Technicolor plans to sell off its patent licensing business in line with its objective to simplify its structure, a decision that may relate to recent divisions over patents for video codecs such as HVEC.
In anticipation of a deal, the company has currently suspended all commercial patent licensing discussions, though it announced that it has reached a settlement with Samsung regarding litigation in Germany and France. Back in February Technicolor initiated multiple patent infringement suits in in those countries against Samsung concerning mobile phones and digital televisions.
Some of the patents at issue also related to video coding and communications, which are also likely to be at the heart of the sale negotiations. Technicolor was the odd one out last year, among all the companies chasing HEVC patents and membership of related patent pools. It may well be that one of the prominent players in the two HEVC patent pools wants to buy key Technicolor patents in this area. The main pools are MPEG LA, dominated by Apple and Samsung, and HEVC Advance. In addition, there is an alternative codec, called AOMedia, which is royalty-free and backed by its own alliance.
Technicolor has always been involved in every step of development in video codec patents, including MPEG 2, H.264 and HEVC. But a year ago, it dropped out of the HEVC Advance patent pool so that it could pursue patent licensing separately. It did not want to watch rivals adopt its technology, and not pay royalties, just because there was confusion over the multiple HEVC patent pools. It reported in 2016 that it had one major HEVC patent licensee.
The settlement with Samsung will bring Technicolor much needed cash, but a sale of the patent business could be even more lucrative. One likely scenario is that one of the AOMedia supporters will acquire the Technicolor patents, and put them into the royalty-free basket that is promising to revolutionize codec development. That group consists of Cisco, Intel, Microsoft, Google, Netflix and Amazon and a few others, and is poised to come out with its first product any day. If it could own some essential patents it would strengthen its offering and reduce its risk of litigation. In which case look out for one of those companies stumping up the cash for Technicolor patents.
Technicolor claims to have 30,000 patents and patent applications, in the areas of video coding and image processing, telecommunications, user experience, security and displays. Its Technology division is expected to generate €70m in EBITDA in this financial year, the bulk of which (€75m) will come from its patent licensing activity. Without it, that division will immediately go into negative EBITDA, falling from the €115m EBITDA in the company’s guidance.
In total Technicolor says it hopes to generate EBITDA around €370m this fiscal, despite over €5m in currency costs.