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In the Matter of

r

United States International Trade Commission I Washington, DC 20436

UNITED STATES INTERNATIONAL TRADE COMMISSION

COMMlSSlONERS

Paula Stern, Chairwoman
Susan W. Liebeler, Vice Chairman.
Alfred E. Eckes
Seeley G. Lodwick
David B. Rohr
'Anne E. Brunsdale-

Address all communications t o
Kenneth R. Mason, Secretary t o the Commission
United S t a t e s International Trade Commission
Washington, DC 20436

i

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UNIlXD Sl ATES IN'TERNATIONAL TRADE COMMISSION

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In the Mattkr of
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1

CERTAIN DOUBLE-SIDED FLOPPY DISK )
DRIVE-ND
COMPONENTS THEREOF
)

. Investigation No. 337-TA-215

NOTICE OF COWIISSION BECISION ON REVIEW AFFIRMING
INITIAL DETERMINATION FINDIhlG NO VIOLATION

FIGENCY: U 5 . International Trade Commission.
1

,

ACTION: The Commission has determined to affirm the presiding officer's
initial determination finding no violation of seckLon 337 of the Tariff Act of
1930, 19 U.S.C. 1337: in investigation No. 337-TA-215.

SUMMARY: The Commission has .determined on review to affirm the administrative
law judge's (ALJ) initial determination (ID) finding no violation of section
337 in the above-captioned investigation. Cllthough the Commission has
affirmed the ALJ's finding of no violation, the Commission disagrees with
portions of the ALJ's reasoning in the initial determination ,

FOR FURTHER INFORMATION CONTACT: Marcia H . Sundeen, E s q . , Office of the
General Counsel, U.S. International Trade Commission, telephone 202-523-0350
SUPPLEMENTARY INFORMATION: On December 6, 1984, Tandon Corporation (Tandon)
filed a complaint and a motion for temporary relief under section 337. On
January 22, 1985, the Commission instituted an investigation to determine
whether there is a violation of section 337 in the unlawful importation or
sale of certain double-sided floppy disk drives into the Un ted States by
reason of alleged infringement of the claims of U.S. Patent No. 4,151,573 (the
'573 patent), the effect or tendency of which is to destroy or substantially
injure an industry, efficiently and economically operated, n the United
States.
0
The original respondents were: ( 1 ) Hitsubishi Elect-ric Corporation,
(2) Mitsubishi Electronics America, Inc., (3) TEAC Corporation, ( 4 ) TEAC
Corporation of America (hereinafter collectively referred to as "TEAC"),
(5) Sony Corporation, and ( 6 ) Sony Corporation of FImerica (hereinafter
collectively referred to as Sony). Mitsubishi is the only remaining
respondent. On August 16, 1985, the Commission approved a settlement arid

licensing agreement betwiien the Sony respondents and Tandon. On November 5,
1985, the Commission approved a settlement and licensing agreement between the
TEFIC respondents and Tandon.
On May 29, 1985, the ALJ granted the complainant's motion for temporary
relief after a hearing. On September 3, 1985, the Commission decided to
affirm the ALJ's ID awarding temporary relief and awarded a limited temporary
exclusion order barring entry of allegedly infringing drives manufactured by
the respondents except under a bond of 25 percent.
On November 1, 1985, the ALJ issued an ID finding no violation of section
337. On December 19, 1985, the Commission determined to review portions of
the ID (50 F . R . 52866). All parties submitted briefs on all issues under
review. Sankyo Seiki Manufacturing Co., Ltd., filed a submission on the issue
of remedy. No Government agency comments have been received.
The authority for the Commission's disposition of this matter is
,
contained in section 337 of the Tariff Act of 1930 (19 U.S.C. 1337) and in
section 210.56 of the Commission's Rules of Practice and Procedure (49 F.R.
46123) (19 CFR S 210.56),

s

I .

Copies of the Commission's action and order and all other non
confidential documents filed in connection with this investigation are
available for inspection during official business hours ( 8 : 4 5 a.m. to
5:15 p.m.) in the Office of the Secretary, U.S. International Trade
Commission, 701 E Street N W . , Washington, DC 20436, telephone 202-523-0161,

By order of the Commission.

