ITC judge wants Samsung to post a bond of 88% of its U.S. smartphone sales due to Apple patent case

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.......