By Andy Sherman, Executive Vice President, General Counsel, & Corporate Secretary, Dolby Laboratories

Earlier today, we announced that ZTE Corporation (ZTE) has taken a patent license for Dolby’s portfolio of patents essential to High-Efficiency Advanced Audio Coding (HE AAC) for ZTE’s worldwide sales of mobile devices. To understand how taking a license and paying appropriate license fees benefits prominent worldwide manufacturers like ZTE, it’s worth exploring how we all benefit from increased investment in innovation.

The Organisation for Economic Co-operation and Development says innovation is “a crucial determinant of global competitiveness of nations . . .” and responsible for “much of the rise in living standards.” Economists and statisticians agree that investment in research drives both the rate of technological development and the degree of economic growth.

For our part, Dolby has been and continues to be a leader in technological development, driving innovation and enabling new products and services that are the catalysts for economic activity and job growth. Indeed, our essential product is innovation. From movie theatres to home entertainment systems, to mobile and portable devices, Dolby’s inventions make possible unprecedented entertainment experiences. Millions of consumers and businesses today enjoy the benefits of Dolby’s investments.

Dolby’s history of producing cutting-edge technology has created many forms of intellectual property (IP). When licensed by those who use it, this IP generates revenue that drives further invention. For example, we do not sell smartphones, but today’s profits make it possible for us to develop breakthrough technologies that will make tomorrow’s smartphones even smarter. Increasingly, product manufacturers are recognizing that taking and not paying a reasonable price for IP is not only illegal but also shortsighted. Innovators like Dolby invest and reinvest profits to make the next generation possible.

While we have a number of ways to resolve the misuse of Dolby’s IP, many of them tend to be time-consuming, messy, and costly. Such methods (lawsuits being an unfortunately common solution) tend to create adversarial relationships. At Dolby, we transform confrontation into cooperation, and adversaries into allies.

It is thus a welcome development that new market entrants worldwide increasingly recognize that it is in their interest to pay reasonable prices for IP they use. These manufacturers have come to understand that the cost of IP represents their investment in the next ideas that will create new products. Simultaneously, manufacturers that had not previously invested in innovation are doing so, and recognizing the significance of IP to protect their own substantial investment.

In sum, we see increasing appreciation of the value of IP and its critical significance to economic growth. Dolby’s licensing programs, characterized by transparency, reasonable prices, and a level playing field for the entire industry, are contributing significantly to the growing respect for IP rights, and the understanding that it is important to fairly compensate those who invest in IP and create new ideas.

Dolby’s recent license agreement with ZTE is indicative of this increasing respect for IP and the symbiotic partnership between innovators and product manufacturers. As ZTE has expanded to become a major worldwide player in the smartphone industry, it has joined the ranks of virtually all other major consumer electronics manufacturers who respect and value intellectual property, and who pay for the use of technology on a worldwide basis. This action represents ZTE’s recognition of not just the significance of HE AAC technology to ZTE’s current products, but also the direct relationship between ZTE’s license payments and Dolby’s ability to create the next wave of innovations that will drive ZTE’s next generation of products.