents held by Bell
Laboratories (once part of Lucent Technologies and now acquired by Alcatel). Both
Fraunhofer and Bell Labs supposedly co-developed the MP3 technologies. The patents
references and descriptions are found in Appendix D.
Other competing technologies of MP3 include WMA (by Microsoft), AAC and OGG.
As OGG is developed as an open source project and meant to replace MP3, there is no
licensing of patents associated with it.
Microsoft, on the other hand, develops WMA, and has been earning royalties from the
associated codecs [12]. The description of the patents held by Microsoft and related to audio
coding/ correction (and hence WMA) are documented in Appendix E.
We note that the use of the Digital Rights Management (DRM) feature to combat piracy and
copyright infringement also requires licensing from Microsoft.
AAC is licensed by VIA licensing ([13]) and the key inventors include:
• AT&T Corporation
• Dolby Laboratories
• Fraunhofer-Gesellschaft IIS-A
• Koninklijke Philips Electronics N.V.
• Sony Corporation
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3.7 Examination of the strategies used by the Patent holders/ Inventors

and other CD Incumbents
We note that the history behind the MP3 started with Fraunhofer collaborating with the rest
to leverage on each other technical expertise to work on the technologies behind MP3. In the
course of their work, Fraunhofer has developed a strong patent portfolio around the
technologies behind MP3.
Through the standard setting body (ISO), they have managed to influence the industry to
adopt MP3 to become a de-jure standard (ISO/ IEC-ISO 11172-3). Based on the standard, the
encoding/ decoding (codec) can supposedly be implemented in whichever way the developers
deemed fit (“free competition”), as long as the final file conforms to the MP3 specifications.
However, in reality, it is very likely that the developers will use one or more of the patents
that Fraunhofer holds [14], resulting in the need to pay royalties for use of the patents. The
only known player that managed to do a design work around was SanDisk.
We also note that Fraunhofer did not sue immediately or ask for royalties but wait for MP3 to
gain popularity. This is possible as MP3 is effective in trading-off between sound quality and
file size, and the Internet boom has enabled users to share music more easily. This is further
aided by the lack of any Digital Rights Management (DRM) feature inside the MP3
technology.
Other inventors of MP3 have adopted a “wait and see” approach; they observed if Fraunhofer
was successful in enforcing its patents rights and when it did achieve success, they jumped
onto the bandwagon (evident from Sisvel, Audiompeg and Alcatel-Lucent enforcement).
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More importantly, the various inventors did try invalidating each others patents but ended up
collaborating to share the pot of gold (evident from Thomson and Sisvel cross-licensing).
Most of the inventors have also transferred the roles of licensing/ patent rights enforcement to
IP licensing companies like Thomson, Sisvel and Audiompeg. This is to avoid deviation from
their main roles (e.g. Fraunhofer is after all a research institute).
For the incumbent players in the sustaining CD technology, Philips was also involved in the
co-development of the MP3 technologies and hence has access to the technology. Sony on
the other hand, chose to license the MP3 technologies (i.e. ensure it has access but does not
own it).
The content providers (music records) leverage upon their copyrights to ensure that their
interests are protected. For example, they demanded that Apple, Microsoft and other online
music stores to enforce Digital Rights Management (DRM) which can supposedly prevent the
illegal online sharing of MP3 music. More of this will be discussed in the subsequent section
on DRM.
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3.8 Collaborative Relationships between Key Players in the Industry
Some of the key market players have ran into conflicts with the patent owners previously but
ending up collaborating with one another. The motivation behind this collaboration could be
attributed to personal interests and the understanding to seek better ways to make MP3 a
more popular and widespread standard so as to create barriers to the adoption of substituting
technologies. Other companies are opening up business areas due to these collaborations.
3.8.1 Thomson with Sisvel
SISVEL is a patent managing company, operating since 1982. It has enjoyed exclusive
worldwide rights to grant licenses under patents covering essential elements of the MP3 and
MPEG audio compression standards.
On 14th October 2005, Sisvel has filed lawsuit to invalidate Thomson and Fraunhofer MP3
Patents [15]. These patents have been licensed by Thomson on behalf of Fraunhofer. Sisvel
has put across the argument that the patents related to MP3 is “trivial and does not deserve
patent” as quoted from Mr Paolo d’Amato, managing director of Sisvel. MP3 was challenged
as just an additional level of compression of the MPEG Audio System developed and owned
by Philips, France Telecom, Telediffusion De France (TDF) and Institute for
Rundfunktechnik GmbH (IRT). Sisvel’s experts have argued that the development of MPEG
Audio Layer III was based on an already known technology given the status of technology at
that time and thus it was not patentable. In addition, according to the complaints, Thomson
was marketing and selling MP3 players, TV setup boxes, DVD players and CD players using
MPEG audio compression covered by Sisvel’s patents without a license to practice those
inventions. Till the recent years, Thomson was actually licensed just like other 250
companies which have been paying royalties to Sisvel. Thomson had failed to renew the
30
license in 2005. By refusing to renew the license had put Thomson in a spot which explained
that they were aware that the license was required to carry out their business and they had in
fact, willfully chosen to ignore the duty to respect the intellectual property law. The lawsuit
sought royalties for past infringement, punitive damages for willful infringement, attorney
fees and injunctions to prohibit Thomson from selling the products using MPEG audio
compression.
On 9th November 2005 [16] when Sisvel released a press statement with Thomson jointly, to
announce that they have reached an agreement regarding the MP3 and MPEG2 audio
compression patents owned by France Telecom, Telediffusion, and other major participating
inventors. This agreement has included the dismissal of all litigation and administrative
proceedings pending between them, the resolution of past disputes and the granting of MPEG
audio license to Thomson.
3.8.2 Thomson/Sisvel with Microsoft
Microsoft has licensed the MPEG patents from Sisvel and MP3 patents from Thomson
respectively. Despite having its own audio codec algorithm, Microsoft is one of the licensed
companies for MP3 format. One reason could be due to the overwhelming popularity of MP3
as an audio standard. They see MP3 as a digital media format to stay at least for the time
being. In the Windows XP operating system, Microsoft not only supports MP3 format, the
Windows Media Player even provides add on technologies such as allowing MP3 files to
contain meta data (information of the song). In addition, Microsoft also gives MP3 equal
access as WMA when it comes to device copying, Audio CD burning, and Media Library
management features.
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Other than focusing on MP3 patents alone, Thomson has also entered quite a number of
collaborations with Microsoft.
On 15th March 2005, Microsoft, Time Warner and Thomson have announced completion of
their three way acquisition of ContentGuard [17]. ContentGuard is a developer of Digital
Rights Management technologies. This is a technology to enable movies, music and other
digital content to be shared by users on the internet while protecting the content from illegal
copying and counterfeiting. The organizations would hold 33 percent of voting positions each
in the ContentGuard and they would appoint two seats on the ContentGuard board. The aim
of this acquisition is to help promote the development of inter-operable Digital Rights
Management and encourage content owners to launch new distribution channels while
abiding digital rights. The partners planned to continue development of ContentGuard’s
intellectual property and to promote innovation in the electronic content distribution using
Digital Rights Management technologies.
On 9th January 2007, Microsoft has acquired a patent license from Sisvel and its subsidiary
Audio MPEG to the MP3 and MPEG2 audio compression patents. Under this agreement,
Microsoft is licensed to sell products using the patented audio compression technology. The
license granted to Microsoft covers PC-software and hardware products, including
Microsoft’s new Zune music player, Xbox 360, and Microsoft MP3 software on Windows
based PC [18]. Amir Majidemehr, corporate vice president of the Consumer Media
Technology Group at Microsoft expressed this as a move towards commitment to protect the
intellectual property of their partners and the industry [18]. From Audiompeg’s perspective,
the decision made by Microsoft has confirmed the industry’s appreciation of the research and
32
development of MP3. It has also illustrated the success and importance of MP3 in the field of
audio compression.
3.8.3 Thomson with Creative Technology
On 28th August 2006, Creative Technology has announced that Sisvel and Audio MPEG have
granted Creative a standard license under the MP3 and MPEG2 audio compression patents
[19]. All outstanding litigations and administrative proceedings pending between them have
been dismissed. Sisvel has filed suits against Creative Technology in 2004 for the patent
infringement.
3.8.4 Sisvel with Motorola
Sisvel and its subsidiary MPEG Audio have announced on 21st December 2005 that they have
granted Motorola a license for MPEG Audio layers 1, 2 and 3 (MP3) patents [20]. The
agreement will cover all Motorola’s mobile phones with MP3 capabilities and all Motorola
digital set-top boxes and decoders. This led to a further expansion of MP3 as a standard for
the audio compression format in the audio industry.
3.8.5 Sisvel with Sony Ericsson
Similar to the agreement with Motorola, Sisvel and MPEG Audio have also granted Sony
Ericsson with a similar license to the patents on 10th August 2006 [21].
3.8.6 MP3 continues to Flourish
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Thomson has been actively enforcing licensing control over the MP3 patents. The patent
issues have definitely significantly slowed down the development of unlicensed MP3
software and led to an increased focus on creating and popularizing of other alternatives such
as WMA and Org Vorbis.
Despite the patent restrictions, MP3 format continues to flourish. This has been a results of
the network effects caused by possibly, the following reasons. The consumers are familiar
with the format and there are no alternatives which provide a definite advantage over MP3.
A large part of the music available on the Internet is in MP3 format. There are wide variety of
software and hardware in the market that caters to this format. There is still a lack of Digital
Rights Management protection technology which makes MP3 files easy to edit copy and
distribute over Internet. And one more important but common reason, the majorities of home
users like us do not know or do not care about software patent controversy when we access
MP3 files. There is a distinct linkage between the Internet boom with the MP3 domination.
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4 Intellectual Property Aspects of MP3
4.1 Patent Disputes
4.1.1 Fraunhofer IPR Enforcement
There were various cases of MP3 patent infringement disputes in the past and ongoing. As
early as 1998, Fraunhofer Institute and Thomson took actions to enforce the MP3 patents.
Appendix F (taken from [22]) shows a sample of the letters they sent out to potential
infringers. The Italian consumer electronics company, Sisvel S.p.A (Societa Italiana per lo
Sviluppo dell’Elettronica), which have exclusive rights to license numerous MP3 patents
owned by Philips and other electronic firms, had also been aggressive in pursuing against
companies that infringe its MP3 patents. Audio MPEG, its US subsidiary, is active in this
aspect in the North America. It has convinced many companies to take its license, rather than
risk litigation. To date, there are over 250 licensees for the MP3 patents. Appendix G (taken
from [23]) lists out the licensees of Thomson and Fraunhofer’s MP3 patents. These
companies include Apple, Microsoft, Pioneer, and Motorola. Some of these disputes resulted
in collaboration between the companies, as in the case of Sisvel vs Thomson in 2005
mentioned in earlier section.
Developers of freeware (such as BladeEnc and other MP3 free initiative developers) were
also served with letters reminding them of the potential patent infringement which can only
be prevented by a proper licensing agreement [24]. Due to Thomson and Fraunhofer’s effort
to enforce patent compliance, most of the open source MP3 initiatives were halted and
abandoned. In some aspects, the IP-owners regained a degree of control on directing the
technological development of MP3 by reducing the amount of third parties contributors. Such
35
action however also prompted the few remaining developers to get around the potential
patent infringement issues by using the publishing the MP3 patent related section of the
software in “source code or “blueprint” such as BladeEnc, Development lead Tord Jansson,
As the sourcecode is only a blueprint, there do not seem to have any patent infrignment
