Fair Trade Commission: "Dolby Abuses Patent Rights on Digital Audio Coding Technology... Corrective Order and Fine Imposed"

[Sejong=Asia Economy Reporter Joo Sang-don] Dolby Laboratories Inc. and others have been sanctioned by the Fair Trade Commission for halting the approval process for the use of essential standard-essential patents (SEPs) without justifiable reasons, causing disruptions in the development and production of set-top boxes by Gaon Media, a set-top box manufacturer.

On the 12th, the Fair Trade Commission announced that it decided to impose corrective orders and a total fine of 270 million KRW on Dolby Laboratories Inc., Dolby Laboratories Licensing Corporation, Dolby International AB, and Dolby Laboratories International Services Inc. Korea branch for abusing their superior bargaining position in transactions.

Dolby holds patents on the digital audio coding technology standard AC-3, which are standard-essential patents. SEPs are patents necessary for implementing technologies designated as international official standards, and without using these patented technologies, production of related products is impossible.

Korea’s terrestrial broadcasting has adopted Dolby’s AC-3 as the standard, so all broadcasting-related final products sold domestically, including set-top boxes, necessarily use Dolby’s patented technology.

Set-top box manufacturers purchase the System-on-Chip (SoC), which acts as the brain inside the set-top box, from chipset manufacturers. Dolby requires set-top box manufacturers to purchase products only from chipset manufacturers licensed by Dolby. In particular, for new chipsets produced by Broadcom, the market leader in SoCs for set-top boxes, Dolby must approve the use of patented technology through the 'BP3 platform' for Dolby technology to be properly used in those chipsets. BP3 is a distribution platform created by Broadcom that connects patent holders, Broadcom, and set-top box manufacturers; when a set-top box manufacturer applies for technology use, the patent holder’s approval issues an authorization key allowing use of the technology.

Dolby signs license agreements with chipset manufacturers implementing its technology and with final product manufacturers such as set-top box and digital TV makers, charging patent royalties. Dolby regularly audits whether these parties pay royalties properly.

In September 2017, Dolby began a royalty audit on Gaon Media, a domestic set-top box manufacturer. According to the Fair Trade Commission, when significant disagreements arose regarding unpaid royalties, Dolby refused to approve Gaon Media’s use of SEPs through BP3 starting around June 2018 to pressure Gaon Media into a settlement favorable to Dolby. This caused disruptions in Gaon Media’s development and production of new set-top boxes. Dolby resumed the approval process normally from late September 2018 after Gaon Media agreed to the audit results.

The Fair Trade Commission judged Dolby’s actions as “abuse of superior bargaining position causing disadvantage” and imposed corrective orders including a prohibition order, notification orders to domestic licensees, and a fine of 270 million KRW.

A Fair Trade Commission official stated, “According to the license agreement, Gaon Media was free to use Dolby’s patented technology by any means, but Dolby stopped technology use approval citing an unrelated audit issue. Furthermore, Dolby improperly used the BP3 application approval process, which was merely a formality, to coerce a favorable audit outcome.” He added, “This action is significant as it reaffirms that abuse of patent rights by standard-essential patent holders against their trading partners is illegal, following previous measures against Qualcomm, a global communication chipset and patent licensing business.”

This content was produced with the assistance of AI translation services.