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Thursday, June 13, 2002
Patent enforcement by Philips hit sales of Taiwan’s small and medium-sized CD-R disc makers

CD-R disc exports to the US and Europe from small and medium-sized manufacturers in Taiwan have been reduced sharply following increased efforts by Royal Philips Electronics to crack down on infringement of its patents.

Philips reportedly has pressed its European and US distributors to shut the door on unlicensed discs. The push seems to have worked, as orders from the areas have dropped sharply at smaller Taiwanese disc makers, which normally do not pay royalties.

Companies that requested anonymity said they are now seeing only 10-20% of their CD-R disc shipments go to the US and Europe, down from 70-80% at the beginning of the year.

Under licensing agreements with Philips, a non-US licensee must make an initial payment of three million yen (about US$23,878) and royalty payments of 3% of the net sales price of each disc, with a minimum of 10 yen per disc (about US$0.08). However, sources said the vast majority of Taiwan’s disc makers have not come in line with the requirement, and it is questionable whether they would ever do so even under Philips’ pressure.

A common practice to dodge licensing payment is to set up off-shore trading companies to sell CD-R discs that contain a common identification code for CD-R technology. Such a code allows the CD-R drives to read and write the discs, but cannot provide the speed and optimum write strategies of licensed discs.

Industry sources warned that ploy could hurt sales because consumers may find their unlicensed discs are unable to write to their specification because the CD-R reader cannot identify the specific code for the disc’s manufacturer, dye type and write strategy.

Also affecting Taiwan’s overseas disc sales is the European Union’s (EU) ruling last year that slapped temporary anti-dumping tariffs ranging from 18.8% to 39% on CD-R disc imports from Taiwan, according to the manufacturers. The EU expects to issue its final ruling on the dumping case shortly.

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