Chapter 897
International Patent Trolls
DVD players didn't just appear this year; they were already on the market two or three years ago. However, the technology wasn't very mature at the time, so the best-selling players on the market were still mainly VCD players.
However, this situation has improved since the beginning of this year, especially in the second half of the year.
Data shows that in 1999, the United States of America will sell approximately 300 million VCDs this year.
This figure has far exceeded the total sales volume of all its domestic players in the previous two years.
In the third quarter of this year alone, more than 90 units were shipped, an increase of 235% year-on-year.
Brands like Panasonic, Philips, Sony, and Toshiba are all internationally renowned DVD brands.
Of course, to ensure a smooth transition for consumers, compatibility with a vast library of VCD/CD discs has become a "standard feature" for DVD players this year, as this eliminates concerns about the diverse range of source formats currently available on the market.
This is also the source of Lu Yang's confidence in negotiations.
Under the Century Group, Wan Yan Company owns almost all patents related to VCD frame structure and more than 700 patents related to DVD.
Unless international giants like Panasonic, Sony, Toshiba, and Philips are willing to abandon some incompatible content sources and the smooth transition from VCD to DVD, and instead directly produce DVD players that are more sophisticated than VCD playback modes.
Otherwise, they would have to accept some conditions from the patent negotiation team dispatched by Lu Yang.
Lu Yang's goal was simple.
Either force these international giants to accept Century Group's subsidiaries, including Little Prodigy, Little Genius, Wan Yan, and BBK, to join the so-called International DVD Patent Alliance.
Both parties will grant each other patent licenses and waive related patent fees.
The ideal timeframe is 10 years.
If negotiations do not go smoothly, Lu Yang will have his negotiators propose high licensing fees for VCD-related patents in order to force the other party to agree to the proposal.
Outside the floor-to-ceiling windows of the top-floor office in the Century Tower, the morning sun of Shenzhen has just pierced through the clouds, casting a golden halo on the rows of buildings.
Lu Yang stood by the window, holding a cup of black coffee that had long since gone cold. His deep gaze seemed to pierce through the glass, focusing on the distant other side of the ocean, on the silent yet smoke-filled battlefield, on the negotiating table of the DVD patent alliance.
He had just ended a transoceanic call with the head of the overseas patent negotiation team, and the cold touch of the microphone still seemed to linger on his fingertips.
The information conveyed at the negotiating table, like the expected tide, carried the inherent arrogance and probing of international giants, battering the patent bulwark built by Lu Yang.
"President Lu, the SixC Alliance and several other international giants have agreed in principle to our joining..."
The team leader's clear but slightly tense voice still echoed in my ears, "...but they explicitly refused to pay us an additional VCD patent fee; that's their bottom line."
Lu Yang simply gave a soft "hmm" to signal the other party to continue.
Agreeing in principle to join? This is just the first and easiest step.
What the other party was after was his 35% stake in the core essential patents for DVDs, especially those patents that were crucial to the current market demand for "compatible playback of VCD/CD discs".
Joining the alliance means they can use these patents more easily and avoid potential infringement lawsuits.
But what Lu Yang wanted was far more than just an admission ticket.
"When will the cooperation take place?" Lu Yang's voice was calm on the phone, but every word carried immense weight.
"The other party... is only willing to sign a three-year contract." The team leader's tone carried a hint of helplessness and pressure. "They believe that three years is enough to cover the rapid growth period of DVD technology, and the market structure and patent value after that need to be reassessed."
"Three years?" A cold smile curved Lu Yang's lips, his eyes sharp as a hawk's, piercing through the barriers of space and landing on the faces of his cunning opponents across the negotiating table.
"No, that's too short. It must be at least a five-year contract, ideally ten years. The bottom line is five years! Don't even bother talking to them if it's less than five years. Tell them that our Century Group doesn't mind fighting a protracted international patent war with them, dragging it out for three to five years, and we'll see who can't afford to wait any longer!"
His words were firm and unequivocal, leaving no room for negotiation.
The team leader visibly took a breath on the other end of the line and immediately replied, "Understood, Mr. Lu! I will convey your message verbatim, without missing a single word!"
Lu Yang hung up the phone and pressed his throbbing temples hard with his fingertips.
The bitterness of the coffee lingered on my tongue, but it couldn't suppress the chill in my heart.
Three years? These international giants have a clever plan!
He knew all too well the trajectory of the future.
The golden age of DVDs lasted far longer than three years.
