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					 Open Standard and
impact to the industry
      in China
         Wen Gao, Ph.D
   Chinese Academy of Sciences
           Talking outline
• Goal of standardization
• Movement of current patent pool
• Rebuilding a bridge between
  standardization and industry
• Open standard impact to China
      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
       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
Enable parallel engineering
Movement of current patent pool
• Before understanding current situation, we
  need look back the patent pool
               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
      Advantage of patent pool
• Reduce transaction fees to obtain
  technology
• Reduce the probability of litigation
        Features of a patent pool
1. A technology standard that is definite and well defined
2. An evaluator/independent expert to determine which
   patents are essential, thereby defining a group of
   EPHs(essential patent holders)
3. A license drafted and approved by EPHs to allow to
   license technology on reasonable and nondiscriminatory
   basis
4. A patent pool administrator appointed by EPHs handle the
   administrative tasks
5. EPHs retaining the right to license the patents outside of
   the patent pool
             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?
Difference between phase II and III?
• Phase II                           • Phase III
   – Standard group is separated        – Standard group is connected
     from patent pool group               with patent pool group
   – Standard group is hard to          – Standard group can decide
     decide a technology should           to adopt or reject or around
     be adopted or reject, in term        or avoid some technology,
     of simple licensing                  for making simple
   – It is easy to block the usage      – It is hard to block the usage
     of standard, unless agree to         of standard if blocking
     charge a high license fees           patent owners all in pool
    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?
     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
  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)
 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
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
      Can current PLA body have
    capability to solve the problem?
•   Also not, reason?
    –   Two separated steps
        1. Make the standard first
        2. 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
   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
    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
   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
     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
 Open standard Impact to China
• Organization of standard in China
  – SAC(Standardization administration of China)
     • Information standardization committees
        – AVS Working group
        –…
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
                  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
              AVS
         www.avs.org.cn/en
• More info?
  – Email: wgao@jdl.ac.cn
  – http://www.jdl.ac.cn
Questions?
Thanks

				
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