Philips introduces licensing system
By Zhu Boru (China Daily)
Updated: 2006-01-19 06:45

Royal Philips Electronics is to adopt a new licensing system to curb the illegal use of its patented CD-R technology.

It expects that all CD-R manufacturers will be integrated into the new scheme, named Veeza, within six months.

CD-R (compact disc-recordable) technology allows users to record digital information onto a compact disc.

Philips introduced the discs in 1988, but it claims there have been a number of infringements of its copyright.

The new model, launched today, will enable each chain throughout the industry including customs, traders, retailers and consumers to easily differentiate a licensed disc from an unlicensed one.

By doing so, non-licensed CD-R production will be significantly reduced.

"All CD-R manufacturers are being encouraged to join Veeza. The reward is it will bring reduced costs and improved profit margins," said Ruud Peters, chief executive officer of Philips IP and Standard.

Philips co-invented the CD-R disc system and has a portfolio of patents essential for the manufacture and sale of CD-R discs.

Under Veeza, Philips has cut royalties from 4.5 US cents to 2.5 US cents per piece, and it will charge patent royalties based on the number of shipments.

Under the previous system, CD-R manufacturers received a licence from Philips for total production that was valid until the patent expired, Peters explained.

The new model will also provide easy proof of license an easier payment method.

According to Peters, licensed discs will come with three clear marks: a logo and site registration number on each disc; a fraud-resistant label with the logo and serial number on each packing carton; and documentation for each shipment.

Previously, it was often difficult for traders and retailers to tell whether discs were licensed or not.

Peters said that Philips will help Veeza participants integrate their labelling processes into their existing logistics systems, expecting all of them to be integrated into the new model within six months.

Despite added costs brought about by the changes, "we expect higher margins and can focus more on improving quality so as to benefit consumers," said Peters.

He said Veeza was not aimed at collecting more patent royalties, but to create a level playground for all manufacturers.

The Veeza model, starting from CD-R manufacturers, may be introduced to all products related to CDs later on, including DVD discs, Peters added.

Royalties have become highly relevant to CD-R manufacturers' profit margins, as fierce competition and little differentiation in related technologies have resulted in steep price erosion and slim margins.

Thus disc makers without licences, or those that do not pay full royalties, have gained a competitive advantages over firms with licences.

Currently about 95 per cent of the CD-R discs in the world are produced in China, including Taiwan. An estimated 50 per cent of those made in China are licensed, according to James Liu, senior legal counsel of Philips IP and Standard.

(China Daily 01/19/2006 page10)