KFTC Imposes Sanctions on Dolby for Abusing Patent Rights
August 13, 2021
Anti-Monopoly Division
The Korea Fair Trade Commission (led by Chairperson Sung Wook Joh, hereinafter referred to as the “KFTC”) decided to impose corrective orders and an administrative fine of 270 million won on Dolby Laboratories, Inc. (hereinafter referred to as “Dolby”) etc.* for suspending an approval process on standard essential patents for Kaon Media, a Korean set-top box maker, without any justifiable reasons and forcing Kaon Media to agree with the results of a royalty audit that were advantageous to Dolby.
* Dolby Laboratories Inc., Dolby Laboratories Licensing Corporation, Dolby International AB, Dolby Laboratories International Services Inc. (Korea branch)
1. Background
Dolby is a SEP* holder with patent rights for AC-3, the global standard digital audio coding technology. Dolby’s AC-3 has also been adopted as a standard by Korean terrestrial broadcasting, and is essential to make end-products such as set-top boxes. Dolby respectively signs license agreements with both chip and end-product manufacturers (such as set-top boxes, digital TVs etc.) that use their patented technology. However, it only charges royalties on end-product manufacturers and regularly conducts audits to ensure royalties are properly paid.
* Standard Essential Patent (SEP) refers to a patent that is essential for using technology that has been selected for use in a standard. It is impossible to manufacture related products without using technologies covered by SEPs.
2. Facts of violation
Dolby conducted a royalty audit on Kaon Media in September 2017 but came into conflict with the company over the issue of unpaid royalties.
Since June 2018, Dolby blocked Kaon Media from using their patented technology through the BP3 platform in order to urge Kaon Media to agree to their audit results, which negatively affected Kaon Media’s development and production of new set-top boxes.
Kaon Media started producing set-top boxes with T-mobile, a US wireless network operator, since November 2016. T-Mobile decided to equip set-top boxes with Broadcom’s new chipset that uses Dolby’s patented technology and Kaon Media applied for the use of Dolby’s patented technology since April 2018. Dolby approved the application until June 20th, 2018 but suspended applications that were filed since June 29th, 2018, citing audit issues left unresolved.
Kaon Media also signed an agreement with KT Skylife, a Korean satellite broadcasting operator, in 2018 and decided to equip set-top boxes with Broadcom’s new chipset that uses Dolby’s patented technology. Kaon Media applied for the use of Dolby’s patented technology through the BP3 platform since April 2018. Dolby approved the application until July 2nd, 2018 but suspended applications that were filed since August 13th, 2018 while citing similar reasons as it did in the case with T-Mobile.
The approval process restarted in September 20th, 2018 after Kaon Media and Dolby reached an agreement on the results of Dolby’s royalty audit.
Kaon Media had the right to freely use Dolby’s patented technology which was guaranteed under a license agreement but its right was restricted due to a completely separate issue of audit. This is also a violation of the FRAND commitment* Dolby made to the Advanced Television Systems Committee (ATSC) and European Telecommunications Standards Institute (ETSI).
*FRAND Commitment refers to a pledge SEP holders make to ensure patent users are provided with licenses under fair, reasonable and non-discriminatory terms.
In addition, Dolby unfairly used the means of approving applications for the BP3 platform, which is nothing more than a formality, to force Kaon Media to agree to audit results that were advantageous to them. Dolby continued to conduct negotiations with Kaon Media while being well aware that the approval process was extremely important for Kaon Media and that it would face serious problems if the process was suspended.
Thus, without having an opportunity to negotiate, Kaon Media had no choice but to agree to the results of Dolby’s royalty audit and provide unpaid royalties as Dolby requested. Not only that, it faced various damages such as a drop in set-top box sales, delayed delivery and loss of trust in their business.
3. Applicable law and measures imposed
Applicable law: Article 23 (1) 4 of the Monopoly Regulation and Fair Trade Act (Unfairly taking advantage of its bargaining position)
Measures imposed: Corrective orders (orders restraining further violations) and a penalty surcharge of 270 million won
It is expected that imposing corrective orders on SEP holders for restricting patent rights of licensees without any justifiable reasons will contribute to the protection of licensee rights. The measures are also meaningful in that ever since corrective measures were imposed on Qualcomm, a global communications chipset and patent license operator, they have served as an opportunity to reconfirm how the actions of SEP holders abusing patent rights are illegal. The KFTC will tighten its monitoring on patent holders who abuse their bargaining power and act in ways that violate competition laws.
*The Korean text of the documents is confirmed to be authentic and English version is only for reference
