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The Cutting Edge: Computing / Technology / Innovation : Antitrust Probe of Sony, Philips Focuses on Licensing Practices : Music: The consumer electronics firms jointly charged fees for use of compact disc technology.

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TIMES STAFF WRITER

The Justice Department has launched an antitrust investigation into an arrangement between Sony Corp. and Philips Electronics that has helped the two consumer electronics companies dominate the compact disc business for more than a decade.

The two companies agreed in the 1970s to cross-license each other’s patents on CD technology, enabling them to jointly charge patent licensing fees to dozens of disc manufacturers. That has enabled them to exert control over innovations in the manufacturing process.

Spokeswomen from both Sony and Philips declined to comment on the investigation, first reported in the Wall Street Journal on Tuesday. A Justice Department spokeswoman confirmed that it has “opened an investigation into licensing practices in the optical disc area.”

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Quixote Corp., which presses 70 million discs a year for recording companies and CD-ROM publishers, is one of several companies to have received subpoenas from the Justice Department in recent weeks requesting documents about their agreements with Sony and Philips.

Like every other U.S. disc manufacturer, the firm pays Sony and Philips a 6-cent royalty fee for each disc. “That’s not an insubstantial sum,” said James DeVries, executive vice president of the Chicago-based firm, which is in the midst of expanding its Anaheim plant. “And it’s the consumer that pays it in the end.”

It’s also the record companies. Retail sales of music compact discs in the United States totaled $6.5 billion last year. Music industry executives declined to comment Tuesday but said they are watching the investigation carefully.

Most troubling to some industry executives is the hold Sony and Philips have exercised over the design of the discs. Under the terms of the license, Sony and Philips require some companies to follow detailed specifications regarding size, thickness and other characteristics.

With the emergence of CD-ROMs--compact discs that hold images, video and text as well as music--dozens of companies have been experimenting with methods to squeeze more data onto the shiny discs.

“It’s really a negative if Philips and Sony are using this to stifle new technologies on the disc,” said Norman Bastins, executive vice president of Compton’s New Media. But he added, “On the positive side, without this patent setting some standards, we’d have players all over the board.”

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Antitrust experts said the investigation reflects the agenda of the Justice Department’s new antitrust chief, Anne Bingaman, who announced in April that high-technology would be a focus of the her department’s work.

“The antitrust division recognizes that in the 1990s, control of technology and intellectual property, patents, licenses is key to controlling market share in an industry,” said Barbara Reeves, a partner with Morrison & Foerster in Los Angeles. “The reason you’re given a patent is to reward and encourage your innovation, but when people misuse that legal monopoly to make it reach further--such as by cross-licensing--that raises competitive concerns.”

DiscoVision Associates, an Irvine-based subsidiary of Pioneer Electronics that owns several patents on compact disc technology, was also subpoenaed in the investigation. Ronald Clark, the company’s senior vice president, said the firm has no joint licensing agreements with Sony and Philips.

“We do not have any difficulty with Sony. We do not have any difficulty with Philips. We are independently licensing our patents, “ he said.

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