Jacob Schindler

Dolby-backed patent pool operator Via Licensing has announced some high profile new licensing agreements in Greater China over the past month, with Lenovo and Xiaomi having joined the pool covering AAC technology. A big factor in this apparent momentum is the fact that the pool has introduced a new alternative rate structure which codifies a discount for devices sold in developing markets. This effort to accommodate local market realities in countries like China also adds a welcome dose of transparency to the licensing market.

According to Via's website, new and renewing licensees to the AAC patent pool now have an option to pay different rates on devices sold in different parts of the world. The standard royalty remains unchanged for sales reported in developed markets which Via calls “R1” regions. These include the United States, Canada, much of Europe, Australasia, Japan, South Korea and Taiwan. Products sold in all other jurisdictions can be reported under the alternative rate structure. These alternative rates represent a discount between 35% and 36% up until the 50 million unit mark, after which per-unit savings drop gradually to 30%. Existing licensees can also choose to take advantage of the alternative model before June 1st this year.

The new rates recognise the fact that margins can be extremely tight for companies competing in markets such as China and India. They are likely to be welcomed not just by companies from those countries, but foreign ones with substantial sales volumes there. Lenovo and Xiaomi executives both seemed to refer to the new model when announcing their new agreements with Via. Wang Xiang, senior vice president at Xiaomi, said Via has shown the ability to “fairly and efficiently address unique market circumstances, like those in China”, while Levono’s Ira Blumberg praised the Via team’s flexibility using the same language. Paul Lin, Xiaomi's head of patent strategy, also referred positively to working with Via in his recent IAM interview: "We engaged in open and constructive discussions with Via, which led to a licence deal that met both parties’ needs." 

By publishing the standard and alternative rates side-by-side, Via has provided an important point of reference on what it takes to get a deal done in emerging markets. As a benchmark, the new numbers will be of interest to licensors operating in Asia, as well as implementers from places like China and India. The transparency of the model is also likely to be welcomed by licensees, especially those that are relatively new to the international patent licensing scene. In addition, the figures may well be an interesting data point for China's antitrust regulators, who many industry players believe continue to monitor the patent licensing field very closely. Transparency has been a rallying cry for Chinese companies calling for still more regulator scrutiny of patent licensors, and more of it is a good thing for the entire ecoystem.

Credit is due to the Via team for working with the AAC pool’s 10 licensors to take a significant new step in the development of the AAC programme. So far this one appears to be the only Via-operated pool that has introduced a region-based royalty rate. But if the it keeps on adding new licensees in China, we could see others, including those run by other companies, following suit. In any case, early indications suggest that the compromise is agreeable to parties on both sides. That makes the table below a data point that anyone in the licensing world - especially in China - needs to be aware of.

AAC licence fees – alternative rate structure

Volume (per unit* / annual reset)

Per unit fee, devices sold in or sold for use in ‘R1 regions

Per unit fee, devices sold in or sold for use in ‘R2 regions

For the first 1 to 500,000 units

$0.98

$0.64

For units 500,001 to 1,000,000

$0.78

$0.51

For units 1,000,001 to 2,000,000

$0.68

$0.44

For units 2,000,001 to 5,000,000

$0.45

$0.29

For units 5,000,001 to 10,000,000

$0.42

$0.27

For units 10,000,001 to 20,000,000

$0.22

$0.14

For units 20,000,001 to 50,000,000

$0.20

$0.13

For units 50,000,001 to 75,000,000

$0.15

$0.10

For units 75,000,001 and more

$0.10

$0.07

* Consumer Products with more than two Channels count as 1.5 units.