complications. The "blueprint" also has a lot of legal uses such as for learning/ the
technology, researching on its improvements. This “blueprint” approach not only protects the
developers (usually voluntary basis) from potential lawsuits but benefits the society by
contributing to the technology development (which may be dementia to patent-owners due to
diminished exclusivity of technology know-how).
As of 2002, BladeEnc have ceased to continue development work on the MP3 encoder,
however some other well-known developers such as LAME encoder which is regarded as one
of best MP3 encoders around is still using this tactics. As of 2007, March, LAME website is
still active and surviving, 6 years since the cracking down of the MP3 unlicensed encoders
(commercial or free). This strategy seems to be effective for now. It must also be stressed that
if the code were to be complied and for use in applications, "proper licensing’s with the
appropriate patents owners still need to be obtained."
4.1.2 Sisvel and SanDisk Disputes
This section discusses some of the MP3 infringement disputes which involve Sisvel and other
patent owners. It is noted that as the current batch of MP3 patents expire in 2010, naturally
MP3 patents licensors are doing everything they can to maximize their licensing revenue in
the meantime. However, despite their dominant position by virtue of their MP3 patents, the
licensors do not always end up succeeding in these litigation cases.
36
In 2006, Sisvel filed a lawsuit against SanDisk and requested injunction against the company
from the Berlin District Court [25]. The injunction was granted on August 31, and SanDisk
booth, was one of the 19 companies at IFA 2006 tradeshow, which was raided by the German
authorities for similar patent violations. SanDisk MP3 players and advertising materials were
seized.
However, two days later, SanDisk successfully overturned the injunction and was able to put
its products back on display before the end of the IFA show [26]. SanDisk claimed to be
using a non-infringing decoder for its players. SanDisk was able to show that its MP3 players
operate a technology which is completely different from the patented audio data transmission
and reception techniques. Their claim was substantiated by one of the founders of MP3
digital audio compression.
SanDisk’s MP3 playback technology shows that it is possible for companies to innovate and
develop alternative technologies, although the mass of the industry opting for the licensing
strategy. Despite having strong patent protection, it is not possible for Sisvel to completely
cover the market on every aspects of the MP3 technology.
4.1.2.1 Case Analysis and Discussion
This was a case which we saw how injunction was passed and yet overruled in a number of
days. The court has passed an injunction even when there is no clear evidence that
infringement has really taken place. This will nevertheless creates pressure for companies to
surrender to any potential profit by simply paying the royalty fees just to be on the safe side,
disregarding if they are indeed a true infringer. This is especially so for new startups which
do not want to find themselves trapped in the same circumstances. Like SanDisk case, though
37
the injunction was overturned, it is nevertheless an embarrassment as it cast doubts on their
technology originality.
Injunction could very well be a weapon which the patent owners can use to hinder the
business of other industry makers of the similar products. This is especially so if the other
makers do not have the funds and resources to retaliate fast enough.
Lastly, a strong public opinion is observed when a patent owner commands a large pool of
subscribers for their patents. It creates an unspoken pressure for other industry makers to feel
unsure of themselves and succumb to the licensing structure despite the fact that they may
feel that they are not truly an infringer.
4.1.3 Microsoft vs Alcatel- Lucent Dispute
The case of Microsoft versus Alcatel-Lucent started when Microsoft intervened to indemnify
Dell and Gateway (they were supposedly under Microsoft’s umbrella of protection when they
obtained the rights to distribute the Windows software & Media Player software with new
PCs) [27].
Microsoft was ordered by a San Diego jury to pay $1.52 billion to Alcatel-Lucent for MP3
patents infringement. The damage was based on the number of copies of Windows operating
system sold since May 2003, multiplied by the prices of high-end Dell and Gateway
computers. These include computers that had the software installed overseas using a blueprint
“master disc” shipped out from USA. The Windows operating systems are packaged with
Windows Media Player programs, which support MP3 format playback and hence infringed
the patents. The award was the largest patent award in history.
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Microsoft claimed to have previously paid $16 million in royalties to the Munich-based
licensing firm Fraunhofer-Gesellschaft to legally use the disputed MP3 technology, which the
industry had considered as sufficient protection against any MP3 patent infringement.
However, Alcatel, which had bought Bell Laboratories in 2003, alleged that Microsoft had
infringed the patents that were issued to Bell Laboratories in 2003, co-developer of MP3
technology. These patents were mainly used to encode and decode digital files in Media
Player. Microsoft also tried invalidating Alcatel-Lucent’s patents but was not successful
Although Thomson is widely accepted as the licensor of Fraunhofer’s MP3 codec, Alcatel –
Lucent also holds their own MP3 related patents [28]. The confusing state of affairs started in
1980s when Bell Laboratories and Fraunhofer have started developing the codec under an
agreement that both companies would able license aspects of MP3 developed during the
collaboration. From the analyst’s view, Lucent might have started off the lawsuit after
running into some financial issue after the dot com bubble has exploded. When Alcatel
bought over Lucent, they have decided to pursue the case perhaps due to the attractive
returns.
A total of 15 patents were in dispute when the litigation began (though not all the patents are
related to MP3). Two of the claims were dismissed and the remaining patents were divided
into six groups, each the subject of separate jury trials in San Diego [29].
The verdict of this case has tremendous impact of the industry as many companies which had
previously paid Fraunhofer Institute now face potential lawsuits from Alcatel. Among them
are, Apple (iTunes), Hewlett-Packard Co., Toshiba Corp., Intel Corp., Bang & Olufsen,
39
RealNetworks (Real Player) and Yahoo Inc. All the mentioned companies have been relying
on the fact that they have had the critical licenses necessary to practice the technology.
Meanwhile, Microsoft has decided to appeal against the decision to the U.S. Court of Appeals
for the Federal Circuit in Washington. This process can take up to several years.
4.1.3.1 Case Analysis and Discussion
From the US IP law perspective, this case helped confirm the fact that software is
patentable as a process for automation (in this case the software MP3 encoding
algorithm forms part of the process that is automated) and enforceable. However,
whether the same holds in EU leaves much to be seen.
The case opened up another topic for discussion: While the US Patent Law (Title 35
USC 271) disallows shipping of components made in US to foreign countries for
subsequent assembly into whole product that infringes US patents, it does not include
the shipping of “blueprints” or templates for duplication overseas (it is debatable if
the blueprint is considered a “substantial component of the invention” under
paragraph 5f(1) of USC 271). This is a grey area which Microsoft is currently
appealing against. Similar to the shipping of “blueprint”, developers such as BladeEnc
and LAME have been publishing encoders “blueprints” on the website to prevent
patent infringement. Such acts though enables the better study and improvement of
the technology, it also exposes the IP owners’ patents to the technological public
which might increase the chance/ decrease the time required of a technology
replacement due to the wide availability of technology know-how. Due to a wider
technological public development effort, some process improvement which could
40
otherwise be patented by the IP owners might end up as prior art due to mass
publications and sharing among open developers. The patent owners might have a
shorter time frame to capitalize on the patents.
The case also demonstrated that licensing from one party for using its patents does not
mean that one is free from infringing other patents. In using any technology, it is best
to do a thorough search if there is any patent infringement. If required, do the
necessary licensing (which Microsoft did). Notwithstanding that, the company must
always be prepared to defend against emerging patent holder(s) and if necessary
negotiate to minimise any cost/ damages to itself.
While Alcatel-Lucent might have won this battle, they have yet to win the entire
patents war against Microsoft. There still are several different patents infringement
disputes on-going. We note however that all these could be resolved as an entire
package as this enables more room for negotiation between the two parties, before
they thrash it out in the courts. Apparently, negotiations did not pull through and
when litigated in the courts, such diversification will likely wear down the weaker
party as it spreads thin their resources.
Having paid Thomson/ FI for using their MP3 patents, one might ask whether
Microsoft should drag FI into the dispute. From pure IP legal aspect, it does not really
help since FI would probably put up the defence that these patents are not theirs i.e. FI
holding certain patents does not mean it can prevent others from profiting from other
similar patents. From business perspective, we think FI should step in since they
would lose bargaining power/ face more resistance for future royalties/ licensing
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negotiations; companies will tell them that other than paying them, they still have to
pay Lucent-Alcatel. Alcatel-Lucent could thus be seen as a “Competitor” and less of a
“complementor” as the value of the Fraunhofer/ Thomson patents is lower with their
emergence. As a minimum, we think FI/Thomson and Lucent should collaborate and
achieve a single POC for licensing MP3 (similar to how Sisvel and Thomson/ FI
combine forces).
• There have been many alternative formats to MP3 introduced these few years. In fact,
there are some open source, royalty free options such as Ogg Vorbis. Although none
of the close competitor has managed to displace MP3 yet, the companies may find
enough motivation from this case to move on into open source format. This is
especially so if there is no action taken by FI or Thomson to seek a compromise with
Lucent Alcatel.
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4.2 Copyright Disputes
4.2.1 MP3 Technology as a Facilitating Tool for Infringement
The MP3 file format is one of the available formats for digital audio content. This is similar
to a paper that contains musical notes (musical scrolls) or to a CD that contains soundtracks.
The mediums such as “paper” or the “CD” are not “illegal” themselves but it is the
unlicensed content contained within that infringes copyright laws and considered illegal.
As mentioned, MP3 file format enables the reproduction of near original quality at a fraction
of the data size (depending on sampling bit rate). After an audio data is converted to the MP3
format, no further degradation of quality will occur even upon successive reproduction. The
amount and speed of duplication is only limited by the storage and data processing capability
of the PC system. .
Along with the advancements in technology such as, the decreasing cost of data storage, the
increasing speed of electronic data transmission, the increasing acceptance of electronic
transactions, the exponential growth in PC ownerships, coupled with the explosive growth of
the internet usage posed a problem that is never encountered by the copyright owners. Using
today’s technology, it cost almost next to nothing to reproduce an MP3 file and to distribute it
over the internet using online storage services such as Omnidrive, Amazon's S3, Xdrive or
AllMyData which are either free or price competitive, P2P applications such as Napster [30]
or from online web stores. The technology is also extremely simple to use and anyone is able
to use it. Although newer MP3 file formats are available such as the MP3PRO file format, the
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current most widely use format is still the earlier format MP3 that has no security features. It
is this lack of security features that forms the crux of the problem.
Infringers who used the MP3 technology range from individuals (usually students [31],
employees or any members of the public to P2P companies, online web services and online e-
retailers. The parties involved consist not only of the obscure but also well-established
MNCs, such as Virgin France [32]. In the next few paragraphs, we will proceed to discuss in
details how MP3 technology is used as a facilitating tool to music piracy.
The motivation for music piracy can be classified either for monetary gains (business
beneficial) or social purposes. This paper shall only focus on the business beneficial aspect.
Because of the “low or no-cost” as well as ease-of-use and wide acceptance of MP3 format,
the potential profit that can be extracted from music piracy can be astronomical.
4.2.2 Infringement by Web services Provider MP3.com

