WRITTEN QUESTION E-1509/00

by Glyn Ford (PSE) to the Commission

(12 May 2000)

Subject: DVD players and free competition

Is the Commission aware that DVD players are deliberately designed to prevent free competition in the pricing of DVD discs by being segregated into six global regions? That means that European Union citizens cannot benefit from purchasing cheap DVD discs available in many parts of the world? Does not the Commission feel that this anti-competitive behaviour should be prohibited?

Joint answer to Written Questions E-1509/00 and E-1510/00 given by Mr Monti on behalf of the Commission

(14 June 2000)

As the Honourable Member is probably aware, the digital versatile disc (DVD) technology was jointly developed in the nineties by a consortium of ten companies: Hitachi Ltd, Matsushita Electric Industrial Co., Ltd, Mitsubishi Electric Corporation, Time Warner Inc., Toshiba Corporation, Victor Company of Japan, Ltd (JVC), Philips, Sony, Pioneer and Thomson. The standard specifications for this technology were established to define the DVD discs as well as the rules, conditions, and mechanisms for players to read the discs and convert them into images for screen display. The standard specifications implicate the intellectual property rights of the ten firms mentioned above. DVDs can contain far more information than other optical discs such as compact discs and can therefore deliver higher quality video, audio and multimedia.

It is true that those companies are supporting a system of regional coding so that DVD producers have the option of coding new releases according to the region of the world where the DVD should be played. Six geographical regions have been identified. All the Member States of the European Economic Area (EEA), together with a number of other countries, are included in a single region.

This coding enables producers of motion pictures to protect their copyrighted intellectual property and the traditional pattern of releasing their films at different times in different parts of the world. Film producers and local cinemas would be prejudiced if, for example, a DVD video released initially in the United States gained widespread distribution prematurely in Europe before theatrical distribution has commenced or been completed. To release a film at different times and at different prices in different parts of the world is an exercise by film producers of their rights under copyright law. Using regional coding to enforce these rights could not therefore be considered illicit per se, particularly if no abuse of dominant position is established.

The exercise of these rights could also become a competition issue if it were established that two or more of the firms concerned (DVD producers and DVD player manufacturers) were using the pro-competitive technological co-operation involved in developing a common open standard for DVD, to engage in concerted practices consisting in aligning policies on the timing and pricing of the release of their products. The Commission has already investigated these issues in the past (in an ex-officio proceeding opened in 1996), has not found any behaviour infringing Article 81 or 82 (ex Articles 85 & 86) of the EC Treaty. It has no additional information that would enable it to change its view. In addition, some parties involved in the development of the DVD standard have jointly notified their licensing agreements. Following the publication of a notice(1) in the Official journal inviting third parties to comment, no answer has been received from any association of consumers.

Concerning the question of recording video discs, the DVD standard includes several forms of copy protection, in particular a strong encryption of the data stored on the disc to which the Honourable Member refers. These protections may prevent recording from a DVD. Because of the potential for perfect digital copies offered by this new technology, this possibility for film owners to protect their data is crucial for the future of the DVD and film industry. The copy protection schemes are indeed designed to prevent illegal and abusive copying, which is said to cause billion of dollars in lost revenue to the producers of films and of electronic data.

Under these circumstances, the refusal by a manufacturer to extend the guarantee of its DVD player that has been deliberately modified by the user to illegally copy DVDs cannot be seen as an anti-competitive behaviour.

(1) Notification of a licensing system, Case No IV/C-3/37.506 DVD Patent Licensing Programme (OJ C 242, 27.8.1999).