Certifiable: IDDA, Philips Announce Plans to Attack Non-Certified CD-R Manufacturers
Posted May 1, 2002

May 2002|At the annual meeting of the International Disc Duplication Association (IDDA) at REPLItech 2002, Philips presented its latest strategies for enforcing royalty agreements for CD-R licensing and manufacturing, and for identifying and pursuing manufacturers and importers of unlicensed discs. Addressing assembled members of IDDA, an international trade organization established "for those involved in the growing service of duplicating onto CD-R and DVD-R," Ben Beune of Philips Intellectual Property and Standards announced plans to publish a list of "Certified Manufacturers" in good standing with Philips to ensure that users and distributors of mass-quantity media—essentially, the demographic represented in the IDDA—can make sure they're getting their discs from reputable sources.

The "Certified Manufacturers" list, already posted at www.licensing. philips.com, enables a curious CD-R media purchaser to search for a company by name, country, and agreement (CD disc, CD player, CD-R disc) based on the range of patents Philips owns or shares. A similar list is available at the IDDA's site (www.discdupe.org/licensing.htm). Beginning in April 2002, Beune said, Philips planned to award a certificate with expiration date to certified manufacturers, providing further information for IDDA types to stay on the right side of the licensing laws. According to Beune, "attacking" duplicators who do business with non-certified CD-R manufacturers is not part of the patent holder's current enforcement plan. "First we go to the importers and then follow further up-stream."

Attention to licensing issues surrounding CD-R has intensified in the last 18 months amid controversy surrounding a handful of Taiwanese CD-R manufacturers (principally Ritek, Princo, and CMC Magnetics), who by late 2000 were accounting for 80% of the world's CD-R discs. Although licensing fees had dropped in deference to market changes, down from $2.72 per disc when CD-Rs typically sold for $3-$4 per disc, to about 8.3 cents in a market where prices had dropped as low as 18-20 cents, Ritek insisted that the fees—which added 32 to 41% to production costs in an already low-margin market—remained too high. Taiwan's Fair Trade Commission levied $430,000 in fines against Philips, Sony, and Taiyo Yuden ($235K of it against Philips) for colluding to keep royalty fees at an unmanageable level. The suit further alleged that Philips was assessing "technology transfer license fees" as if it were the sole patent holder for CD-R media. Philips disputed the claims and announced in January 2001 that it would revoke Ritek's CD-R manufacturing license. In April and May 2001, Philips negotiated new multiyear licensing deals with Ritek and CMC in which Philips reduced licensing fees to about 3.5-4.5 cents per unit (each royalty deal was negotiated independently).

The topic remains a hot one given the longevity of current CD-R patents, which still have about 10 years left. And given the ongoing changes in how published and distributed CDs are produced—gradually shifting away from replication to duplication environments—the IDDA plans to take an active advocacy role in determining future royalty rates. The association cites the disparity in royalty fees between replicated and recordable CDs as a key obstacle to the growth of CD duplication. With CD royalties set to be reduced as of July 1, 2002 to 1.75 cents per replicated disc for full-compliance licensees (also announced at REPLItech LA), the IDDA sees this gulf growing. The IDDA characterizes the current average royalty rate for CD-R (estimated at 6 cents per disc) as a too-high 37% surcharge on an average 16 cent cost-of-manufacture, insists that the differential creates a "very slippery, uneven slope" vis-à-vis replication, according to IDDA chair Bernard Kirschner, and says it intends to "use the press and public opinion to focus on the unfairness in CD-R royalties." At the same time, the organization remains committed to encouraging manufacturer adherence to existing patent laws and payment of royalties according to current licensing deals.