(Source: [33])
Launched in January 2000, MP3.com enables its subscriber to listen to a comprehensive
online CD music collection via web access. The infringement revolves around the company,
MP3.com who had made digital copies of estimated 40,000 CDs without the owners’
permission. The company also allows the digital contents to be access/ shared by its
subscribers so long as they are able to provide evidence of physical CD ownerships. Major
cost components of companies such as MP3.com are, cost of licensing the audio contents,
cost of investing in security technologies and having a robust IT infrastructure to support data
transfer and heavy net traffic.
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The MP3 file format makes it very easy for the company to make audio files that are very
small and of near original-quality. The small file size also enables the company to avoid the
cost of operating a more powerful and expensive IT system to cope with a larger data
processing need and data handling volume. By letting users to access the songs in MP3
format, there are also very little means and no barriers to prevent misuse of the copyrighted
content such as unlawful recording and duplication.
This form of business model prompted the Recording Industry Association of America (trade
group that represent the Big Five record labels) to sue MP3.com for massive copyright
violations. The five major labels consists of – Universal, Sony Music Group, Bertelsmann’s
BMG Entertainment, Warner Music Group and EMI Recorded Music. As part of mitigation
effort, MP3.com has managed to negotiate its final settlement with the five major record
labels over the claims. Along with the settlements, Warner Music and BMG have also entered
into separate licensing agreements that will allow MP3.com to use their respective music
libraries in the MP3.com service. Though the terms of settlements and licensing agreements
were not disclosed, the estimation made by the industry in 2000 has reflected that the
licensing terms per label could total to 11 million a year based on the fees that record
companies would charge on a per play basis.
One reason why the music labels are willing to enter settlements with MP3.com might be
they recognize the internet impact to their business model cannot be ignored and that it is a
good opportunity to work with the technical startups to successive ride on the internet
business wave. The big 5 labels need to stay relevant with a growing number of net savvy
consumers without compromising on copyright protection at he same time. Both the technical
45
start-ups and the music labels need to find a common working ground to work together to
capitalize on this major trend.
4.2.3 Infringement by online E-retailers AllOfMP3.com