Kenneth R. Hason
Secretary
Issued : Janu6ry 31, 1986

??

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J,",!,'3

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5: 1 I

UNITED STATES INTERNATIONAL TRADE COmVlISSION
Washington, DC 20436
r;: .
IJL
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In the Matter of

i

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/(IS]J(;
1
1

1

Investigation No. 337-TA-215

CERTAIN DOUBLE-SIDED FLOPPY DISK )
DRIVES AND COMPONENTS THEREOF
)
\

COMMISSION ACTION AND ORDER

Background
I .

On December 6, 1 9 8 4 , Tandon Corporation (Tandon) filed a complaint and a
motion for temporary relief under section 337 of the Tariff Flct of 1 9 3 0 .

On

January 2 2 , 1 9 8 5 , the Commission instituted an investigation to determine
whether there is a violation of section 337 in the unlawful importation or
sale of certain double-sided floppy disk drives into the United States by
reason of alleged infringement of the claims of U.S. Patent No. 4 , 1 5 1 , 5 7 3

(the

' 5 7 3 patent), the effect or tendency of which i s to destroy o r substantially
injure an industry, efficiently and economically operated, in the United
States.
The original respondents were:

(1) Mitsubishi Electric Corporation, (2)

Mitsubishi Electronics America, Inc. (hereinafter collectively referred to as
"Mitsubishi"), ( 3 ) TEAC Corporation, ( 4 ) TEAC Corporation of FImerica
(hereinafter collectively referred to as l'TEACll), ( 5 ) Sony Corporation, and
( 6 ) Sony Corporation of America (hereinafter collectively referred to as

"Sony").

-2-

O n M a y 3 0 , 1 9 8 5 , the a d m i n i s t r a t i v e law judge (ALJ) i s s u e d an I D g r a n t i n g

the c o m p l a i n a n t ' s motion f o r temporary r e l i e f .

On J u l y 2 , 1 3 8 5 , t h e

Commission determined t o review the i n i t i a l determination ( I D ) on the v a r i o u s
issues (50 F . R . 28294).
On August 1 6 , 1 9 8 5 , t h e Commission approved a settlement and l i c e n s i n g
agreement between the Sony respondents and Tandon.

On November 5, 1985, the

Commission approved a settlement and l i c e n s i n g agreement between the TEAC
respondents and Tandon.

M i t s u b i s h i i s the o n l y remaining respondent.

On September 3 , 1985, the Commission decided t o affirm the ALJ's
awarding temporary r e l i e f .
6

ID

.

The Commission awarded a l i m i t e d temporary

e x c l u s i o n o r d e r b a r r i n g entry o f a l l e g e d l y infringing d r i v e s manufactured by
the respondents except under a bond o f 2 5 percent.
On November 1 , 1985, the ALJ i s s u e d an I D f i n d i n g no v i o l a t i o n o f s e c t i o n
337.

The ALJ's d e c i s i o n i s based on three f i n d i n g s .

F i r s t , the double-sided

floppy d i s k d r i v e s manufactured b y M i t s u b i s h i t h a t a r e the subject o f the
i n v e s t i g a t i o n do n o t i n f r i n g e the '573 patent.

Second, the a l l e g e d l y unfair

a c t s o f the respondents d i d n o t cause s u b s t a n t i a l i n j u r y t o the domestic
industry.

T h i r d , the a l l e g e d l y unfair a c t s o f the respondents have no

tendency t o s u b s t a n t i a l l y i n j u r e the domestic i n d u s t r y .

On December 19, 1985,

the Commission determined t o review p o r t i o n s o f the I D (50 F . R . _ 5 2 8 6 6 ) . A l l .
p a r t i e s have submit!ESII: INDUSTRY.

e

A.

DoneEtic Intustry Definition:
3oaSla-Sidcd Flop,-;/ Disk Drives

E.

T h e A2vertaly

C.

13

. e

5 102(g).

Patent Infringement.

2.

V.

. . . . . . . . . .: . .

1.

1.

111.

......................

Patent Validity.

