>The risk for MPEG-LA in not agreeing is that the patent pool would collapse - if Google isn't in then why should anyone else remain in the pool?

I think you have it kind of backwards. This whole thing is inside baseball.

Start with the patent system. It's really easy to get a narrow patent. It's far too easy to get an overly broad and totally obvious patent. It's really easy to get a narrow patent.

So what happens when all the industry players come together to create a standard for a video codec? They all offer up their "technologies" for inclusion in the standard, because if it gets included and they have a patent then they get royalties. Some of these are the ridiculously overbroad and obvious patents everyone is accustomed to complaining about. But here's where the narrow patents come in: Narrower patents tend to be stronger. It's harder to find invalidating prior art if the claims are more specific. Plus, more is better, and narrow patents are easier to get. So what they do is they all file for specific patents on exactly what they intend to put in the standard, so that all the major industry players each have several strong patents that cover the standard they're creating. The incentive that they each have individually to do this is obvious, and the others allow it because they want to do it too and they implicitly expect reciprocity.

It's basically a method for implicit collusion. They each include a bunch of patented stuff in the standard primarily for the purpose of increasing the amount of royalties they get from anyone who uses it. Since each of the major players does the same thing, the royalties between one another largely cancel out, but if there are any minor players or any new competitor attempts to enter the market, now they've got to pay a bunch of royalties to all the incumbents to use the standard whereas the incumbents don't have to pay any royalties to them because the newcomer wasn't around at the time to have put their patented technologies in the standard. It serves as a pretty effective method to thwart competition, and it's really hard for the antitrust authorities to prove anything illegal is going on.

So enter Google/On2 and VP8. They don't like all this. "Promote competition in markets complementary to your own" is business 101. So they specifically design a codec that doesn't infringe the H.264 patents and release it free to the world. Obviously this means one less barrier to competition in those markets -- it's exactly the same strategy as giving away Android for free. You can't allow a cartel to form in a complementary market or eventually they'll find a way to lock up all your customers behind a toll booth and squeeze all the margins out of your market.

This doesn't make MPEG-LA happy. They're in the toll booth business. If people start using VP8 or its successors then the whole antitrust-resistant implicit collusion scheme is going to fall apart. So they try to figure out how to stop it, but what can they do? When you sell hammers, you start seeing nails everywhere. So they threaten to create a patent pool for VP8. The point of the pool was never to actually license patents to people who wanted to use VP8. VP8 is somewhat worse than H.264 on account of having to avoid some of the ridiculously broad and obvious patents. If you have to license patents then you might as well just use H.264. Which was the real point of the pool for VP8. Make sure there doesn't exist a decent royalty-free codec so that people can't use it instead of H.264.

But VP8 was specifically designed to avoid all known patents, so setting up a pool for it turns out to be harder than it sounds. On the other hand, software patents are so broken that you can generally find a few bad ones that maybe possibly read on any given thing, at least to the point that you can tie it up in litigation for years. So that's what I imagine happened here: MPEG-LA probably knew they wouldn't be able to win in the end, but they had the ability to cause trouble, which can be leveraged into a tidy settlement.