This idea might have come from the liability that can come downstream if an unlicensed (or inappropriately licensed) encoder was used to create the asset. I could see an argument for making the end distributor liable for the encoding royalty.
[1] If the file really is in another format and not just an obfuscated H.264. Judges aren't generally idiots and don't like it when you suggest they are.
Not that I'm writing off the content. Just be aware that things have changed somewhat since then.
For example, the royalty-free end user bit through 2015 I believe has been extended in perpetuity [1].
[1]: http://www.streamingmedia.com/Articles/News/Featured-News/To...
