MPEG LA and thus it is not royalty-free. On the other hand WebM is new and virtually no hardware supports it. There is only emerging software support for it. While these certainly are drawbacks, WebM is open source and royalty-free which makes it far more suitable for long term use with the HTML5 video extensions. Other browsers with large and small market shares - Firefox and Opera have already declared they will not support H.264 but just WebM. With the decision in question Google did the right thing and joined the open source, royalty-free video codec supporters. All hopes are that this will result in a freer and cheaper future for the World Wide Web.
Thank you, Google!