Apple 2.0

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Samsung faces sanctions over latest dirty trick in Apple case

October 3, 2013: 8:49 AM ET

A hearing on the leak of confidential Apple documents is scheduled for Oct. 22.

Screen Shot 2013-10-03 at 8.22.55 AMFORTUNE -- In advance of last year's big patent infringement trial that resulted in a billion dollar judgement against Samsung -- not a penny of which has yet been paid -- Samsung's attorneys demanded that Apple (AAPL) turn over the contents of its patent licensing agreements with Nokia (NOK) and three other manufacturers, Ericsson, Sharp, and Philips.

Apple complied, as it is legally required to do, marking the exhibits "Highly Confidential -- Attorney Eyes' Only" and trusting that the court's protective order -- and the threat of sanctions -- would keep the sensitive information out of the hands of Samsung's executive team.

The threat did not work.

In a sharply worded court order released Wednesday, U.S. Magistrate Judge Paul Grewal outlined the path by which Apple's carefully guarded secrets made their way from Samsung's outside attorneys to an expert witness, back to Samsung in unredacted form, onto an FTP site visible to at least 50 Samsung employees, and into the hands of one of Samsung's licensing executives, Dr. Seungho Ahn.

In a June 4 meeting with Nokia's Chief Intellectual Property Officer, Paul Melin, Dr. Ahn said that outside counsel had provided him with the terms of the Apple-Nokia patent license. And to prove it, he quoted from the confidential document, telling Melin that "all information leaks."

Nokia complained. Apple demanded sanctions. And Judge Grewal drafted a court order that began:

Time and again in competitor patent cases, parties resist producing confidential information to their adversaries' lawyers. They fear, among other things, that the lawyers will insufficiently shield the information from the competitors that they represent. Yet time and again, the court assuages these fears with assurances that a protective order will keep the information out of the competitors' hands.

A casual observer might reasonably wonder what magic a protective order works that allows outside counsel access to confidential information to advance the case without countenancing untoward uses by the client.

The answer is not a magical one at all: confidential information remains confidential because counsel and clients alike follow court orders. If parties breach this basic rule, the court's assurances become meaningless.

There is reason to believe the rule has been breached in the present case.

That last sentence is generous, because as Judge Grewal makes clear, he has every reason to believe Samsung not only violated the order, but is engaged in a cover up:

It is possible that Dr. Ahn's encounter with Mr. Melin occurred very differently. Unfortunately, the court cannot say, because Samsung has elected not to provide the court with any sworn testimony from Dr. Ahn or anyone else at the meeting. Samsung also has failed to supply the court with any evidence at all regarding other uses of the Apple-Nokia license, or those of the other confidential licenses.

Samsung did offer to conduct an internal investigation, an offer the Judge dismissed as "insufficient."

"Rarely," he wrote, "is the fox permitted to investigate without supervision the disappearance of chickens at the henhouse."

Judge Grewal ordered Samsung to provide the missing information -- and make Dr. Ahn available for deposition -- no later than Oct. 16. A hearing on the matter is scheduled for Oct. 22.

If sanctions are imposed on Samsung, they would not be the first. Below the fold, a partial record of Samsung  dirty tricks compiled from public documents by reader TeeJay2000.

  •  July 7, 2004: Jury advised of adverse interference when Samsung allowed emails to be automatically deleted even after it was told to retain relevant emails. After Samsung's appeal, Judge William Martini found "Samsung's actions go far beyond mere negligence, demonstrating knowing and intentional conduct."
  • October 17, 2005: The U.S. Department of Justice fined Samsung nearly $300M for memory price fixing within the U.S.
  • Feb. 7, 2007: U.S. government fined Samsung for $90M for memory chip price fixing for violations in 2006.
  • Jan.15, 2008: Samsung's offices in Korea were raided after evidence showed that a slush fund was used to bribe government officials and other business leaders.
  • July 16 2008, Samsung chairman, Lee Kun-He was found guilty in Seoul of financial wrongdoing and tax evasion. Despite prosecutor request of seven years in prison, sentence was reduced to three years followed by a pardon by the South Korean Government in 2009 to allow him to help with its successful bid to host the 2018 Winter Olympics. He is now a member of the International Olympic Committee and this 'pardoned criminal' returned as Samsung's Chairman in March 2010.
  • May 19, 2010: The EU Commission fined Samsung for being part of a cartel that shared confidential information and fixed memory chip prices (along with eight other firms).
  • Nov. 1, 2011: The Korean Fair Trade Commission fined Samsung for being part of a cartel that fixed prices and reduced output for TFT-LCD screens between 2001 and 2006.
  • March 15, 2012: The Korean Fair Trade Commission fined Samsung for a mobile phone price fixing scheme and consumer fraud whereby consumers would be paying more than what the discounted prices advertised.
  •  July 25, 2012: Magistrate Grewal informs the jury that they could take into account that "spoliation" of evidence occurred when Samsung destroyed evidence that could have been used in the Apple lawsuit; Samsung had a policy of automatically deleting emails that were two weeks old and should have suspended that policy between August 2010 (when Apple informed Samsung of patent infringement) and April 2011 (when Apple initiated the lawsuit).
  • August 24, 2012 a jury returned a verdict finding Samsung had willfully infringed on Apple's design and utility patents and had also diluted Apple's trade dresses related to the iPhone. But Samsung continues to fight the ruling, and continues in their copying behavior.
  • Dec 2012: EU issued a Statement of Objections (SO) against Samsung for abusing its Standard-Essential Patents in not providing FRAND rates. Samsung withdrew all SEP-based injunction requests against Apple in Europe days before the SO was issued, but to no avail.
  • April. 2013, Samsung is accused of and admits hiring people in several countries to falsify reports of HTC phones "constantly crashing" and posting fake benchmark reviews.
  • October 2013 Samsung in confirmed reports from independent and objective testing, found to be intentionally falsifying performance benchmarks of its flagship products: the Galaxy S4 and Note 3.

Thanks to TeeJay2000 for the research and to FOSS Patents' Florian Mueller for spotting Judge Grewel's court order.

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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