Audio Video News

In the past three years, Chinese-made DVD players have flooded the market, bringing low-cost, high-quality video to millions of consumers. Their success has also brought millions of dollars to Chinese electronics manufacturers. Now those same manufacturers are being asked to pay their fair share for the technology that is making them rich.

More than 100 members of the China Audio Industry Association (CAIA) could be facing massive patent-infringement suits over technology used in DVD players, if they don't reach some agreement with patent owners by the end of March. A consortium of technology companies known as the 6C, who helped develop the DVD format, has been in discussion with the CAIA for the past two years over unpaid royalties.

The companies—Hitachi, JVC, Toshiba, Matsushita, Mitsubishi, and Time Warner Inc.—own individual and joint patents on much of the technology that makes DVD possible. The most recent round of discussions with Chinese manufacturers broke down on January 10. On March 8, the group delivered an ultimatum threatening to proceed with lawsuits if agreements aren't reached by March 31.

The Chinese had hoped to win concessions from the 6C, especially reductions in royalty fees. The fact that they haven't paid the fees, combined with China's incredibly low labor costs, has helped to drive the retail price of entry-level players below $100 per unit. Basic DVD players can be found in all mass-market outlets for around $80, a price that makes them impulse buys—and disposable commodities—for consumers who would be much more cautious with new technology if it were priced higher. Apex Digital, one of the better-known Chinese brands, reportedly controls more than 30% of the US market in new player sales, thanks to wide exposure in big-box stores like Wal-Mart.

In November 2000, the 6C presented a plan to CAIA leaders in Beijing that would require royalties from manufacturers of DVD discs and equipment. Terms were $4 per unit or 4% of the net selling price, whichever was higher, for each DVD player, and $1 per unit or 4% of the net selling price for each DVD decoder. The terms "ignited strong opposition from Chinese manufacturers and even some authorities, who said the demands were excessive," according to a Financial Times Limited report in mid-March.

Manufacturing without paying licensing fees or royalties is not a new phenomenon in China, which has a long history of ignoring both copyrights and patents. Many "knock-offs" originate in the vast country, where almost anything that can be copied will be copied—cameras, motorcycles, washing machines, computers, software, music, and now DVD players. The 6C has begun negotiating separately with each Chinese manufacturer in hopes of resolving the conflict.