October 4, 2007
By Bill Rosenblatt,
http://www.Drmwatch.com

Intertrust announced on Tuesday a new patent licensing program for consumer device makers who implement OMA DRM (either version) or Marlin DRM. Royalty rates are set at EUR 0.25 (US $0.35) per device. For makers of OMA DRM or Marlin software for PCs, there is a cap of EUR 400,000 ($566,000) per year. Intertrust is offering a "royalty holiday" as inducement to those who sign agreements by the end of this year: it will not charge royalties for any devices shipped before July 1, 2008. The royalties cover licenses to patents from Intertrust as well as its owners, Sony and Philips. This license addresses ambiguities arising from the licensing scheme that Intertrust announced back in February, which covered wireless carriers but not device or PC software makers. Those royalties amount to EUR 0.09 ($0.13) per year for each subscriber to a carrier's content service (regardless of the number of devices the subscriber uses) or up to EUR 0.03 ($0.04) per user (whether or not the user subscribes to any content services). As far as we know, no carriers have taken that license thus far. Compare this with Microsoft's licensing scheme for its PlayReady mobile DRM technology, where the client (device or software) royalties vary from $0.35 down to $0.15 per unit, depending on unit volume, and the server royalties for carriers are $0.25 per year per active service subscriber, regardless of the number of the subscriber's devices. In other words, Microsoft's royalties for PlayReady are in the same ballpark as Intertrust's. Let's assume that a device maker ships 10 million DRM-enabled media-playing handsets to a number of carriers, and that a quarter of those devices' owners subscribe to those carriers' premium content services. In that case, if the DRM were OMA DRM or Marlin, Intertrust would charge the device maker $3.5 Million and the carriers a total of $325,000 per year. If it were PlayReady, Microsoft would charge the device maker $2.9 Million and the carriers a total of $625,000 per year. Given that the lifespan of a typical content service on a typical device is perhaps 2 years -- corresponding to carriers' typical policies on giving users discounts on new handsets every 2 years -- the total revenues would be $4.15 Million for both Intertrust and Microsoft. (We did not expect that result in advance. We swear.) Intertrust's scheme looks like a better deal for wireless carriers and a worse deal for device makers. This makes sense for two reasons. First, carriers are the primary drivers of demand for DRM technology because they are the ones who launch content services; therefore Intertrust's royalties give them more incentives than Microsoft's, Second, Intertrust's owners, Sony and Philips, are (or have ownership interest in) device makers that presumably do not have to pay these royalties, so this is their way of gaining an (admittedly minor) advantage over competitors like Nokia, Motorola, and Samsung that have not announced licensing of Intertrust's patents to date. However, those royalties only cover licenses to use patents; they do not cover the actual software technology itself. Implementers of OMA DRM must also pay software vendors such as Beep Science, CoreMedia, Viaccess, or NDS. Microsoft's royalties cover the software as well as any patents that Microsoft licenses, such as -- potentially -- those from Intertrust (as a result of the settlement of the companies' patent litigation in 2004) and ContentGuard (which Microsoft part-owns). At this point, all of these mobile DRM license schemes are academic. OMA DRM 1.0-based services are on the rise, but with a few exceptions, no patent licenses have been taken in connection with them. And PlayReady is just now hitting the market. By the end of this year we may see if Intertrust's new scheme has any takers; otherwise, DRM technology royalties will continue to be a contentious issue as the mobile content industry builds itself out.