I

:3

. . . . . . . . . . . . -.
-Effected Doxestic 9peratior.s . . . . . . . .
Com7lainant a32 Its Licczsees. . . . . . . . . . . . . . .
T s n Z o n . . . . . . . . . . . . . . . . . . . .
....
,.-,
a. Offshore operations . . . . . . . . . . . . . . .
;
.

I

52

1.

5I
- *

7" 1 0 0 , Im 101

be

TM 6 5 ,

C.

Domestic activities

i

...............

c-'a ,

-1 .

.

2.
3.

VI.

Peripherals’

Shuq3rt..

5.

IB!!.....,

6.

Conclusion.

Tandon

1.

.

................

a.

Pre-December 1984

b.

Post December 1964.

E3

.

0;

97
9:

95
3?

3uality.......................

. ..

. .

.

l

99

10 c

..................
Structure. . . . . . . . . . . . . . . . . .

2.

Licensing Policy.

101

3.

Business

103

4.

Conclusion

................
....................

..Tandon.

Texas Peripherals.

F.

Conclusion

........................

.

1:;J’:RY.

Be

e

e

..........................

9.

A.

e

.75

63

...................
......................

.

72ci

I*

.....................

4.

SFFICIfNT AXD ECONOYIC OPEWTIO??
A.

VII.

..................
....
Control Data Co:pora~isn/l:a3nc0l2

Texes ? e r i p , e r a l s

-

e

s

0

1C5
106

10 3
1:3

Overview: The 1 9 8 2 - 1 9 8 5 Domestic Flop??
Disk Drive Market.

110

Substantial Injury

113

1.

.

...................
.....................

Injury to Complainant a n d I t s Licensees

. .
l

;

....................
Peripherals . . . . . . . . . . . . . . . .

114

a.

Tandon..

11:

b.

Texas

?i6

ii

C~ntro:

d.

Shuqart

e.

I S M . . . .

*,3

E3t2 Co:?gr3?i3r..

...................

......................
a. Chanqes in the Xarket?lace. . . . . . . . . . . .
b. Lost Sales. . . . . . . . . . . . . . . . . . . . .
Tendency
Substantial Injure . . . . . . . . . . . . . .
1. The
Inch Double-Sided
Floppy Disk Drive Market. . . . . . . . . . . . . .
2.
Inch Double-Sided
Floppy Disk Drive
.............
2.

C.

. . . . . . . . . . . . ..
. . . . . . . . . . . . . . . . . . . . . . 121

c.

Causation

to

-

12 3

125
12 6

131

1: s

5-1/4

14:

The 3-1/2

?lark&.

PI!iDINSS OF FACT

1.

JURISDICTION

XI.

TXE PARTIES.

..........................
.
. . .
............
i

b

b

A.

ComFiainsc? az3,Intercsteb Persons

k.

Backgroanc! of t h e Invention.

D.

Independen? Clains I , 5, and

C.

Developacnt of Double-Sided Floppy Disk Drives by ID!!.

0.

Shuqa:t.

E.

CalComp.

F.
G.

.

...............
12 of
....
..
the '573 Patent

145

149
149

id9

153
?OC
164

17G

.........................
...............

175

Coverage of the Tandon Double-Sided Floppypisk

. Drives by the '573 Patent.
The Accused Products

...................
iii

184
134

I

.

....
.

. . . . . . . . . . . . . . . . . . . . . . . . 127
1 . Tandon Tests . . . . . . . . . . . . . . . . . . . . . . 127
2. Mitsubishi
....................
. Interpretations and S c o p of Tandon Patent Claix . . .

Infringement

293

Tests

213

3

.

