Owing to lack of basic technology in China's DVD industry, companies have had to import tech-solutions for production. But till date, no patent fees have been paid, for a controversy over the fairness of the charges is yet to be resolved.

In early 1999, the six leading DVD players' and formats' developers, including Hitachi, Panasonic, Mitsubishi Electric, Time Warner Inc, Toshiba and JVC - also known as the 6C - issued a joint patent licence. It asked all companies using their technology to manufacture DVD players to pay a patent licensing fee.

Though the requirement sounds reasonable, most domestic firms are not ready to accept it because the amount demanded by 6C is "exorbitant".

Overcharge

Manufacturers must pay 6C either 4 per cent of the net selling price or US$1, whichever is higher, for each DVD decoder sold, says the patent licence. This will approximately amount to 150 yuan (US$11.76-24) for each DVD player produced by a domestic firm. The patent fee for DVD discs has been set at US$0.075 each; an increase of 0.7 yuan (US$0.084) per disc.

"Over the past years, China's DVD companies have been continuously narrowing their profit margins by offering higher quality products at lower prices," said Fan Lijun of TCL, one of the biggest companies in the sector.

Hence, the large patent licensing fee may reduce the already small profit margin to almost zero and drive many DVD manufacturers to bankruptcy.

On the other hand, raising prices to accommodate the fees could cost domestic manufacturers their biggest advantage - low prices.

"Although the quality of China's DVD players is reaching international levels, China-made products still face a stiff competition from famous overseas brand names. Which one would you buy, if the prices were the same?" said a manager of a local DVD manufacturer.

"The competition will be extreme. We know we should pay the patent fee, but we want a more reasonable rate; a fair price that won't damage the industry."

Abrupt seizure

To reach a compromise, China Electronic Acoustic Equipment Association (CEAEA), representing domestic DVD manufacturers, has been negotiating with the patent holders for several years now.

But 6C's patience seems to be running out as they watch the rapid growth of the industry in China and the sales Chinese products are enjoying in American and European markets -at times bigger than local ones.

On February 28, EU Customs seized all Chinese DVD players being exported to the European markets. After the seizure, 6C announced it would move court against the Chinese firms that don't pay the patent fees by March 31.

This created an uproar among domestic manufacturers, whose complaints flooded the industry.

"We are not repudiating the debt," said a manager of a domestic DVD company. "Negotiations are still going on. We will pay all the money when a common ground is reached."

Clinging to standards

But where is the common ground?

"Only when 6C agrees to negotiate with us will we believe that there's room for bargaining," said Tian Yujing, a senior engineer of the Ministry of Information Industry.

"But they are still clinging to their criterion, refusing to reduce their fees even by a penny. Why did they agree to negotiate originally?"

Some say the patent holders' move is an attempt to block Chinese products from reaching the world market.

Statistics show that last year alone 12 million Chinese DVD players were exported. And it is estimated that the overall trading volume of DVD players in the world market was just around 30 million at the same time.

China's DVD manufacturers are already posing a great threat to the multinationals and their technologies.

Though precisely 19 days have passed since the March 31-deadline, 6C hasn't taken the Chinese companies to court. Instead, it has chosen to continue with the negotiations.

But the Chinese companies have got a symbolic call to respect international rules.

| frontpage | nation | business | HK\Taiwan | snapshots | focus |
| governmentinfo | economic insights | campus life | Shanghai today | metropolitan |