Often the term “royalty-free” is promulgated as a unique selling point of open source and some standards. The assumption of the uninitiated is that this means these offerings are not just free to use, but also free of charge, obligations, or even liability. In the case of technology standards this is unfortunately not the reality. Companies offering royalty-free access to standards do so for their own reasons; few are so charitable as to give up something of value for nothing. 

Before adopting a standard denoted as “royalty-free”, it is important to carefully consider the conditions of the license to use the technology and the risks your business might be exposed to by adopting it. 

Below we explain how royalty-free licensing: 

• Comes with obligations;
• Deprives the market of healthy competition; and

De facto discriminates against companies that do not agree with the licensing model but want to contribute technologies.

The AV1 video codec is a good example to understand how “royalty-free” can turn out to be anything but that. The Alliance of Open Media (AOM, the organisation behind its development, including founding members such as Apple, Microsoft, or Huawei) offers a royalty-free patent licence for use of AV1. The catch is that while the AV1 developers offer their patents (assuming they have any) on a royalty-free basis, in return they require users of AV1 to agree to license their own patents royalty-free back to them. And this licence is not just limited to AV1, but also it seems for any future codec implementation created by AOM. You cannot choose to exclude any of your patents from AV1, as there is no mechanism in the license to do this and, in any case, the AV1 specification is already set. Therefore, there is a potential cost to you if you have relevant patents or if your implementation of AV1 needs to be modified or stopped to avoid relevant patents not subject to AOM’s royalty-free licence. 

Besides this, is this kind of royalty-free cross-licence a bad thing?  Probably not in the short-term, provided you do not have relevant patents or any intention of developing the technology. However, it does dissuade technology developers, from developing the technology further or contributing to its creation in the first place. It also enables a standard to undercut other standardised technologies which may come with a more transparent royalty cost. 

Of course, for the developers of AV1 – principally the large digital platforms – there is a clear incentive to compel royalty-free patent licensing from users as this benefits their potential widespread use of it in their digital ecosystems. By removing the competition, through below-market prices and reduced incentives to innovate, you control the market. However, this in turn could be at a longer-term cost to your business due to the lack of available competitive alternatives. In this way its developers and supporters will have created a “lock-in” effect. 

Probably of more immediate concern is that a significant number of companies that do currently develop video compression technologies are not members of AOM. These companies have patents that likely cover some aspects of AV1. Indeed, Sisvel has a pool of such patents that it offers to license on behalf of patent owners who are not members/developers of AV1. But these are not necessarily all of them.

Unlike for other video codecs, where developers may commit to licensing their patents for fair and reasonable (FRAND) compensation, such as HEVC or VVC developed under ISO and the ITU, fewer companies have indicated (or are likely to indicate) a willingness to license their relevant patents for AV1 – most likely due to AOM’s “royalty-free” requirement. This means that any of these companies could legitimately charge supra-FRAND royalties or, worse still, prevent you from using that technology by seeking a court injunction where AV1 infringes one of their patents. This would obviously create significant risk to a business. So, the next time you see a standard being offered as “royalty-free” ask yourself first why is it royalty-free? And then ask yourself, what are the risks to your business of adopting the technology, both short and long-term? You might discover that it is not the great bargain your business was looking for.