Open Standard and impact to the industry in China

1. Open Standard and impact to the industry in China Wen Gao, Ph.D Chinese Academy of Sciences

2. Talking outline • Goal of standardization • Movement of current patent pool • Rebuilding a bridge between standardization and industry • Open standard impact to China

3. Goal of standardization • Handiwork vs machine manufacture • Any product has a chain in processing, from material, parts, technics, installation, … • If some parts in that chain controlled (can be taken) by few skill people, it is hard to make large volume/low price production, it is a handcraft production • For enable machine manufacture, standard and professional machine/workers are required

4. Goal of standardization(cnt) • Standardization is try to make mass production with good quality and low price • Easy to produce • Easy to package • Easy to install • Easy to change • Easy to test • Easy to cost down • Not control by few people/process • Parallel engineering

5. Enable parallel engineering

6. Movement of current patent pool • Before understanding current situation, we need look back the patent pool

7. Patent pool • A patent pool is an agreement between two or more patent owners to license one or more of their patents to one another or third parties

8. Advantage of patent pool • Reduce transaction fees to obtain technology • Reduce the probability of litigation

9. Features of a patent pool • A technology standard that is definite and well defined • An evaluator/independent expert to determine which patents are essential, thereby defining a group of EPHs(essential patent holders) • A license drafted and approved by EPHs to allow to license technology on reasonable and nondiscriminatory basis • A patent pool administrator appointed by EPHs handle the administrative tasks • EPHs retaining the right to license the patents outside of the patent pool

10. History of patent pool • Phase I: 1856-1923, manufacture driven • In 1856, Sewing Machine Combination in US formed a patent pool for sewing machine manufactures • In 1917, a committee organized by Assistant Secretary of Navy, formed an aircraft patent pool for almost all aircraft manufactures in US • Phase II: 1924-2001, standardization driven • In 1924, Radio Corporation of America (early name: Associated Radio Manufactures), merged the interest of multiply companies, leading to the establishment for standardization of radio parts, airways frequency allocation, and TV transmission standard • In 1997, MPEG LA formed MPEG-2 patent pool, approved by DoJ • In 1998, Sony etc formed 3C patent pool for DVD • In 1999, Toshiba etc formed 6C patent pool for DVD • Phase III: date-, standardization & industry parallel driven • AVS starts to form AVS patent pool, by an interest group they are willing to promote technology thru mass production with low price license fees • DMP?

11. Phase II Standard group is separated from patent pool group Standard group is hard to decide a technology should be adopted or reject, in term of simple licensing It is easy to block the usage of standard, unless agree to charge a high license fees Phase III Standard group is connected with patent pool group Standard group can decide to adopt or reject or around or avoid some technology, for making simple It is hard to block the usage of standard if blocking patent owners all in pool Difference between phase II and III?

12. Voluntary Patent Pool vs Non-Voluntary Patent Pool • Are all patent pool should be voluntary patent pool? • No • US aircraft patent pool • Aids medicine patent pool? • Have you found any patent of nuclear technology in US?

13. Category of patent holders by intention • Use patent to promote new technology, =>partnership • Big companies who make product • Universities and research institutes who grant by government • Basis of AVS working group • Use patent to make money, =>around/avoid • Pay attention to not infringe their patents • Use patent to protect itself, =>friendship • work with

14. Problem of current patent pool • A worst case by DVD IP happening • In 2002, a DVD device cost 30$ in China major manufacture • They are asked to charge 19.5$ for IP using, later on into 9.5$ • They got order in price of 30$ from US and EU sale channel • They could make balance either pay non-IP or get export-tax return from Chinese government • In 2004, a DVD device cost 20$ in China major manufacture • They are still asked to pay 9.5$ for IP • They are hunted by IP LA company • They decide to away from DVD manufacture • From now, DVD will manufacture by either major EC company(=expensive), or small company in China(=no quality guarantee)

15. Problem of current patent pool(cn’t) • Should manufacture pay the license? • No, consumer should pay • In above case, why Chinese manufacture pay usage fee for US/EU consumer? • In case manufacture pay, there should be a mechanism to refund that from consumer • Could license fee allow that high? • In 2002, 19.5$/(30+19.5)$=39% • In 2004, 9.5$/(20+9.5)$=32% • It is much higher (5-6 times) than the normal margin of major manufactures • Conclusion • The mechanism of license fee collection is not correct in practice • This mechanism hurt manufacture industry and then finally hurt consumers • It needs to be redesigned

16. Problem of current patent pool(cn’t) • What is wrong of MPEG-LA pool • The price is too high, comparing with the device cost • Charge to wrong group • Should do to end user • Or do to chip industry and software industry

17. Can current PLA body have capability to solve the problem? • Also not, reason? • Two separated steps • Make the standard first • Then create a patent pool • After standard fixed, there is a only way to go, determine the license term by all essential patent holder • The worst case is, some of patent holders what to use their patent to make big money, no matter how industry and customs feeling • It is very hard to change from their current way

18. How to balance between patent holder and consumers • It must give return to patent holder, for engaging continuous innovation • But we must protect manufacture to engage them to make more good and cheap product, to benefit consumers • How to do that? • Reasonable price and term • Right location to charge

19. Rebuilding a bridge between standardization and industry • Rethink the goal of standardization • Not for making money=>can do in not-profit-organization? • Don’t want to create a bottleneck controlled by someone • Making good quality and low price product to benefit consumers

20. A case study for new bridge • AVS activity in China • Audio Video coding Standard • Make a simple and low-cost industry standard • Use as more as we can the parts from MPEG, avoid/around disagreement for IPR policy • Co-design on both technology and IP • One-stop-shopping license • Integration of blocking technology from partners

21. Overview of AVS 1.0 Video • High-efficiency coding • Focused application – initially HDTV • Lower complexity, lower cost • Complete solution: • Video, audio, systems, DRM • This paper concerns video coding • Simple, comprehensive patent licensing

22. Open standard Impact to China • Organization of standard in China • SAC(Standardization administration of China) • Information standardization committees • AVS Working group • …

23. Open standard Impact to China(cn’t) • AVS, is a model learning by other standard working groups • Open standard • IPR policy • Manufacture following • Government support • State Commission of Development and reforming • Ministry of Information Industry • Ministry of Science and Technology • Standardization Administration of China • State Administration of Radio Film and Television • Chinese Academy of Sciences

24. Summery • Bridge? • Design standard and practical IPR policy in same time • Educate people to return the basic principle of standardization • Balance carefully between patent holder and industry

25. AVS www.avs.org.cn/en • More info? • Email: wgao@jdl.ac.cn • http://www.jdl.ac.cn

26. Questions?

27. Thanks