On October 8, 2008 integrated circuits manufacturer Zoran Corporation filed a lawsuit in the US District Court for the Northern District of California against DTS, Inc., the company that licenses the audio encoding/decoding (or CODEC) algorithm used by Blu-ray disc devices. Zoran had alleged that DTS failed to license the algorithm under fair, reasonable and nondiscriminatory (FRAND) terms, as required under the company’s agreement with the Blu-ray Disc Association. According to the terms of the agreement, DTS pledged to license the algorithm on FRAND terms, in exchange for the Association adopting DTS’ patented CODEC as the industrywide standard for Blu-ray high-definition audio technology.

Zoran alleged in its complaint that DTS abused its monopoly in the market for Blu-ray disc technology by demanding large, upfront royalty payments as a condition to negotiating license agreements with chip manufacturers. Zoran further alleged that DTS had prevented Zoran’s entry into the Blu-ray device market by threatening device manufacturers with lawsuits should they use parts from a nonqualified supplier like Zoran. According to Zoran DTS’ action had restrained competition among Blu-ray devices and chip makers, and prevented Zoran from entering the market for Blu-ray hardware. The complaint seeks monetary damages, preliminary and permanent injunctive relief, and a judgment declaring DTS’ patents unenforceable due to misuse.