Starting in 1999, the year of its true explosion, it will soar and sweep across households worldwide until around 2005 when it gradually shows signs of decline due to the impact of newer technologies, and finally be completely replaced by streaming media around 2010.
The 5-7 years in between represent the core window of opportunity for the DVD industry to reap huge profits.
The SixC Alliance (Philips, Sony, Toshiba, Panasonic, Time Warner, and Hitachi) holds more than 1700 core DVD patents, making it the undisputed leader in the global DVD patent pool.
Their "agreement in principle" to join Century Group is simply because they are interested in Century Group's more than 700 patents (especially the key VCD-compatible technology patents) and its huge production capacity in the Chinese market. They want to use Century Group to consolidate and expand their global patent licensing portfolio.
But they only wanted to sign a three-year contract, and their purpose was obvious: to use this three-year transition period for compatible consoles to allow DVDs to completely replace VCDs and become the absolute mainstream.
Once the market transition is complete and users no longer need to play old VCD discs, the value of Century Group's VCD compatibility patents, which it relies on for leverage, will plummet!
At that time, the SixC Alliance, which holds an absolute advantage in DVD patents (more than 70% shared within the alliance), will inevitably tear off its hypocritical mask and turn around to charge high, one-sided patent licensing fees to DVD manufacturers under the Century Group (such as Little Prodigy, Little Genius, and Wan Yan). It may even set harsh conditions on cross-licensing of patents and engage in blatant extortion!
This is a strategic trap that Lu Yang absolutely cannot tolerate!
What he wants is to establish a stable, mutually restraining cross-licensing relationship with these giants throughout the entire golden life cycle of DVDs, so that everyone can act as "patent trolls" and collect money from other DVD manufacturers around the world.
At the same time, ensure that your own company can use its core patents without any obstacles or bottlenecks.
Five years is the minimum guarantee!
It will take ten years to maximize the profits of the Century Group!
"What about the other 3C alliance (Philips, Sony, and Pioneer)?" Lu Yang asked about another target during a previous call.
The patent strength of the 3C Alliance is far inferior to that of the 6C Alliance, and even less than that of Century Group alone.
"We are still actively contacting them, but their attitude is rather ambiguous. They seem to want to wait and see how the negotiations between the 6C Alliance and us go," the team leader reported.
Lu Yang understood. The 3C Alliance was more like a "free rider," with a small patent pool (only over 300 patents) and limited influence.
"Understood. Continue to follow up on negotiations with the giants within the SixC Alliance. As long as we crack the toughest nut—the SixCs—and sign cross-licensing agreements for more than five years, the ThreeC Alliance... whether we negotiate with them or not becomes irrelevant. The patents they hold are not enough to pose a substantial threat to us."
Lu Yang provided a clear strategic priority.
"Yes, Mr. Lu!" The team leader's voice was more confident.
After hanging up the phone, the office returned to silence, broken only by the low hum of the air conditioning system.
The power struggle at the negotiating table is a contest of will, patience, and intelligence.
Lu Yang knew that the other side wouldn't back down easily, and the ensuing tug-of-war would become even more intense.
He needs to instill greater confidence and more flexible strategic space in the negotiating team; if necessary, he even considers personally flying to Europe or the United States across the ocean.
Just then, the red internal telephone on the desk rang, breaking the solemn atmosphere in the room.
Lu Yang glanced at the caller ID.
He answered quickly: "Sister Wei Shu?"
On the other end of the phone came Wei Shu's capable voice, tinged with barely perceptible excitement: "Chairman, great news! At Century Langke, Deng Guoshun and Cheng Xiaohua have achieved a crucial breakthrough in their research on new flash memory technology!"
Lu Yang's brows instantly relaxed, and a glint of light flashed in his eyes: "Oh? Tell me more!"
"The two of them reported that they have made significant progress in the storage density and read/write control algorithms of the new flash memory chips, and have initially found a technical path to stably and efficiently integrate this new technology into MP3 players!"
Wei Shu spoke faster, clearly valuing this progress highly. "According to their preliminary estimates, if the new technology is applied maturely, it can significantly increase the storage capacity of MP3 players on the existing basis and greatly reduce the cost per unit capacity! Of course, this is only a breakthrough in the laboratory stage. The specific capacity increase, stability, and mass production yield still need to be verified by a series of rigorous product experiments and tests."
Netac! Flash Memory! MP3!
These keywords instantly activated Lu Yang's thoughts like an electric current.