(Sources: [34], [35])
Since 2005, several major record labels have sued the operators of the Russian music
download site - AllOfMP3.com that it had misrepresented to its “non-Russian” customers
that the music it sold in MP3 format is legal. For now, the issue is involving “Non-Russian
customers“ due to the Russian copyright laws that recognize hardware / physical copyright
but not MP3 files which has no physical form. The reason for using MP3 for content delivery
is similar to the previous MP3.com case. The major labels behind this lawsuit were mainly
Arista Records, Warner Bros Records, Capitol Records and UMG Recording. The labels
claimed that AllOfMP3 has been selling millions of songs without paying them a dime and
this amounted to a massive infringement of the Copyright law. AllOfMP3 was charging
US$1 for an entire album or just cents per track compared to other licensed companies like
Apple iTunes Music Store which charges US$10 for an album.
In a supporting event, United States and Russia have agreed on the blueprint for actions that
Russia will take to address piracy and counterfeiting and improve protection and enforcement
of intellectual property rights starting immediately after their bilateral negotiations on
Russia’s accession to the World Trade Organization on November 2006 [36]. As part of the
effort in fighting internet piracy, United States and Russia have agreed on the objective of
shutting down websites that permit illegal distribution of music and other copyright works.
AllOfMP3 was named as one such website to go. In a form of political pressure, the United
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States Trade Representative has pointed sites lie AllOfMP3 as evidence that Russia does not
respect intellectual property and such a site could hamper Russia’s accession to WTO.
Despite the efforts, the website planned to stay open. Mediaservices, the company behind this
website has claimed that the current U.S. lawsuit is not of any concern to them because
AllOfMP3 is operating legally in Russia. Even when Visa and Mastercard has stopped
accepting credit card transactions on purchases made in this site since early 2006, this has not
dampened the business operation.
Our group believes that in time to come, there will be an increasing pressure on the Russian
from the American for the closure of this website. That will eventually forced Mediaservice
to alter their business model to be legally compliant. One way is to reach settlements with the
content owners by obtaining proper licensing.
4.2.4 Infringement by Virgin France