............. . . . . . . . . . . .
V . DOXSTIC INDUSTRY . . . . . . . . . . . . . . . . . . . . . . . . . .
. Shugart and General Marketplace Background . . . . . . . . .
B . Tandon .
.Head Assemblies . . . . . . . . . . . . . . . . . . .
C . Tandon .
.Disk Drives . . . . . . . . . . . . . . . . . . . .
. Tandon ..Microttk .....................
E . Texas Peripherals . . . . . . . . . . . . . . . . . . . . . .
F . Control Cata Corporation/!iaqnetic Peripherals . . . . . . . .
G. ran. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. Substitution . . . . . . . . . . . . . . . . . . . . . . . .
.
EFFICIEXT OPEPATION
. Tandor, ..General . . . . . . . . . . . . . . . . . . . . . .
. Tando ..Business Structure . . . . . . . . . . . . . . . .
.
..Quality
Delivery . . . . . . . . . . . . . . .
D . Tandon .
.Licansinq Policy.. . . . . . . . . . . . . . . . .
E.
Peripherals . . . . . . . . . . . . . . . . . . . . . . .
F.
...........................

VI

IMPORTATXU4 AND SALE

227

i

230
233

A

246

253
286

D

290

295

302
33':

H

VI

E C O S C K I C AND

323

A

322

6

?.

C

?andon

323

and

327
342

Texas

347

Shugart.

349

G* ' C X *

H

.

IB.

a

a .

..............................
iv

-353
35:

c22r
&

Vi1

.

..............................
....
k . Genera. . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 5 2
. Shuqar. . . . . . . . . . . . . . . . . . . . . . . . . . . .
C . Control Data C o r p o r a t i o n . . . . . . . . . . . . . . . . . . 369
7:

I?iX3Y

..

7

361

8

........................
Tandon . . . . . . . . . . . . . . . . . . . . . . . . . . .
1 . General . . . . . . . . . . . . . . . . . . . . . . . .
2.
Sales . . . . . . . . . . . . . . . . . . . . . . 436
F.
.........................
1 . General . . . . . . . . . . . . . . . . . . . . . . . .
2 . ?.!itsg3ishi Pricing Strategy . . . . . . . . . . . . . . 419
co::cLL'sIoh's Of L W . . . . . . . . . . . . . . . . . . . . . . . . . . 422
...................
.
E.
D

375

Texas Peripherals

393

332

Future

P:itsubishi

414

412

1.

424

V

.

OPlNION

3

I o

.

PROCEDURAL HISTORY
5

.

c

On December 6 , 1 9 8 4 , Tandon Corporatkon, Chatsworth, California, f i l e d a

complaint and a motion for temporary r e l i e f under section 3 3 7 o f the T a r i f f
A c t of 1 9 3 0 ( 1 9 U.S.C.

S 1337).

Supplements t o the complaint were f i l e d on

December 21 and 27, 1 9 8 4 , and January 7 , 1985.

The complaint, as

supplemented, alleges unfair methods of competition and unfair a c t s i n the
importation o f certain double-sided floppy d i s k drives and components thereof
into the United S t a t e s , or i n their s a l e , by reason o f alleged d i r e c t ,
induced, and contributory infringement of the claims o f U.S.
NO. 4 , 1 5 1 , 5 7 3 .

Letters Patent

The complaint further a l l e g e s that the e f f e c t or tendency of

the unfair methods o f competition and unfair a c t s i s t o destroy or
substantially injure an e f f i c i e n t l y and economically operated domestic
industry and t o prevent the establishment of a nascent sub-industry i n the
5

United States.

Y

On January 2 2 , 1985, the Commission order9

*
t

ursuant t o 19 U.S.C.

S 1 3 3 7 ( b ) that an investigation be instituted t o determine whether there i s a

violation of 1 9 U.S.C.

S 1337(a) w i t K respect t o the subject a r t i c l e s by
8

*

I

reason o f alleged d i r e c t , induced, and contrfbutory infringement o f the claims
o f U.S. Letters Patent No. 4,151,573 (+

.dill

prejudicsd by this amendment Sacausa they vera aware of the existenca of ?!:is
issue since the Initial Determination on temporary relief and have r'asponded

..

.. . .
2

to discovery with regard to it; and (3) the parties to this proceading hav?
z

voluntar ily litigated this issue during the hearing on permanent rslief.
The Xitsubishi respondents argue that Tandon's motion should be deniad f n r
the following reasons:

First, Rule 2 1 0 . 2 2 ( c ) does not permit complaihan? to

amend the pleadings to add completely new m f a i r acts.

