Gao Wanjun, an official from the association that represents domestic DVD machine makers, said on April 1 that negotiations continue to take place and will not stop now that the deadline has passed.

6Cs and Chinese DVD machine makers are split over the amount of royalties that should be paid.

Foreign companies require domestic makers to pay one-fifth of the current price of DVD machines, which is about US$20 for each player.

The price seen as acceptable by domestic makers is US$4-5. However, 6Cs are asking for US$20 for every DVD player. On March 8, 6Cs sent an ultimatum to more than 100 Chinese DVD machine makers who authorized the association to act as their negotiators, stating that the 6Cs will conduct negotiations directly with each Chinese maker and that lawsuits will be filed against them if no agreement is reached before March 31.

Gao refused to release further details due to the sensitive nature of the negotiations.

More than 100 domestic DVD machine makers have entrusted the association to negotiate with foreign companies about royalties.

An official from the Ministry of Information Industry also confirmed that negotiations will continue, saying: "We are actively bargaining with the foreign companies."

Another alliance -- 3Cs (Philips, Sony and Pioneer) -- filed a block after this year's Spring Festival on all DVD products which have not paid royalties to European Union (EU) customs.

They delayed 10,000 DVD players at customs of EU member countries, which triggered the fear that Chinese DVD players will find no way out if similar incidents spread to other countries due to a breakdown in negotiations.

6Cs' Chinese operations declined to comment on the situation, but said they have no say in the case of royalties which is being handled by their headquarters.

After their ultimatum on March 7, the six companies reiterated their stand on March 27 in a statement, saying that if China's DVD machine makers do not respond by March 31, each of the six may take legal action separately based on their respective judgments.

The statement said the six companies provide patent licenses in a fair, non-discriminatory and open manner around the world and that the 6Cs' member firms have paid the same amount of royalties.

However, Chinese DVD makers turned down 6Cs' ultimatum.

Officials from major Chinese DVD makers said they did not reach an agreement before the deadline and as far as they know no counterparts have either.

"We still have hope in the association, who are carrying on negotiations with 6Cs," said a spokesman from Jinzheng Group, a leading DVD machine maker.

He predicted the dispute will end only with the compromise of both sides.

"We regard 6Cs' offering as too high to accept," he said.

Fan Wenjian from Shinco, another leading DVD company, said intellectual property is a trade issue and the amount of patent fees should be decided by negotiation rather than unilaterally, but the 6Cs gave no room for lowering the price.

Industry insiders say that foreign companies may hope to weaken the position of Chinese products in the international market by acquiring expensive royalties.

Chinese DVD machine makers have undercut their foreign counterparts in the overseas market backed by cheap raw materials and labor.

The price of Chinese DVD players is usually less than US$200, compared to the price of Japanese DVD players that stand at no less than US$400 in the US market.

Japanese DVD players used to sell at US$1,000 or so before Chinese products were invited in.

China exported 10.5 million DVD players last year and the global sales of DVD players reached 25.98 million at this time.

If the heavy charges are incurred, this will raise the price of DVD players in China significantly and curb the demand in the country, which is now the world's second largest DVD player market next to the United States.

DVD prices in the domestic market have plummeted to around 1,000 yuan (US$120.8) from around 3,000 yuan (US$362.3).

Gao said foreign companies need to seek a win-win solution to the problem.

"If the market becomes smaller because of higher prices, foreign companies cannot benefit from it. Domestic and foreign firms should cooperate to make the cake bigger," he said.

The sales volume of DVD players in China reached 4 million units, which was expected to double to 8 million this year.

Major events in DVD mart

In June 1999, the world's six major DVD developers -- Hitachi, Panasonic, Mitsubishi, Time Warner, Toshiba and JVC -- notified Chinese DVD makers they would have to pay for using their patents.

The six companies are referred to as 6Cs. This was followed by another alliance of DVD developers -- Philips, Pioneer and Sony -- which is known as 3Cs; and Thomson, which is known as a 1C.

More than 100 Chinese DVD player manufacturers entrusted the China Electronic Acoustic Equipment Association (CEAEA) to negotiate with the three alliances in early 2000.

6Cs published what they call a "DVD patent licence encouragement program" in Beijing in November 2000.

Accordingly, enterprises that signed patent license agreements within eight months of September 1, 2000, were given a 25 percent discount.

But no Chinese makers signed agreements with 6Cs.

Some Chinese DVD players have been delayed in customs of European Union members in February this year.

3Cs filed applications for delay with EU customs on all DVD products which have not paid royalties.

On March 7, the Ministry of Information Industry, the CEAEA and related companies held a meeting in Shanghai to discuss the urgent case.

But they declined to release any information on the meeting, saying they wanted to keep the meeting secret from foreign companies.

On March 8, the 6Cs sent an ultimatum to more than 100 Chinese DVD makers represented by the CEAEA, saying the 6Cs will conduct negotiations directly with each Chinese maker and that they will file lawsuits against them if no agreement is reached before March 31.

(China Daily April 02, 2002)