(Source: [32]])
In this example, Madonna had a deal with some music retailers to grant them exclusive right
to sell her new single one week before official launch. Virgin France violates the agreement
by creating an MP3 version of the music single and sold it to its customers. Virgin France
was sued and ordered to pay both damages to the content owner as well as the music retailers
who abide by the exclusive agreement. Although Virgin France can choose other audio
formats such as (CDs) to deliver its illegal contents, they decided on the use of MP3 file
format. We believe that first of all, in terms of cost, production time and mode of delivery,
digital delivery is many times more economical than using physical devices such as CD for
content delivery. In terms of players’ compatibility, MP3s is the worlds’ most used audio
47
format and almost all music players are MP3 compatible. There are also abundant amount of
software players available which are either free or inexpensive depending on the consumers’
personal preference. Production time & production cost is almost none existence in digital
file duplication and data transmission over the internet is many times faster and more
efficient compare to parcel delivery. Production time and content delivery are particularly
vital in this case as the exclusive deal only last 1 week. Hence, the infringer has very limited
time to exploit the opportunity. In terms of file format alternatives, using WMV or AAC
requires royalty fees and more importantly, they are still not as widely accepted as the MP#
despite being more technological advanced. There is currently one open standard available
and although its acceptance is increasing over the years, its acceptance rate is still much
lesser than MP3. Due to the smaller acceptance of the open standard, it implies a smaller
number of audio players’ manufacturers offering format support and it will reduce the size of
the potential customers’ base for the product.
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4.2.5 Digital Rights Management (DRM)
This section attempts to provide a brief introduction on the DRM topic and how it is being
addressed by the MP3 file format.
MP3’s main inadequacy is the lack of protection features, specifically “the ability to regulate
proper content usage”. In is the copyright owners’ interest that there should be some security
measures in place to reduce or prevent their copyrighted contents from being pirated. This is
a much bigger concern when the contents are in digital format which is susceptible to mass
distribution on a global scale.
While the lack of protection is greatly welcomed by consumers as it translate into
“consumers’ freedom”, the opposite goes for copyright owners and content providers.
Although the music owners recognize the importance of the Internet and the advantages of e-
retailing to the music industry, they are hesitant in tapping into this opportunity. Apple’s
iTunes web store marked a turning point in audio e-retailing as it shows that given the proper
controls, e-retailing of audio content could be highly efficient, profitable and is able to reach
to a wider spectrum of consumers that is not possible using the traditional music store
approach. The cost of setting up and maintaining a e-store is not only cheaper compared to a
brick and mortar shop but can easily “altered” based on consumers’ demand. "Expansion" &
"upgrading" of the e-store in terms of “storage” and “bandwidth” can be easily carried out.
Implementing DRM features into MP3 file format is essential because it addresses the
concerns of the electronic content providers who are paying the licensing fees and secondly,
due to the progress in the technology field of audio file format, stronger competitors are
emerging. Apple uses AAC file format in its iTunes and iPod whereas Microsoft uses WMA.
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Both proprietary audio formats achieve twice the compression rates than the MP3. There is
therefore a compiling need for the MP3 to respond to the demands of their customers, namely
the music’s owner’s calls for DRM.
From [37] and [38], DRM is a general term for all technologies that allows copyright holders
to control how digital content are used. DRM-protected content is encrypted to safeguard
against unauthorized usage and to prevent access by any unlicensed media player that doesn't
enforces its rights-management system.
According to [37] and [38], the term is often confused with copy protection and technical
protection measures that refer to technologies controlling or restricting the use and access of
digital content on electronic devices with such technologies installed. Copy protection and
technical protection measures therefore acts as components of a DRM design. When DRM-
content is played, the player will check for the validity and type of the content license in
order to decide the appropriate access privileges. As DRM can be reversed-engineered, there
is a move towards Mandatory Access Control systems (as opposed to Discretionary access
control) in which users’ restrictions are enforced by firmware (i.e. software permanently
embedded in hardware). As the DRM standard is still development, there are significant risks
in spending resources on implementing DRM features. A cost effective approach would be to
buy from off the shelf offering until a unified standard is accepted by the industry.
According to [39] and [40], Thomson multimedia in Sep 2001 launched the MP3PRO File
format which integrates InterTrust Integrates DRM Technology. Although 1.5 million
downloads were recorded, till now it did not succeed MP3 as the most popular audio file
format. There are currently very few hardware that are MP3PRO compliant and non-
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compliant players will play The MP3PRO audio file at half its sampling rate which results in
lower hearing quality. In the long run, MP3PRO with a better quality and DRM offering has a
high chance of displacing MP3 if it is not replaced by other competing file formats.
With most of the MP3 patents expiring in 2010, the time to extract licensing fees is declining
and important strategic alliances should be considered and forged quickly when they still
have a bargaining chip. Instead of focusing solely on improvement its MP3 technology, it
would be worthwhile to also allocate resources to co-develop patents with the other emerging
audio format to ensure currency as well as gain access to strategic patents for future
development of defensive purposes. Inherent risk of DRM (trend of hardware or software) a
joint development also reduces the financial uncertainty.
51
5 Recommended IPR Infringement Mitigation Measures
The various dispute cases have taught us many valuable lessons and our team has reflected
and come up with the following pointers to watch out for and possible suggestions to help
mitigate some of the issues.
5.1 Co-development of Technology
In the initial stage of the technology life-cycle, co-development of technology is at times
initiated amongst companies to co-share R&D risks. The firms will need to be conscious of
the appropriation of the IP rights between the various parties, including the sharing of
royalties obtained from any licensing. The terms should be negotiated and agreed upon
upfront in the pre-contractual phase before the start of the co-development.
5.2 Filing for Patents in Other Parts of World
We would recommend for the inventors to file their patents in U.S., Europe or even Japan in
order to close the distance on the probable infringers over the world. Though this is costly,
the inventors are sending a clear message across that since the patents is being filed in their
country, the infringers will be deemed as performing a willful act should they continue to
pursue on the infringing act.
5.3 Sending Letters to Potential Infringers
If the patent owner is under attack, for example, suspecting someone’s new technology is
similar to his, it is not possible for the patent office to take action on behalf of his interest.
The owner should instead, opt to write a letter to the infringing company requesting for one
of the action:
52
• Requesting that the infringer to buy his patent, either part of full, for a fees that covers
past and future sales.
• Asking the company to stop infringing and pay him a compensation for what they
have sold.
• Requesting that the infringer compensates him for what has been sold and pay a
royalty fees for future sales.
• Offering a business deal to the infringer in which he or she can continue to use the
technology but in turn gives the patent owner rights to his or her patents which may
complement the owner’s technology.
This strategy has been adopted by Thomson before and it has been proven successful in
napping some of the infringers. As mentioned, this type of approach creates a lot of tension
especially in the open source community and often results in the abandonment of many
volunteer initiatives projects that could help to build up the technology at a faster pace. As a
trade-off, such measures not only serve to reinforce and protect the patent owner’s rights and
interests but also create a barrier in the technology field to unlicensed developers that
strengthen the patent’s power of control. This approach is usually used at the stage where the
technology has been well-developed and gained wide acceptance by the consumers. It should
also be reminded that such an approach if mismanaged might also backfire and result in lack
of innovations due to smaller number of contributors, bad publicity and results in technology
rejection. By sending such a letter by certified mail, return receipt requested, and most of all,
a copy of the owner’s patent, the response from the potential infringer will give an insight on
what strategy the infringer will take. By casting a net wide, despite the owner being unsure if
the person is really infringing his technology, he reserves the rights to recover damages for
infringement early. The timing is important as it prevents the infringer to argue on the fact
53
that the owner has not shown enough concern to act promptly. Sending letters allows the
owner to send a signal to the infringers early.
5.4 Take Action to Sue in order to Create Awareness
Take for the recent case whereby Cisco has taken Apple to court over the use of the name
iPhone. As expected, the case has ended amicably. But the outcome has a positive effect on
both parties as iPhone has made quite a name. Similarly, for MP3, to create a public
awareness that it is not free and royalty is chargeable, MP3 has over the years taken some
companies to court to retain its rights as a patent owner.
Though a court case is often lengthy and tedious, and it can run up to millions of cost, it
inevitably provides opportunity. For example, a new collaboration can be built through out of
court settlement, patent owner has an extra source of income through the new royalty
charged, and best of all, the patent owner may in turn take the opportunity to receive license
on the infringer’s patents over other complementary technology.
Of course, there are some pointers which we will like to highlight prior to enter a lawsuit.
• The patent owner should be very sure that the infringer is committing a willful act.
• The owner has acted on the case after discovery instead of sitting around and taking up
the case only when they are free. In this case, if they have taken years before suing the
infringer, the infringer could claim ignorance since the owner has seems disinterested in
pursing the case in the first place.
• Be very sure that the infringer has something beneficial to him or her. This can be in the
form of assurance that the infringer is capable to pay for the damages which you are
requesting for. In addition, this infringer could have something to offer, maybe a new
54
business model to extend the distribution network or even complementary technology
patents to enhance the owner’s positioning.
Licensees
• For the licensees, they must always be prepared to tackle the unexpected, even if they
have supposedly licensed the technology (which is evident from the Microsoft vs Alcatel-
Lucent case). Where possible, seek umbrella of protection under the licensors (especially
if they are big and influential players which Dell and Gateway did).
• Even if one manages to perform a design-around and hence chooses not to license the
technology, he must still be prepared to defend against any unexpected “provisional
ruling/ injunctions”. This is clear from the SanDisk case where they lost valuable business
during a large tradeshow as a result of provisional injunctions imposed upon them
wrongfully.
5.5 Consideration of Different Types of IP Rights
While patents are commonly associated with technological innovations, the inventors should
not forget that other IP rights could also be used against them. In the case of MP3 music
distribution, the record labels have leveraged strongly upon their content copyrights to
demand that new technology like Digital Rights Management (DRM) be incorporated to
inhibit illegal sharing of music. But when all else fails as in the case of AllofMP3.com, they
might have to raise it to a level where political intervention and pressure can be applied on
the country outside its native country IP laws’ protection.
55
6 Conclusion
The case study on MP3 has provided our group opportunities to study and analyze its
associated technological and intellectual property aspects that evolved over the past 20 years.
From the technological aspects of MP3, we learned the devastate impacts of disruptive
technology on mainstream technologies and businesses (MP3 Vs CD), the risks of it being
substituted with new technologies when it reaches maturity and the co-opetition relationships
between market players.
From the intellectual property aspects of MP3, we saw how unclear ownerships of MP3
technologies/patents between key MP3 inventors could result in numerous IP disputes
subsequently. We understood that licensing from correct technology licensor may not be safe
and could still be infringing other patents that can emerge out of nowhere (Microsoft vs
Alcatel-Lucent case). We also saw the impacts of the varying IPR standards adopted by
different countries on businesses (Russian and United States IP laws on AllofMP3.com case).
Last but not least, we saw how MP3 and Internet enabled the illegal sharing of artwork and
the counter-measure (DRM) adopted to curb the proliferation.
Based on our understanding of the IP issues, we have closed the chapter with a
recommendation on how the patent owners could have better protected themselves in this
dynamic and risky marketplace. To mitigate the risk of being infringed, but it is definitely
not the firm solution to the future. Technology is constantly evolving and before we know it,
perhaps a next standard could have taken over.
56
7 Appendix A. List of Patents by Fraunhofer/ Thomson
S/N Title of Patent Patent Number Date Applied Date Granted Remarks
1. Audio signal transmission method using a EP 0251028 Jun 87 Jan 88 Data compression
variable masking threshold
2. Method of reducing crosstalk in processing of US 5559834 Oct 92 Sep 96 Improvement of sound
Oct 92 Jun 95
acoustic or optical signals quality
XX* 608281
(Process for reducing frequency interlacing

during acoustic or optical signal transmission
and/ or recording)
3. Method of transmitting and audio signal US 4942607 Feb 88 Jul 90 Key MP3 encoding and
XX 0277613 Jan 88 Nov 94
compression patent by
(Method of transmitting an audio signal using Thomson
two different masking thresholds)
4. Method for reducing data in the transmission US 5812672 Oct 92 Sep 98 Data compression
XX 0611516 Oct 92 Aug 97
and/ or storage of digital signals of several
dependent channels
57
5. Method of transmission of an audio signal using EP 0193143 Feb 86 Sept 86
grouping of amplitude values
6. Digital Encoding Process XX 0612156 Apr 90 Oct 96 The key MP3 technology
US 5579430 Apr 90 Nov 96
patent by Fraunhofer
(note that this has cited
the key patent held by
Audiompeg (4972484)
7. Method for transmitting a signal using adaptive EP 0464534 Oct 91 Jan 92 Signal transmission and
US 5321729 Jun 91 Jun 94
window functions improvement in signal
quality (SNR)
(Method for transmitting a signal)
8. Process for transmitting and/ or storing digital XX 0667063 Nov 93 Sep 96 Signal transmission and
US 5706309 Nov 93 Jan 98
signals of multiple channels Storage of multiple audio
channels (up to 5)
9. Method for transmitting a signal using analysis EP 0485390 May 90 May 92 Signal transmission with
US 5227990 May 90 Jul 93
and synthesis window functions better playback quality
(SNR)
10. Transmission System US 4821260 Dec 87 Apr 89 For transmission of
signals, especially via
58
Satellites
11. Method of transmitting an audio signal using EP 0414838 Jan 90 Mar 91 For transmission of
US 5214742 Jan 90 May 93
adaptive window functions signals
(Method for transmitting a signal)
12. Process of low sampling rate digital encoding of EP 0832521 Feb 97 Apr 98 Signal encoding/
US 6185539 Feb 97 Feb 01
audio signals decoding
13. Process for reducing data in the transmission XX 0642719 May 93 Sep 96 Data compression
US 5703999 Nov 96 Dec 97
and/ or storage of digital signals of several
interdependent channels
14. Digital Coding Process XX 287578 Aug 87 Aug 95 Signal encoding/
Aug 87 Jul 99
decoding
US 5924060
(Digital Coding Process for transmission or
storage of acoustical signals by transforming of
scanning values into spectral coefficients)
15. Joint Stereo Coding XX 0750811 Feb 95 Jan 97 Signal encoding/
Feb 95 Dec 97
decoding (for stereo
US 5701346
(Method of coding a plurality of audio signals) signals)
59
16. Method for encoding a digitized audio signal XX 803989 Apr 97 Jun 99 Signal encoding/
US 6009399 Apr 97 Dec 99
using combinations of different threshold decoding
models
(Method and apparatus for encoding digital

signals employing bit allocation using
combinations of different threshold models to
achieve desired bit rates)
17. Method for transmitting a TDAC coded audio EP 0494990 Oct 90 Jul 92 Signal transmission
US 5384811 Oct 90 Jan 95
signal
(Method for the transmission of a signal)

