A US-based technology licensing authority has signed a preliminary agreement that should ensure Chinese DVD player manufacturers pay royalties.

Chinese firms will have to pay US$2.50 to patent holders for each player they manufacture. In the past they have not always paid royalties.

But this is only an initial deal. Chinese firms will have to sign individual agreements with the US body before the issue is fully resolved.

The MPEG Licensing Authority (MPEG LA) signed a memorandum of understanding over the MPEG-2 Patent Portfolio Licence with a Chinese group in Beijing yesterday.

The move connects the Chinese DVD manufacturing industry with MPEG-2 patent holders.

Negotiations began six years ago and involved the China Audio Industry Association (CAIA) and the China Chamber of Commerce for the Import and Export of Machinery and Electronic Products.

MPEG-2 refers to a technology that deals with the transmission, storage and display of digitised moving images. It is used in the manufacture of DVDs.

"It was a win-win process and conclusion," said Zheng Heling, deputy secretary-general of the CAIA, which represents the interests of 60 to 70 DVD makers in China.

He said the Chinese side had held to the basic principle of respecting and protecting intellectual property rights (IPR) from start to finish.

"MPEG LA appreciates the Chinese Government's consistent IPR protection efforts," added Lawrence Horn, chief executive officer (CEO) of MPEG LA.

MPEG LA, which manages seven technology patents, helps MPEG patent owners charge royalties.

It offers one-stop patent licensing, enabling users to acquire patent rights from multiple patent holders without having to negotiate separate licences.

MPEG-2 patents are owned by 24 companies, plus one university. Among them are four Chinese companies, which hold 21 of more than 750 essential patents relating to the MPEG-2 standard.

Horn said royalties for the MPEG-2 standard were the same price across the world.

Zheng, of CAIA, said: "We hope that in the next stage, CAIA members will begin individual negotiations with MPEG LA before signing the final licensing agreements."

In regards to unpaid royalties, Horn said a set of guidelines had now been formulated.

This will allow Chinese manufacturers to pay unpaid royalties over a period of time in the future, rather then forcing them to pay it all back straight away.

DVD player vendors need to report their previous unit shipments to MPEG LA to determine how much they owe in unpaid royalties.

MPEG LA also hoped that Chinese companies would participate in its business model, which it believes will help them commercialise their own patents in the future.

Horn said: "The source of future creativity and drive for the world economy will come from China."

He expected patent rights to come out of China in large numbers in the future, a trend that is already in evidence.
For example, the United States Patent and Trademark Office (USPTO) received 2,043 patent applications from China in 2005, an increase of 80.5 per cent over 2004.

According to the USPTO, patent applications from China have seen an average annual growth rate of 36.1 per cent over the past five years.

MPEG LA also looks after the licensing of MPEG-4, a standard that can be used in Internet Protocol TV (IPTV), which is currently a hot issue in the Chinese information technology sector.

Chinese industry players believe that MPEG-4 licensing fee is too high.

The home-grown Audio Video Standard (AVS) became effective on March 1.

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