For hardware, the intellectual property is an idea or concept or algorithm (such as MPEG-2 compression) and the way that it is embodied or implemented in the hardware, and is usually protected by patents. For video or audio programming and books and magazines, the intellectual property is the programming or publication itself, and is protected by copyrights.Hardware issues
The MPEG-2 digital video compression standard, to be incorporated in TVs, VCRs and cable boxes, includes patented technology. The patent laws allow the owner of the intellectual property that is embodied in a patent to charge royalty payments for the use of the patented technology. The MPEG-2 royalty fees are still being worked out, under a group that was spun off from CableLabs. As with most standards, the companies that developed the technology agreed in advance to charge reasonable, non-discriminatory royalties. The participants who are negotiating these royalties include the patent owners, TV and VCR manufacturers, Hollywood studios, cable programmers, and perhaps broadcasters and cable MSOs. The negotiations should be completed later this year. The FCC will be watching to make sure that these fees are not anti-competitive.
In some cases, it may be to the patent owner's benefit to grant royalty-free licenses to its technology, because this helps the industry reach agreement on a standard and stimulates the expansion of the market. This was apparently the case when General Instrument announced royalty-free licensing of its 64/256 QAM modulation and forward error correction for cable transmission. Now there is cable industry agreement on a common downstream modulation for both digital video and data transmission.
The 1996 Telecom Act required the FCC to establish policies for retail sales of cable set-top boxes. As I explained in my April 1996 Capital Currents column, this provision was enacted because Circuit City is one of the largest and most influential constituents in the election district of Tom Bliley, Chairman of the House Commerce Committee. Next, you will see that Circuit City will want to sell cable boxes that are compatible with those from Pioneer, Scientific-Atlanta and GI, but manufactured by someone else. To accomplish this, the FCC would have to force the cable box manufacturers to license their patents to other manufacturers. The FCC probably doesn't have the power to force compulsory licensing of patents, but you can expect to see the cable manufacturers battling with Circuit City over this issue.Programming issues
We are familiar with compulsory licensing of copyrights, particularly with respect to broadcast programming. It is an essential part of the "must-carry" regime. But maybe, if "must-carry" is struck down by the Supreme Court this year, which seems likely, this compulsory licensing will be eliminated, and cable operators will have to negotiate with broadcasters for retransmission.
A related issue is carriage of broadcast stations by DBS. DBS systems can retransmit TV programming only in "white areas" that have no cable service and no off-air TV signals. Broadcasters have been aggressive in forcing satellite operators to cut off subscribers that don't meet these criteria. But ASkyB, the Murdoch/MCI DBS venture, will be working to change the copyright laws so it can distribute local TV programming throughout the country, because that's what it will take to really compete with cable.
Digital video copy protection is another hot topic. In my May 1996 Capital Currents column, I wrote about a proposal being negotiated by the movie producers and consumer electronics manufacturers to write a law that would require specific copy protection techniques in digital VCRs and digital cable boxes. That law was never enacted, partly because of opposition from the computer industry. In its latest incarnation, the proposal would result in voluntary industry standards for digital video copy protection. A simpler law would be enacted to make it illegal to circumvent the copy protection methods. But the kicker is that the movie producers would then insist in all distribution contracts that cable satellite programmers and cable operators can only distribute movies to subscribers that have VCRs and cable boxes that incorporate the specific copy protection technologies. So the Hollywood studios would achieve, using private contracts, the same copy protection goals that they sought by legislation last year.
Of course, concern over copyright protection is not limited to video programming. The growth of the Internet has raised the consciousness of book and magazine publishers who want to control the copying and distribution of their publications, and pitted them against educators and librarians who want the right to browse on-line publications and documents in they same way they now browse printed publications. It seems clear that existing copyright laws will have to be either amended or reinterpreted to cover the new digital networking technologies.
Most of these issues will be resolved in the next year or two. But with the explosion of information and telecom technology that never stops, new intellectual property disputes are sure to arise. Stay tuned.