18. Determination of coding type (Method for XX 0719483 Jul 94 May 97 Signal encoding/
US 5736943 Jul 94 Apr 98
determining the type of coding to be selected decoding
for coding at least two signals)
19. Digital adaptive transformation coding method XX 340301 Oct 98 Jun 93 Signal encoding/
US 5742735 Oct 98 Apr 98
decoding
20. Process for the detecting of errors in the XX 554290 Oct 91 Feb 95 Signal Encoding/
US 5455833 Oct 91 Oct 95
transmission of frequency-coded digital signals decoding (Error
60
Detection)
(*Notes: XX refers to patents filed in various countries in Europe like France, Denmark, etc but not under the EPC)
61
8 Appendix B. List of Patents held by Audiompeg
1. Method of transmitting or storing masked sub- US 4972484 Jul 88 Nov 90 The key MP3 patent
band coded audio signals
2. Digital transmission system using subband US 5214678 May 00 May 03 Encoding/ decoding
coding of digital signal
3. Digital transmission system, transmitter and US 5323396 Dec 92 Jun 94 More related to
receiver for use in the transmission system transmission of signals
via a transmission
medium
4. Subband coded digital transmission system US 5539829 Jun 05 Jul 06 Signal transmission and
using some composite signals quality improvement
(reduction in distortion)
5. Subband coded digital transmission system US 5606618 Dec 93 Feb 97 Reduction in distortion
using some composite signals
6. Digital sub-band transmission system with US 5530655 Jun 05 Jun 06 Transmission of
transmission of an additional signal additional signals for
surround sound
62
7. Decoder for decoding and encoded digital signal US 5777992 Jun 05 Jul 08 Encoding/ decoding
and a receiver comprising the decoder
8. Encoded wideband digital transmission signal US 6289308 Mar 00 Sep 01 Transmission and
and record carrier recorded with such a signal improvement in
reproduced sound quality
9. Transmitter, receiver and record carrier for US 5481643 Apr 05 Jan 06 More related to
transmitting/receiving at least a first and a transmission of signals
second signal component via a transmission
medium. Also helps in
reduction of quantization
noise
10. Transmission and reception of a first and a US 5544247 Oct 94 Aug 96 More related to
second main signal component transmission of signals
via a transmission
medium. Also helps in
reduction of quantization
noise
11. Digital 3-channel transmission of left and right US 5610985 Jan 04 Mar 97 More related to
stereo signals and a centre signal transmission of signals
63
via a transmission
medium
12. Process for finding the overall monitoring US 5740317 Aug 95 Apr 98 Reduction of
threshold during a bit-rate-reducing source computational effort in
coding performing compression
13. N-channel transmission, compatible with 2- US 5878080 Feb 97 Mar 99 Encoder design and data
channel transmission and 1-channel compression
transmission
14. Encoding of a plurality of information signals US 5960037 Apr 97 Sep 99 Information Encoding
15. Perceptual audio signal subband coding using US 5991715 Aug 95 Nov 99 Data Compression
value classes for successive scale factor
differences
16. Encoding apparatus for encoding a plurality of US 6023490 Apr 97 Feb 2000 Data encoding and
information signals compression
64
9 Appendix C. List of Patents held by Sisvel
1. Verfahren zum digitalen Übertragen eines DE3440613 Nov 84 Apr 86 Digital signal transferring
Rundfunk-Programmsignals (Method for
digitally transferring of a broadcast program
signal)
2. Verfahren zum Übertragen digitalisierter DE3639753 Nov 86 Sep 88 Digital signal transferring
Tonsignale (Method for transferring digital
audio signals)
3. Verfahren zum Übertragen digitalisierter, DE59104347D Jan 91 Feb 96 Digital signal transferring
blockcodierter Tonsignale unter Verwendung
von Skalenfaktoren (Method for transferring
digitised, block-coded audio signals using scale
factors)
4. Verfahren zum Ermitteln der globalen DE59200994D Jul 91 Jan 96 Signal encoding / bit-rate
Mithörschwelle bei einer bitraten-reduzierenden reduction
Quellcodierung (Method for determining the
global masking threshold in a bitrate-reducing
65
source coding)
5. Verfahren für die Fehlererkennung DE59301358 Jun 92 Feb 97 Signal encoding / bit-rate
reduction
digitalisierter, datenreduzierter Ton- und
Datensignale (Method for detecting errors of
digitalized, data-reduced audio and data signals)
6. Verfahren zur Übertragung der DE4229372 Sept 92 Mar 94 Digital signal transferring
Quantisierungsinformation bei einer bitraten-
reduzierenden Quellcodierung (Method for
transferring quantization information in
bitreduced source coding)
7. Verfahren zum Übertragen digitalisierter DE3772381 Sep 91 Sep 92 Digital signal transferring
Tonsignale (Method for transferring digital
audio signals)
8. Digital transmission system using subband EP 400 755 Jun 89 Dec 90 Digital signal transferring
coding of digital signal
9. Digital transmission system, transmitter and EP 402 973 May 90 Dec 90 Digital signal transferring
receiver for use in the transmission system, and
record carrier obtained by means of the
transmitter in the form of a recording device
66
10. Digital 3-channel transmission of left and right EP 608 930 Jan 93 Aug 94 Digital signal transferring
stereo signals and a centre signal
11. Transmission and reception of a first and a WO9512254 Oct 94 May 95 Digital signal transferring
second main signal component
12. Encoding of a plurality of information signals WO9738493 Apr 97 Oct 97 Digital signal encoding
13. Encoding of a plurality of information signals WO9738494 Apr 97 Oct 97 Digital signal encoding
67
10 Appendix D. List of Patents in dispute between Microsoft and Alcatel-Lucent
1. Perceptual Coding of Audio Signals US 5341457 Aug 93 Aug 94 Signal encoding with
data compression
2. Rate loop processor for perceptual RE 39080 Aug 02 Apr 06 Signal Encoding/
encoder/decoder decoding
68
11 Appendix E. List of Patents related to WMA and held by Microsoft
1. Error resilient windows media audio coding US 7158539 Apr 02 Jan 07 Signal encoding/
decoding (including error
detection and correction)
2. Error resilient scalable audio coding US 6934679 Mar 02 Aug 05 Signal encoding/
decoding (including error
detection and correction)
3. Multimedia compression system with additive US 7082164 May 02 Jul 06 Data compression
temporal layers
4. Parametric compression/ decompression modes US 7143030 Feb 05 Nov 06 Signal Coding/ Encoding
for quantization matrices for digital audio with data compression
5. Lossless adaptive encoding and decoding of US 6987468 Oct 04 Jan 06 Signal Encoding/
integer data decoding (with
compression)
69
12 Appendix F. Enforcement Letter by Fraunhofer and Thomson
September 1, 1998
Sender Information:
Fraunhofer IIS-A, Audio & Multimedia
Sent by: [Private]
[Private]
http://www.iis.fhg.de/amm/
Recipient Information:
[Private]
[MP3 software developers]
Sent via:
Re:
Dear Ladies and Gentlemen,
As you may know, both the Fraunhofer Institute and THOMSON have done important work
to develop MPEG Layer-3 audio compression (before and after it became part of the MPEG
standards). This work has resulted in many inventions and several patents, covering the
MPEG Layer-3 standard.
From your publications and your web-site we learn that you distribute and/or sell decoders
and/or encoders that use the MPEG Layer-3 standard.
70
Our files do not show that you have a valid license agreement with us. This means that the
products infringe the patent rights of Fraunhofer and THOMSON.
To make, sell and/or distribute products using the standard and thus our patents, you need to
obtain a license under these patents from us.
In the past, we have licensed several companies under different models for different products,
e.g.:
- Software encoder licenses against a per unit royalty starting at $ 25,00 and decreasing for
high volumes; and
- Pay-audio licenses against a royalty of $ 0,01 per song or 1 % of the selling price.
At least the Software encoder license seems to apply to your products and we would
appreciate if you could send us some more details about your activities, in order to discuss
what would be the right royalty structure for your company.
In view of the above, we urge you to contact [Private] (mailto:[private]@thmulti.com) and
[Private](mailto:[private]@iis.fhg.de) in order to start the discussion of the license or licenses
needed.
We look forward to hearing from you soon.
Best regards,
- [Private]
---
[Private]
Fraunhofer IIS-A, Audio & Multimedia
email: [private]@iis.fhg.de
71
phone: +49 [private]
fax: +49 [private]
www: http://www.iis.fhg.de/amm/
72
13 Appendix G. List of Licensees
• 101 Distribution LLC • Aeta Audio • Anam Electronics
• 24/7 Musicshop Systems Co., Ltd.
• 2L International BV • Ahead • Anystream
• A & R Cambridge • Airbus KID- • Aoqun Digital
• A Team Technology Systeme Technology
• Access • Aisian AW • Apacer Technology
• AccFast Technology • Alambik • Aplus Technics
• Accordent • AlcaTech • Apple
Technology • Alcorn McBride • Archos
• Ace Electronics • Almacom • Arcsoft
• Acoustica Inc. • Alpine Electronics • AS Media
• Action Electronics • A-Max Technology
• Action Technology • America Online • Ascaron
• Actions (AOL) Entertainment
Semiconductor • American Printing • Ascomm (HK)
• Activision House for the Blind Limited
• ActVision • AMFM Systems • Ashampoo
Technologies, Inc. • Amoi Electronics • AT Chip
• Adobe • AmRoad • Ateam
• Advanced DSP Electronics • ATI Technologies
Solutions • Amtek • ATIS UHER
• AEQ • AMX • Atmel
• Aeronix • Audible
73
• Audible Magic • Chung Nam • Coveo Solutions
• AudioScience Electronics Inc
• Austria Microsystems • Chunglam Digital • COWON Systems
• Autodesk Company Ltd. • Creative Labs
• AVID Electronics • Circuit Research • CyberLink
Corp. Labs • D&M Holdings
• Avnex • Cirrus Logic • D.A.V.I.D.
• B.H.A • CIS Technology • Daisy Multimedia
• Bang & Olufsen • Cisco Systems Inc. • Daiwa
• Bcom • Citron Electronics Manufacturing
• Beatnik • Clarion Limited
• Blizzard • Classroom Connect • Daritech
Entertainment • CNN • Data Becker
• Bloomberg • Coktel • Daum Electronic
• BPA International • Commax • Day Technology
• Brice Carrington • ComStar • Dedicated Devices
• BridgeCo • COMUSICA • Delphi Automotive
• Broadcast Electronics Colombia • Desktop
• Brüel & Kjær • Conduits Technologies
• Buffalo Inc. Technologies • Digibag.com
• Burli • Connect • DigiDesign
• Cakewalk Technologies • Digigram
• Casio • Control4 • Digital Cube
• Chips AG • CoreCodec Inc. • Digital Musician
• Digital Technology
74
• Digital Voice Systems • Farstone • G-Design
• DivXNetworks Technology Technology
• Dizipia • FineArch • Get Digital Data
• Dolphin Computer • FL-Telecom • Global Silicon Ltd.
Access • Fluendo Inc. • Global View
• DreamCatcher • Fluendo S.L • GoDot Technology
Interactive • Focus on the • GP Electronics
• Eastern Asia Family • Gracenote
Technology • Fonix • Group Sense
• Eden Games • Foxda Technology • Group Sense
• Ediciones Assimil • Franklin Electronic Limited
• eGames Publishers • Group Sense PDA
• eHelp • Frontier Silicon Limited
• Electric Pocket Limited • GT Interactive
• Electronic Arts • Fujitsu Limited • H2 Media Factory
• Elib AB • Fujitsu Ten • Hangzhou Silan
• Elsa Japan • Fujix • Hangzhou Silan
• Emersys • Fulhua Microelectronics
• EMusic Microelectronics Co., LTD
• EnE Technology • Funai • Hanpin Electron
• Engelmann Media • Funatics Co., Ltd.
• E-Trek Infodigm • FunVibes • Harcourt Achieve
• Evervictory • Garmin Inc.
• EZPnP • GBM Advanced • Harman
• Fangtek Technology International
75
• Hawkeye Global • Johnson Controls • Line6
• Head Acoustics • Jungle Japan • Linn Products
• Hermstedt • Justsystem • Linspire, Inc.
• Hewlett-Packard • JVC • Live365
• Himage • Kaga • Livedoor
• Hisense • Kawai Musical • Living Control
• Honest Technology Instruments • Lowrance
• Hyundai Autonet Co., • Keen High Electronics
Ltd. Technologies • Lucasfilm
• i.Tech Dynamic • Kenwood Entertainment
• II-AS Holding • King Jim • Macromedia
• Illustrate Limited • Kingsmart • Magix
(dBpowerAMP) • Kinoma • Matchware
• Imaginative Design • KISS • Matsunichi US
Operation • KLZ Innovation • Matsushita
• Imerge • Kobe Steel • Mattel
• Integrated Circuit • Korat Denki • Mayah
Solution • Korg Inc • MCS Logic
• Intel • Kyocera • MCY
• Internet Co. • Kyocera Wireless • Meda Systems
• Interra Systems • Langenscheidt • MediaStor
• InterVideo • Lear Corporation • MegaChips
• Intinor • LevelStar • Meridian Audio
• Itsfun.com • LG Electronics • Message One
• J Rae Entertainment • Linden Research • Micro Application
76
• Microcode • MusicMatch • NuCORE
• Micronas • Musictoday Technology, Inc
• Microsoft • Myson Century • Nugs.net
• Micro-Star • Namco • Nullsoft
International • Native Instruments • NuMedia Soft
• Mindark • NEC Corporation • O3 Games
• m-internet • Neomagic • Oak Technology
• Mitac • Netgear • OKI Electric
• Mitsumi • Netpack Industry
• MixMeister Technologies • Olympus Imaging
Technology • Netplay Software • Olympus Optical
• Mobile Doctor • New Motion • OMT Technologies
• Mobixell Networks • Newsoft • On2 Technologies
• Modular Media Technology • Onkyo
Systems • NewTech • Ontarion
• Monolith Productions InfoSystems Inc./Home Trak
• MoodLogic • Nintendo Software
• MosArt • Nokia • OpenTech
Semiconductor • Normsoft • Orion Electric
• Motorola • Novanetic Inc. • Ours Technology
• Multimedia Digital • Novrax • Padus
Audio Solutions • NTT Electronics • Palm
• Music Gremlin • Nucom • Pantec & Curitel
• Music.co.jp Technology Communications,
• Musicam USA Inc
77
• Pegasys • Radio • Sanyo Electric
• Perception Digital Gutenberg.com Company Ltd.
• PhatNoise • Reakktor Media Semiconductor
• Philips • Real Networks Company
• Phison Electronics • Reciva Limited • Saver Holdings
• Photodex • Reigncom Limited • Scientific Toys
• PictureIQ • Renesas Limited
• Pinnacle Systems Technology Corp. • Seiko Instruments
• Pioneer • ReQuest • Sendo
• Plastic Reality • Resco Ltd • SerComm
Technologies • Reuters America • Sevic Systems
• Pleasant Software LLC • Sharp
• PointeCast • Rhozet • Shenzhen
• PolderbitS Software • Roche Diagnostics BestSpring
• Popwire • Rockstar Games Technology
• PortalPlayer • Rohm • ShenZhen Jun Lan
• Power Quotient • Roland Electronic
• PresentationPro • Rosoft • Shinano Kenshi
• Princeton Technology • Roxio • Shin-Nichi
• Electronics
• Prodys Russound
• • SigmaTel
• Proview Group Sagem
• Pulse Entertainment • Samsung • Sikhya Solutions
• • Silicon 10
• QDesign SanDisk
• Technology
• QPict Sanyo Electric
• Silicon Graphics
• RAD Game Tools Company Ltd.
78
• Silicon Motion, Inc. • Sun Corporation • Thales Avionics,
• Simple Devices • Sun Data Center Inc.
• Sino Wealth • Sun Microsystems • The Woods Group,
Microelectronics • Sunhawk Inc.
• Sirius • Sunplus • TiVo
• Six Apart Technology • TLI
• Skycore • Susteen • TomTom
• Softier • Synchro Arts Ltd. • Top Eight
• Solid State System • T&A Mobile • TopEight Industrial
• Sonic Foundry Phones Corp.
• Sonic Solutions • Tai Gun Xiang • Toshiba
• SonicBlue • Tamul Multimedia • TouchTunes
• Sonos • TapWave • Toyota Tsusho
• Sony • TDK Corporation • Trafficlink UK
• Sony Ericsson • Tecnew Electronic • Trio Systems
• Sorenson Media Engineering • T-Square
• Sound Devices • Telechips Microelectronics
• Spacial Audio • Teleformix • Ulead
Solutions • Telex • U-Media
• SS8 Networks • Telex Communications
• STMicroelectronics Communications • Valence
• Stomp • Texas Instruments • Valence
• Suga Digital • Texthelp Semiconductor
• Sumitronics • textHELP Systems • ValuSoft
• Sumitronics Asia
79
• VCS • Worldspace
Nachrichtentechnik • WowWee Ltd
• Verance • Wurld Media
• Viking Informatics • Ya Horng
• Vimicro Electronic
• Virgin Audio • Yahoo
• Visiosonic • Yamaha
• Visteon • Yleisradio Oy
• VisuAide • Yurion
• Vitelcom • Zaram Technology
• VK Corporation • Zoltrix
• VLSI Solution International
• VoiceAge Networks • Zoom Corporation
Corporation
• Voiso
• Voxtec
• Webcast in a Box
• Welcat
• WeType4u.com
• William Demant
Holding
• Wolfram
• Wolfram Research
• World Electric
• World Wide Licenses
80
List of References
[1] MP3 Encoder retrieved from

