Judge Seeks Bond Called High in Samsung-Apple Phone Case

Samsung Electronics Co. (005930) should post a bond equal to 88 percent of the value of smartphones found to infringe Apple Inc. (AAPL) patents if it loses a U.S. trade ruling and wants to keep selling the devices, a judge said.

U.S. International Trade Commission Judge Thomas Pender in October found that more than a dozen models of Samsung mobile phones, media players and tablet computers infringed patents on the iPhone and other Apple products.

Pender, in a recommendation posted Dec. 28 on the agency’s website, said Samsung should face a ban on imports of the infringing products. Pender also specified bonds Samsung is to post if the full commission accepts his decision to ban imports and the company wants to keep selling the products during a 60- day period when President Barack Obama could overturn the ban.

“That’s a high rate,” Christopher Marlett, founder of MDB Capital, an intellectual-property consultancy, said in an interview. “With those economics, it will be difficult for Samsung to decide whether to sell the products at all.”

The six-member trade commission is to finish its investigation by Feb. 25.

Samsung could try to avoid the bonds by changing product designs to address the dispute, and Apple could ask the commission to decide whether the new equipment still infringes its patents, Rodney Sweetland III, a lawyer with Duane Morris LLP in Washington who specializes in ITC cases, said in an interview.

Even if the commission were to order an import ban, it would probably give Samsung time to work around the patents to ensure there is no disruption to consumers and carriers, Sweetland said.

Global Battle

Suwon, South Korea-based Samsung is battling Apple worldwide over smartphone and tablet-computer technology. Samsung lost a $1 billion jury verdict in August against Apple, based in Cupertino, California.

At stake is a market that Bloomberg Industries said grew 62 percent last year to $219 billion. Samsung has more than a quarter of global mobile-phone sales compared with Apple’s 17 percent, though the iPhone has 34 percent of the U.S. market to Samsung’s 18 percent, according to market researcher ComScore Inc. (SCOR)

Among tablet computers, Apple had about 70 percent of the market in the second quarter, compared with 9.2 percent for Samsung and 4.2 percent for Amazon.com Inc. (AMZN), according to IHS ISuppli.

Rounded Corners

The products involved in the ITC case include models of the Galaxy Tab tablet, and the Galaxy Nexus and Galaxy S II smartphones. Not included are some popular products including the Galaxy S III smartphone and Galaxy Note II pen-equipped phone.

Samsung “will continue to take all appropriate measures to ensure the availability of our innovative products for American consumers,” Adam Yates, a company spokesman, said in an e- mailed statement yesterday.

“We remain confident that the full commission will ultimately reach a final determination that affirms our position,” Yates said. “Patent law must not be manipulated to give one company a monopoly over rectangles with rounded corners, or technology that is being improved every day by Samsung and other companies.”

Kristin Huguet, a spokeswoman for Apple, didn’t immediately respond to an e-mail seeking comment.

Pender, in his Dec. 28 order, said Samsung should pay bonds of 32.5 percent on sales of media players and 37.6 percent for tablet computers. Samsung argued for lower payments based on a royalty rate of 4.9 percent, Pender said in his order. The judge accepted Apple’s suggested rates.

Four Patents

In his Oct. 24 decision, Pender found Samsung had violated four patents including one for design of the front face of the iPhone and one for touch-screen technology co-invented by Apple co-founder Steve Jobs.

The case is one of more than three dozen between the makers of about half of the world’s smartphones.

The two companies have run up hundreds of millions of dollars in legal bills in their patent disputes. Apple’s lawyers have argued it revolutionized the smartphone industry when it introduced the iPhone in 2007, only to see copycats from Samsung and other companies making handsets that run on Google Inc. (GOOG)’s Android operating system.

The trade commission has twice before forced companies to alter foreign-made smartphones if they wanted to keep selling them in the U.S. HTC Corp. (2498) phones were held up at the border in May after Apple won a trade case. Google’s Motorola Mobility unit was ordered to remove a feature to coordinate schedules from its phones after it was found to infringe a Microsoft Corp. (MSFT) patent.

The Apple case against Samsung is In the Matter of Electronic Digital Media Devices, 337-796, and Samsung’s case is In the Matter of Electronic Devices, Including Wireless Communication Devices, Portable Music and Data Processing Devices, and Tablet Computers, 337-794, both U.S. International Trade Commission (Washington).

To contact the reporters on this story: Todd Shields in Washington at tshields3@bloomberg.net or Peter Burrows in San Francisco at pburrows@bloomberg.net.

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net

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