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I. SUMMARY
In 1997, the U.S. Department of Justice, Antitrust Division, responded favorably to a request to create a patent pool for the MPEG-2 technology, which was ultimately established under the name MPEG LA. MPEG-2 technology enables transmission and storage of information more efficiently than earlier technologies. This article evaluates the Antitrust Division's business review letter by analyzing the patent pool under an antitrust Rule of Reason approach. While the patent pool is generally procompetitive, one characteristic that raises competitive concerns is the elimination of patents non-essential for the MPEG-2 technology. Although the Antitrust Division considered this feature prior to determining that the patent pool was overall procompetitive, it failed to recognize the anticompetitive potential when the non-- essentiality is due to an alternative manufacturing process. Replacing the original patents with the new patents) is the most procompetitive solution.
II. INTRODUCTION
Moving Picture Experts Group (MPEG) technology allows for the transmission and storage of digital video and audio signals.1 Because the digital signals are compressed, the transmission uses less bandwidth than analog transmissions.2 The first generation of this technology, MPEG-1, proved useful for storage on Video CDs but was not suitable for satellite transmissions because its data stream supported only one video stream.3 In contrast, the next generation, MPEG-2 technology, not only featured an improved picture but also allowed multiple channels in a single data stream.4 Hence, in the same space used to send a single analog program, multiple programs could be sent with the MPEG-2 technology.5 This increased compression allowed satellite and cable companies to provide greater program selection in the same amount of bandwidth.6 Additionally, the MPEG-2 technology provided enhanced program storage, such as on a digital versatile disk (DVD).7
Originally, nine companies owned the rights under twentyseven patents deemed essential for the MPEG-2 technology.8 Given the "essential" nature of each patent, no individual entity could use the MPEG-2 technology without infringing on the rights of multiple patent holders. Garrard Beeney9 sent a proposal to the United States Department of Justice Antitrust Division on behalf of the nine companies and Cable Television Laboratories Inc. The proposal suggested the creation of a patent pool, named MPEG LA, in which the necessary patents could be cross-licensed.10 Beeney requested a business review letter"...