http://www.teamcombooks.com/mp3handbook/MP3_Handbook.htm
[2] The History of MP3 retrieved from http://mp3licensing.com/mp3/history.html
[3] Proposed MP3 Algorithms retrieved from http://ieeexplore.ieee.org.libproxy1.nus.edu.sg
[4] Eroding MP3 Market retrieved from http://www.wave-
report.com/1998_Wave_issues/wave930.html
[5] Victory of Rio MP3 Portable Plyaer retrieved from http://www.internetnews.com/bus-
news/article.php/139091
[6] Apple Thoughts on Music retrieved from
http://www.apple.com/hotnews/thoughtsonmusic/
[7] About MP3 Pro retrieved from http://mp3licensing.com/mp3/mp3pro.html.
[8] About MP3 Surround retrieved from http://mp3licensing.com/mp3/mp3surround.html
[9] MP3licensing.com- Patents retrieved from
http://www.mp3licensing.com/patents/index.html
[10] AudioMPEG.com- Patents(US) retrieved from
http://www.audiompeg.com/us_patents.asp
[11] AudioMPEG.com- Patents(Non-US)
http://www.audiompeg.com/nonus_patents_1.asp
[12] Windows Media Licensing Fees and Royalties retrieved from
http://www.microsoft.com/windows/windowsmedia/licensing/licensing.aspx
[13] Via Licensing retrieved from
http://www.vialicensing.com/licensing/MPEG2AAC_index.cfm
[14] MP3’Tech- wwwmp3-tech.org retrieved from http://www.mp3-tech.org/
[15] Thomson’s and Fraunhofer’s MP3 Patent Business at Risk retrieved from
http://www.cdrinfo.com/Sections/News/Details.aspx?NewsId=15293
[16] SISVEL Press Statement to Grant Thomson License retrieved from
http://www.sisvel.com/pressrelease-091105.pdf.
[17] Microsoft-Time Warner-Thomson Complete Acquisition of ContentGuard retrieved
from http://www.microsoft.com/presspass/press/2005/mar05/03-15contentguardpr.mspx
[18] Microsoft Licensed by Sisvel and Audio MPEG under MP3 Patents retrieved from
http://www.zdnetindia.com/news/pressreleases/stories/167734.html.
81
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83

