Skype uses a video codec called ON2 which is a closed standard. There is another codec called H.264 that is open and used by a number of vendors including Apple for their iChat VOIP/Video conferencing (which incidentally is excellent).
Following are comments on the controversy from the maker of ON2:
Source: http://www.on2.com/technology/on2-vs-h264/
[quote]On2 Video vs. H.264
by Douglas A. McIntyre, President, Chairman, and CEO of On2 Technologies, Inc.
H.264 is an emerging video codec that can be licensed by paying royalties to two patent pools, MPEG LA and VIA Licensing. As a result, the costs of deploying H.264 are very high. Under the MPEG LA terms, in larger deployments encoder and decoder fees are $0.20 per unit up to five million units (at five million units, the price is $0.10). There are also content-based fees. The cap for these fees is $3.5 million (per enterprise) in 2005 and 2006, $4.25 million in 2007 and 2008 and $5 million in 2009 and 2010.
Under the terms of the VIA License, in larger deployments, encoder and decoder fees are $0.25 per unit, as well as content fees. As an annual cap on content fees, non-PC OEMs pay $2.5 million a year and PC OEMs pay $4 million.
Looking at this in the aggregate, a consumer electronics manufacturer could pay $38 million for license fees between 2005 and 2010. A PC manufacturer could pay a good deal more.
These fees are only for intellectual property (IP) licenses. The costs of implementation of a working H.264 encoder and decoder from one of the many companies marketing H.264 products adds substantially to these prices; having a fully functional client/player solution adds yet again.
By comparison, pricing for On2 Technologies' products include the costs of IP licensing, implementation, and client/player products in one royalty fee that is typically much less expensive than comparable H.264 offerings. Also, because we own our AVC audio codec IP, On2 can provide an audio solution as part of our royalty. H.264 licensing covers only video and does not even contemplate audio licensing.
H.264 proponents would argue that their fees buy the customer "global interoperability with a standard." First, what is a standard and who defines it? Second, many independent platforms (such as video recording and video-on-demand services) can be implemented without strict interoperability. How relevant is interoperability in an age when it is increasingly common for devices such as set-top boxes and even mobile phones to have powerful general purpose CPUs capable of decoding video in software?
The original MPEG-4 standard was introduced to great acclaim, but its adoption has been so poor, even in products such as handheld devices where cost and power consumption are critical, that it can hardly be called a "de facto" standard. The reason for this (aside from the cost and royalty considerations) is that, almost from day one, MPEG-4 has lagged behind proprietary codecs in performance. Put simply, by the time the standard was ratified and products were ready to ship, the state of the art had moved on significantly.
So, what are companies really paying for with H.264? In essence, the financial needs of a number of large patent holders who want to make as much money as they can from their contributions to the pool.[/quote]