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Commercial availability and patents

Sun, 03/31/1996 - 7:00pm
Jeffrey Krauss, Set-Top Boxer and President of Telecommunications and Technology Policy
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By Jeffrey Krauss, set-top boxer and President of Telecommunications and Technology Policy

One company that is headquartered in Richmond is Circuit City, a company that wants to sell cable boxes in its stores. Get the connection? If this section means what I think it means, and what Circuit City wants it to mean, it creates a direct conflict with the nation's patent laws. Let's look at the new law, and you'll see what I mean.

Section 629

Section 629 requires the FCC to adopt regulations that "assure commercial availability" of convertor boxes, interactive communications equipment and other equipment used to access services. It applies to services offered on cable systems, MMDS, DBS, SMATV and all other multichannel video systems. It also requires system operators to separately show the charges for such equipment if they rent it to customers and prohibits them from using service revenues to subsidize equipment charges.

However, it also prohibits the FCC from adopting regulations that would jeopardize the security of such services. And it allows the FCC to waive the regulations, if that would promote the development or introduction of a new or improved service.

Simply put, Section 629 seems to require that customers can own convertor boxes, if they want to. So what's the big deal? If the cable system sells addressable descramblers, why is that different than renting them? The cable system gets the revenue up front, rather than spread out over time, still knows who has the boxes, and can control them from the headend. But that would not satisfy Section 629, because it says that the equipment must be available from vendors not affiliated with the multichannel video operator.

Well, suppose the manufacturer (Scientific-Atlanta or GI or Philips) opens up a retail store in town and starts selling boxes. That would satisfy security concerns, so long as the manufacturer notified the cable operator of the name and address of the buyer and the serial number of the box, so the cable operator could still control the box from the headend. It would appear to satisfy the statutory requirement that the vendor be unaffiliated with the cable operator. But you know, I don't think it would satisfy Circuit City.

Circuit City would like to sell the box, and it doesn't want to have to buy it from S-A or GI or Philips. It wants to buy it from competing manufacturers. Or perhaps it wants to manufacture it itself, through its Patapsco Designs manufacturing subsidiary.

If that's what the law requires, then here's where the patent conflict comes up.

Patent laws

The U.S. patent laws give the patent owner a temporary legal monopoly over his invention. The patent owner does not have to license anyone to manufacture or distribute products using the patent. Where the patent owner chooses to license his patent, he may "exact royalties as high as he can negotiate with the leverage of his monopoly," according to one Supreme Court decision. Another Supreme Court decision has held that the patent laws are more powerful than the antitrust laws; even where the patent gives the owner a monopoly in a market, the antitrust laws do not require the owner to license the patent to potential competitors.

The purpose of this monopoly is to spur innovation and invention. Inventors have more incentive to develop new products and services if they can profit from them. If others could steal their proprietary techniques and use them in products, why bother to try to invent and innovate?

That, of course, is exactly what Circuit City and the other electronics retailers would like to do. They would like to incorporate the proprietary techniques used in addressable cable boxes into products that they can manufacture and sell.

So we appear to be heading in the direction of compulsory patent licensing imposed by the FCC, as it tries to implement Section 629. The FCC, as it responds to Congressman Bliley, may decide that "commercial availability" means that S-A, GI and others must license their patents to other manufacturers, so that multiple manufacturers can make boxes that work with proprietary systems. This would not be limited to video services, by the way; it would also apply to program guide services (e.g., StarSight, TV Guide and Prevue), digital music services (Music Choice and DMX) and game services (the Sega Channel).

But the FCC does not have any authority to require compulsory licensing of patents. It has in the past adopted standards that incorporate patented technology (color television patented by RCA; telephone jacks and plugs patented by AT&T), but in those cases, the patent owners offered voluntarily to license their patents. The same circumstances will apply to digital HDTV. But why should S-A or GI volunteer to license their set-top patents to others?

To the courts

You can see where this is heading: straight to the courts. But so is much of the rest of the 1996 Telecommunications Act. Meanwhile, you might want to tell the FCC what you think about "commercial availability" of set-top boxes. You can send e-mail to FCC Chairman Reed Hundt at rhundt@fcc.gov.

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