MT5001 - Report On The Technological and Intellectual Property Aspects of MP3

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National University of Singapore

MT 5001 IP Management Group Report:

MP3 Case Study

Names Matriculation No. Contribution to Report

1 Executive Summary ................................................................................................................ 5

3 Technological Aspects of MP3............................................................................................... 9

3.1 MP3 Technology............................................................................................................. 9

4 Intellectual Property Aspects of MP3 ................................................................................... 35

4.1 Patent Disputes.............................................................................................................. 35

4.2.4 Infringement by Virgin France ............................................................................. 47

5 Recommended IPR Infringement Mitigation Measures ....................................................... 52

5.1 Co-development of Technology ................................................................................... 52

7 Appendix A. List of Patents by Fraunhofer/ Thomson......................................................... 57

8 Appendix B. List of Patents held by Audiompeg ................................................................. 62

9 Appendix C. List of Patents held by Sisvel .......................................................................... 65

10 Appendix D. List of Patents in dispute between Microsoft and Alcatel-Lucent .............. 68

11 Appendix E. List of Patents related to WMA and held by Microsoft............................... 69

12 Appendix F. Enforcement Letter by Fraunhofer and Thomson........................................ 70

13 Appendix G. List of Licensees.......................................................................................... 73

Figure 1. MPEG Audio Encoding................................................................................................... 9

Figure 2. Compression Algorithms Proposed............................................................................... 12

Figure 3. MP3 Disruption of CD Audio ....................................................................................... 16

Figure 5. S-Curve of MP3............................................................................................................. 19

Figure 6. The Growth of MP3....................................................................................................... 20

Figure 7. Theoretical Patent/Assignee Technology Life Cycle .................................................... 21

Figure 8. First Wave of MP3 Patent Creation............................................................................... 21

Figure 9. Second Wave of MP3 Creation ..................................................................................... 22

technological innovation had inevitably created numerous intellectual property rights

focus on the following areas:

• An introduction on disruptive technology in relation to MP3 technology and its potential

technology (key technology components), including its historical development that is

(Thomson) for the MP3 founding company (Fraunhofer IIS).

technology (e.g. Sony, Samsung, etc) would also be discussed.

and a subsequent court over-rule, and $1.6 billion Microsoft-Alcatel-Lucent patents

MP3. However, they are unsuccessful and MP3 continues to diffuse.

3 Technological Aspects of MP3

3.1 MP3 Technology

gain. The audio encoding process is shown in Figure 1.

Figure 1. MPEG Audio Encoding

need of the majority of people.

may increase customer experience.

3.2 Evolution of MP3 – Summary of Major Events on MP3

research first conceived.

1970s – Prof Dieter Seitzer of Erlangen-Nuremberg University in Germany assembled a group of

and data I/O interface cards.

Figure 2. Compression Algorithms Proposed

MUSICAM and Layer 3 was mainly based on ASPEC.

MPEG-1 for the use in Video CD.

1996 - United States patent issued for MP3.

will encourage more piracy.

3.3 Why MP3 is Potentially a Disruptive Technology?

3.3.1 Technology Disruption

wide coverage retailer distribution channels.

Figure 3. MP3 Disruption of CD Audio

3.3.2 Business Model Disruption

Figure 4 depicts the relationships between the following parties:

the music companies (content providers)

the CD players manufacturers (incumbents),

the CD distributors and retailers (incumbents)

the web-based retailers (insurgents)

the portable MP3 players manufacturers (insurgents)

the MP3 inventors (insurgents)

3.4 Growth of MP3