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Sony Corp. (SNE) said it will drop its lawsuit against Apex Digital Inc. after the U.S. firm agreed to pay DVD-player royalties to the Japanese consumer electronics giant.

Sony filed a lawsuit in the U.S. on March 26 against the start-up company for infringements of DVD-player patents, claiming Apex imports and sells cheap DVD players into the U.S. without paying the required licensing fees.

Apex's parent company, United Delta Inc., has agreed to pay licensing fees of $5 per player or 3.5% of a player's wholesale price, whichever the higher, to Sony, Philips Electronics Ltd. and Pioneer Corp. (PIO), Sony said. The three companies hold a joint DVD-technology license.

Apex also agreed to pay some fees retroactively, Sony said. The amount of these payments wasn't disclosed.

In the last six months of 2001, Apex's DVD players captured about 20% of the U.S. market in unit terms, according to research firm NPD Techworld. With some models retailing for under $100, Apex has overtaken Sony and Samsung Corp. of South Korea (news - web sites) to become the top seller in the U.S.

California -based Apex assembles its DVD hardware and televisions in China , using chips and components from companies such as Sanyo Electric Co . (SANYY) 6764) and Sony.

Sony's resolution with Apex could affect similar disputes between some hundreds of Chinese DVD manufacturers with another six-company group comprising AOL Time Warner Inc. (TWX - news) (AOL), Hitachi Ltd. (HIT), Matsushita Electric Industrial Co . (MC), Mitsubishi Electric Corp., Toshiba Corp. and Victor Co . of Japan Ltd.

By the end of March, most of the Chinese companies had failed to respond to a request from the six-company group to pay DVD-related technology licensing fees, said Hitachi spokesman Hiroki Inoue Friday.

"We don't know yet if a lawsuit is a good idea," the spokesman said, but added that if the continuing negotiations reach a deadlock, the group may consider legal action.

In January, the six companies concluded talks with the China Audio Industry Association, or CAIA, which represents about 90 DVD and video CD player manufacturers in China and began talks with the individual firms.