DOJ Business Advisory letter 98-11 of 12/16/98 concerning Digital Versatile Discs Patent Licensing
Koninklijke Philips Electronics, N.V./ Sony Corporation of Japan/ Pioneer Electronic Corporation of Japan
Digital Versatile Discs Patent Licensing
Facts: Koninklijke Philips Electronics, N.V., Sony Corporation of Japan and Pioneer Electronic Corporation of Japan have proposed an arrangement pursuant to which Philips will assemble and offer a package license under the patents of Philips, Sony and Pioneer (collectively, the "Licensors") that are "essential" to manufacturing Digital Versatile Discs ("DVDs") and players in compliance with the DVD-ROM and DVD-Video formats, and will distribute royalty income among the Licensors.
Response: As with any aggregation of patent rights for the purpose of joint package licensing, commonly known as a patent pool, an antitrust analysis of this proposed licensing program must examine both the pool's expected competitive benefits and its potential competitive hazards. In particular, one expects that a patent pool may provide competitive benefits by integrating complementary technologies, reducing transaction costs, clearing blocking positions, and avoiding costly infringement litigation. At the same time, some patent pools can restrict competition, whether among intellectual property rights within the pool, downstream products incorporating the pooled patents or in innovation among parties to the pool. Based on the information and assurances provided to the Department, it appears that the proposed arrangement is likely to combine complementary patent rights, thereby lowering the costs of manufacturers that need access to them in order to produce DVD discs and players, and is not likely to impede competition either in the licensing or development of technology for use in making DVDs, players or products that conform to alternative formats, or in the markets in which DVDs and players compete. The Department has no present intention to challenge the proposal.
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