In his recent commentary on patent pools, David Balto takes issue with Blu-ray Disc patent pool One-Blue ("Patent Pool abuse deserves scrutiny," Jan. 7). Mr. Balto suggests that One-Blue should have lowered its royalty rates as the retail prices of Blu-ray Disc players have come down. His assumptions are wrong.
The idea that royalties should be calculated as a percentage of the price of products incorporating the patents is incorrect. In our modern economy, technology is an essential, autonomous input into our products, with its own value and price. One-Blue has 15 licensors, i.e. companies that jointly license out their Blu-ray patents. In total, they have invested more than a billion dollar to invent and develop the technologies covered by the thousands of patents in the pool. A reasonable, constant royalty is suitable to reflect this effort. Furthermore, royalties defined as a percentage of cost price, sales price or profits are very difficult to calculate and check. This approach is very cumbersome and offers many opportunities for cheating by misreporting prices or profits.
Mr. Balto's assertion that a constant royalty rate "obviously forces consumers to pay more" is, to put it mildly, puzzling. He himself states that the price of Blu-ray Disc players has gone down nearly 75 percent during the past decade. So where is the harm to consumers??
As with so many other products, in the case of Blu-ray products, too, the rapid price erosion is basically a result of the many economies of scale as the market for the product widens. This process is perfectly compatible with a constant royalty rate. Mr. Balto seems to suggest that royalty rates should be reduced by an equivalent 75 percent. Why does he single out this essential input for price reduction and not others, such as raw materials or labor costs?
One-Blue is a very innovative patent pool which creates a level playing field and makes life much easier for licensors and licensees alike. It is unfortunate Mr. Balto does not focus on One-Blue's many unique positive features but limits himself to an erroneous assertion regarding the royalty rate.
Roel Kramer, New York
The writer is CEO of One-Blue.
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