CD-R Disc Manufacturers Force Philips to Drop Joint Portfolio Licensing Programme
February 13, 2006
A complaint by an association of European manufacturers of CD-R discs has led to the abandonment of a Philips Electronics administered patent pool in Europe. The individual licensors participating in the pool now must grant licences to each of their own CD-R patents on an individual basis.
The complaint has also led to changes in Philip’s own CD-R disc licensing programme in Europe. This includes a four-month retrospective royalty reduction from 4.5 US cents to 2.5 US cents per disc.
Implications for Licensees Operating in the EU
Four key implications follow from the decision:
- This settlement decision highlights the significant benefits which firms requiring access to patented technology may gain by challenging (on the basis of EU competition law) the terms on which patent pool members license their portfolio to third parties.
- The decision demonstrates that patent pool licensing programmes are subject to close and ongoing monitoring so as to ensure compliance with EU competition rules. Technology pools—irrespective of whether they were given EU approval at the outset—should expect to be challenged by licensees or the European Commission if the current licensing terms are not in compliance with EU competition law.
- The European Commission has stated that particular attention will be given to technology pools which support or establish an industry standard. Scrutiny of other standard-setting patent pools by the European Commission should be expected, especially following any complaints by the licensees.
- The decision shows that royalties may be successfully challenged in the EU for being “excessive”, particularly when lower royalty rates are likely to bring about lower prices for consumers.
Background
On February 9, 2006, the European Commission announced it had closed an investigation into the CD-R disc licensing programmes administered by Philips in Europe. The investigation had started in 2003 following a complaint by FIPCOM (the Federation of Interested Parties in Fair Competition in the Optical Media sector), which claimed that the terms and conditions of CD-R technology licences violated the EC Treaty competition rules under both Article 81 (restrictive business practices) and Article 82 (abuses of dominant positions). The European Commission closed the case following changes to the programmes, and FIPCOM withdrew its complaint.
Since 1996, Philips Electronics has been offering European manufacturers a joint portfolio licence which includes its own CD-R disc patents as well as those of Sony Corporation and Taiyo Yuden. Philips discontinued the joint patent portfolio licensing programme in Europe effective December 15, 2005.
In addition, since 2001 Philips has been offering an individual licence, a Philips-only license agreement, which is limited to its own CD-R patents. The revisions proposed by Philips to this agreement are considered satisfactory by the European Commission. The most important changes in the new licensing agreement are:
- Making available on its website summary reports of independent experts regarding those Philips patents that are essential to produce CD-R discs.
- Adding the explicit obligation for Philips to address technical problems associated with the management of the CD-R standard.
- Updating the CD-R standard to clarify that discs that do not use Philips’ Multi Speed proprietary technology but alternative high speed recording technologies qualify as CD-R discs.
- Reducing the level of royalty from 4.5 US cents to 2.5 US cents per disc and applying this new rate retroactively from October 1, 2005 to the licensees that are compliant with the licensing program and have paid all royalties due.
A public version of the European Commission’s decision will be published within the coming months.
