Tian Fuyun, a lawyer from the China Trademark & Patent Law Office, said domestic companies should work collectively, rather than a decision be made by patent owners unilaterally.

It is usually negotiated by two parties or ruled by the court according to specific details, he said, but it is a difficult and controversial issue in law practice, since a patent is hard to value.

Nevertheless, it is still high for the six companies to request 20 per cent of the sales price according to China's market situation.

Tian added royalties should be shared by manufacturers in all of the procedure, instead of only burdening the last in the production line.

Domestic makers argue they should not be wholly responsible for royalties since they have already shelled out for key parts, such as decoders and chips, from foreign companies, and the value of patent is contained in the price of these products.

Also, the collection of royalties on DVD players sold in China before patents are approved by the country's authority cannot be supported by law.

Zhu Hong, an official of the State Intellectual Property Office, said the patents of the six companies are still being examined.

A DVD player has more than 2,000 patents, most of which are owned by foreign manufacturers.

Li Mingde, a professor major in intellectual property rights, said Chinese companies have improved their legal awareness on patent protection but most have neglected to make good use of their own patents.

Trade on patents has been a large financial drain for foreign companies recently, he said.

For example, IBM received a net profit of US$1.7 billion on patent licensing compared to US$8 billion in 2000.

Trade on intellectual property rights has been one of the three largest trade fields in goods and services, Li said.

In China, foreign companies have applied 230,000 pieces of patent, according to the State Intellectual Property Office.

Some 81 per cent of patents in the information industry are controlled by foreign companies, while 87 per cent in the bio-engineering field and 90 per cent in high-definition colour TV sets and chemical drug making.

Few Chinese companies have discovered the big business opportunities, and even forget to register their patents, Li said. They are then left far behind at the application of a patent strategy to make more money.

Some foreign companies will raise the issue of royalties until the industry prospers in order to gain a higher price.

Foreign DVD technology developers pledged to collect royalties in 1999 when the domestic market began to prosper - eight years after Chinese companies started to make DVD players.

If domestic companies do not pay enough attention on patent development, registration and application, they will be like employees of those foreign companies, Li warned. "They will do more, while the foreign companies earn more," he said.

(China Daily April 2, 2002)