Just a few days ago, Duan Yongping of BBK Electronics declined his suggestion to fully promote DVD/VCD compatible players because he was secretly investing heavily in MP3 research and development.
Unexpectedly, Langke, which I had planned for earlier, has already brought good news of a key breakthrough so quickly!
Deng Guoshun and Cheng Xiaohua, the two flash memory technology experts whom Lu Yang had recruited with a hefty sum and on whom he had placed high hopes, certainly did not disappoint him.
Their breakthrough points to the future of portable music players.
The core of MP3 players: storage capacity and cost!
"Very good!" Lu Yang's voice revealed sincere praise, and his nerves, which had been tense due to patent negotiations for days, eased a little.
Although the MP3 market has not yet exploded like the DVD market, Lu Yang is well aware of its enormous potential due to its portability and digital advantages.
Century Langke's breakthrough signifies that Century Group has seized the initiative in the crucial aspect of storage technology in the upcoming wave of digital music!
This is not only a technological reserve, but also a very significant bargaining chip in future market competition, and may even become a bargaining chip for negotiations or cooperation with Apple or other MP3 players in the future.
"I'm coming right away!" Lu Yang decided decisively.
While patent negotiations are important, breakthroughs in cutting-edge technologies also require the attention and impetus of top decision-makers, especially at this crucial moment when the dawn is breaking.
He needed to personally visit the Langke laboratory to see for himself the "new technology" that Deng Guoshun and Cheng Xiaohua were talking about, to feel the "flash light" that might illuminate the future, and to give them the most direct support and clear directional guidance.
“Okay, Mr. Lu, I’ll have the lab make some preparations. Engineer Deng, Engineer Cheng, and I will be waiting for you at Langke.” Wei Shuli replied.
After hanging up Wei Shu's call, Lu Yang immediately pressed the internal call button: "Nini, prepare the car, go to Century Langke. Notify Century Langke that I will be there in half an hour."
"Yes, boss!" Lu Nini's voice came immediately.
Lu Yang quickly gathered his thoughts and temporarily put aside the thick stack of documents on the table regarding the negotiations of the Six C Alliance.
The battle for DVD patents has not yet ended, but in Netac's laboratories, another battle concerning the future of digital consumer terminals has quietly begun.
He grabbed his suit jacket and strode out of the office.
A black Mercedes-Benz S600 was already waiting downstairs.
Lu Yang opened the car door and sat in the back seat, saying in a deep voice, "Let's go to Century Langke."
"Yes, Chairman Lu." The driver smoothly started the car, merging into the busy morning traffic of Pengcheng, and headed towards the high-tech industrial zone.
A black Mercedes-Benz S600 smoothly came to a stop in front of Century Langke Company.
As soon as the car door opened, Wei Shu, who had been waiting there, came up with Deng Guoshun, Cheng Xiaohua, and several core R&D managers to greet them.
"Chairman!" Wei Shu, dressed in a sharp business suit, wore a capable smile and his eyes gleamed with excitement. "Welcome to Langke for guidance."
The two technical leaders behind her, Deng Guoshun and Cheng Xiaohua, although wearing lab coats and looking slightly tired, had eyes that sparkled with excitement and anticipation, clearly full of confidence in the results they were about to present.
Lu Yang nodded slightly, his gaze sweeping over everyone before finally settling on Wei Shu: "Sister Wei Shu, thank you for your hard work. Let's go straight to the lab; I can't wait to see your new breakthroughs."
"Okay, this way please." Wei Shu stepped aside to lead the way, her steps swift.
The group walked through the clean and bright office area and headed straight for the core area deep inside the company.
When the R&D staff along the way saw the chairman arrive in person, they all stopped what they were doing and looked at him with awe and curiosity.
The heavy dustproof door slid open silently, and a distinctive smell, a mixture of precision instruments, solder, and electronic components, wafted out.
The laboratory was brightly lit, with various sophisticated testing instruments flashing their indicator lights, and the workbench was covered with circuit boards, chips, and connecting wires.
This is where Deng Guoshun and Cheng Xiaohua's team fought hard, and the air still seems to retain the tense atmosphere of their day and night efforts.
"Chairman Lu, please look," Deng Guoshun strode to a workbench protected by a transparent dust cover, his voice slightly raised with excitement. He pointed to a black chip sample, about the size of a fingernail, that gleamed with a special luster under the light, inside the dust cover. "This is the prototype of our new flash memory chip, for which we have just achieved a breakthrough! It adopts a completely new storage cell structure and optimized read/write control algorithms..." (End of Chapter)