Gigastorage voices optimism over IPO suit against Philips

Stock prices of Gigastorage Corp (國碩科技) spiked yesterday due to the expectation that Taiwan's leading recordable compact-disc maker may extend its success in the US by winning a patent abuse suit against Royal Philips Electronics NV at home.

Gigastorage filed a petition with the Intellectual Property Office (IPO) under the Ministry of Economic Affairs early last year to help resolve a dispute with the Dutch company.

The Intellectual Property Office is required to close a case within 18 months after it has received a filing.

A six-member task force was formed to review the case after Gigastorage filed a lawsuit against Philips, accusing the Amsterdam-based company of abusing patent rights by charging at a fixed rate.

"We have high hopes of winning the case," said Gigastorage spokesman Carl Lee (李朝欽) in a phone interview with the Taipei Times.

In March the US International Trade Commission ruled that Philips cannot enforce patents against two makers of recordable compact discs -- Princo Corp (巨擘科技) and Gigastorage -- on how to make blank CDs for writing or recording

An IPO ruling in favor of Gigastorage will give the company more bargaining power to seek a reduction in royalties and will also provide an edge for other local CD makers to negotiate for a new payment, said Lu Chia-lin (呂家霖), an analyst with Yuanta Core Pacific Securities (元大京華證券).

"Gigastorage will pay much lower royalties to Philips when selling discs in the home market, if the ruling is in its favor," Lu said. "Philips has over charged local recordable-CD makers."

Gigastorage shares climbed 4.95 percent to NT$19.1 on the TAIEX yesterday.

The bullish sentiment also spread across the sector. Shares of Gigastore's bigger rivals CMC Magnetics Corp (中環) and Ritek Corp (錸德科技) rose 4.11 percent and 0.56 percent to NT$22.8 and NT$18, respectively.

Royalty payments have been a heavy burden for local disc makers at a time when they are struggling to maintain profitability and coping with volatile disc prices, Lu said.

Gigastorage and its compatriots currently pay US$0.045 per disc when exporting to the US, which accounts for about 25 percent to 30 percent of the cost of US$0.18 a disk, according to Lu.

Royalties charged by Japanese companies such as Sony Corp are much lower, Lu said, accounting for about 3 percent of the cost of a disc, or less.

In the first three months of the year Gigastorage earned NT$358.53 million, or NT$1.35 a share, after returning to profitability from a three-year slump last year.

Last year the company reported NT$0.8 earnings per share.