An October 24, 2012 preliminary ruling that held Samsung to infringe four Apple patents could have more drastic consequences for Samsung's U.S. business than previously known. Late on Friday, a public redacted version of the full-length version of Judge Pender's initial determination and recommendation on remedy and bond entered the ITC's electronic document system. If the U.S. trade agency affirms the judge's findings of violations (which the ITC staff supports across the board) and adopts his recommended remedies, Samsung faces the following draconian combination of sanctions:
a U.S. import ban that would enter into effect after the 60-day Presidential review period following a final ITC decision,
a simultaneous cease-and-desist order that would prohibit the sale of any commercially significant quantities of the imported infringing accused products in the United States (this remedy was denied against HTC), and
the requirement to post a bond of 88% of the value of all mobile phones, 32.5% of the value of all media players, and 37.6% of the value of all tablet computers found to infringe Apple's patents-in-suit during the Presidential review period.
By comparison, Samsung argued that a 4.9% royalty rate was a more appropriate bond amount. Judge Pender adopted Apple's proposed methodology and rates, based on a "price differential analysis". The ITC staff supports that approach in principle and is fine with the bond rates for tablets and media players, but says that the 88% rate for mobile phones is based on too high a price differential between the two companies' products because Samsung sells significant quantities of phones at a much lower price point, such as $200 (compared to a $600 non-subsidized iPhone), and the ITC staff believes that those lower-cost phones don't really compete with Apple's offerings and shouldn't be taken into account for the purpose of a price differential analysis. But Judge Pender points to an internal Samsung presentation according to which the U.S. mobile phone market was "becoming a Two Horse Race Between Apple & Samsung" and which suggested a strategy of undercutting Apple.
Judge Pender notes that Samsung claimed a price differential analysis is not adequate and warns Samsung that if it "continues to press" this argument, he would recommend to raise the bond rate to 100% for all infringing products sold during the 60-day Presidential review period.
The judge's recommendations are all subject to a review by the Commission, the six-member decision-making body at the top of the ITC.
While all of this looks like a potential worst-case scenario for Samsung, the picture is not that bleak. Judge Pender cleared various Samsung designarounds, and if those designarounds are not only legally safe but also technically adequate and commercially viable, Samsung can keep importing and selling. Even the initial determination does not explain why the designaround products don't infringe: it appears that Samsung presented them and Apple did not dispute Samsung's non-infringement claims on the merits but just opposed the adjudication of the designarounds on procedural grounds. Reexaminations are another opportunity for Samsung. While they take time (a lot more time than ITC investigations), Apple's winning patents are under pressure. A first Office action by the USPTO tentatively rejected all claims of the "Steve Jobs" touchscreen heuristics patent, which is at issue in this ITC investigation, and recently an anonymous reexamination request against another patent-in-suit (one that covers translucent images) became known.
If those mysterious designarounds enable Samsung to continue to do well in the U.S. market, an ITC order based on Judge Pender's recommendations could still create logistical complications for its U.S. business. For example, during the short Presidential review period, it might have to post a bond even on products that already have been designed around the patents-in-suit. Also, customs officers may hold up shipments of designaround products until they are certain that an exclusion order doesn't apply to them. And Samsung is worried that this could also affect other electronic media devices, including televisions, laptops, non-smartphone mobile phons, cameras and camcorders, or standalone components, even though Apple did not accuse any of those kinds of products of infringement. It wants some "special guidance" to be given to customs, but Judge Pender is against that proposal.
On a related note, Reuters' Dan Levine yesterday reported on Apple's decision to drop, for the time being, any charges against the Samsung Galaxy S III mini in the parties' second California litigation (a case that is scheduled to go to trial in 2014), based on Samsung's representation that it does not sell the device in the U.S. and only for as long as Apple believes that this representation is still accurate. Apple's lawyers bought various units of the S III mini from U.S. retailers such as Amazon, but it appears that Samsung is not actively selling and marketing it in the United States, so whoever sells it has to take the initiative to source it from other countries. I don't know if Samsung had a particular market-specific reason for which it thought U.S. consumers would not be interested in the S III mini, or whether this strategy of saying "we make the product but sell it only in other countries" is, possibly in no small part, a response to Samsung's patent infringement issues in the dispute with Apple. Theoretically Apple could sue resellers over that device, but those are also customers of Apple's own products and it may not be worth the hassle for only one particular device.
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