Second, the allagation

that respondents participated in predatory pricing is not reasonably with t!.?
scope of the coinplaint and-notice of investigation..- Third, respondents never
consented to the presentation of evidence to prove the additional alleged
unfair act of predatory pricing.
I

Finally, complainant's attempt to change the

nature of this case is untimly, and granting this request would prejudice
respondents.
Rule 210.22(c) allows parties to amend the pleadings and notice of
investigation "[wlhen issues not raised by the pleadings or notice of
investiqatim, but reasonably within the scope of the pleadings and notice,
are considers3 during the taking of evidence by express or implied consent of
the i)arties.*

The record demonstrates that the Mitsubishi respondents did no?

consznt to an amendement of the pleadings and notice in this investigation to
includi? the alleged unfair act of predatory pricing.
Complainant states that it first learned of facts suggesting that
respondents may be guilty of predatory pricing when the administrative law
judge's in the initial determination on temporary relief found that TEAC had
sold at or below cost with respect to Eloppy disk drives sold

Tandy

Corporation.

T ~ a
Rd 3 i n i s t r J t i v c law ju!.lqs

~ a d cno

:~fc:cnc~ in t3is

Einr!iny

to ths existence of a cpossible mLEair act of precistory p r i c i n g : rath?r,

those

facts were referred to in order to Idaternin? whather complainant 'had
~

-..a.

established a reason to belicva that responlants' activities have the effect
z

or tendency to substantially injure a domestic industry.

In this context, the

administrativz law jsdqe? reqsastad the parties to submit furth?r evidence wit:?
regarc! to 'the full panoply of nrarket factors that may have or will contribute

to the injilry of the domestic industry

. . . to better define the

substantiality of the eEfect or tandency of respondents' activities to injure
the inc?ustry.'

Double-Sided Floppy Disk Drives, supra, at 106.

The record indicates that there was no consent to investigate vhether
respondents had engaged in predatory pricing as an unfair act.

For exanple,

complainant's referance to predatory pricing in its prehearing brief is
included in its discussion of injury.

Such a reEerance indicates that

complainant gave no notice of its intention to amend the pleadings an3 notice
in this investigation during the taking of evidence to include by express ar
impliad consent of the partias an additional unfair act.

Tandon, PEO

Prehearing Brief 20-21 (Aug. 9, 1 9 8 5 ) .
Ths fact that the slitsubishi respondents answered complainant's discovery
rsquests as to the subject of predatory pricing, initiated their own iiscovery
requasts relevant to this issue, and proc+eedad to address it at t h e hearing on
permanent relief, similarily fails to express or imply-consent to consider
this issue as an unfair act.

The issue of eEfect or tendency to substantially

injure the domestic industry involves questions of whether respondents sold
above or below market prices, initiated or reacted to market price cuts.

1:

To

-

incorporate a new unfair

act would an,3uly prajudica their ri3ht to p e p a r c
..

and befend their case.
3s

predatory pricing
'

-

2

A

There was siinply no consent to includs the issue of

an unfair act in this investigation.

.

.

c

Finally, it does not appear that a major change of this nature can be naea

through a motion

to

tha investigation.

amend the pleadings,'particularly at this late stag9 in
1.t is for the Commission to ,decidp the scope of its

investigations, and cmscqucnt?y an allegation of this natura should be
included only after -Commission
institution, or Chroagh an initial
.
determination based on a timely motion to amend that is adopted by the
Commission.
,

For the above rcasons, complainant's yotion No. 215-57 to amend

the pleadings is denied.

This Initial Determinatim is,based on the entire record of this
proceeding.

Proposed findings not herein adopted; either in form or in

Substance, are either spacifically dealt with in this Initial Daterminat ion,

or are rejected as not baing supported

by the cvidsnce

or as involving

immaterial matters.
The findings of fact include references to supporting evidentiary items in

the record.

Such references are intended to serve as guides to the

dzpositions, exhibits, and testimony supporting the findings of fact; they do
not necessarily represent complete sum,aries of the evidence supporting each
finding.

Some of ths findings of fact are contained only in the opinion.

12

.

Tk,? fallowing abbraviations arc

used

. i n this Initial Dctcrnins'ion:

cx

- Complainant's

CRX

- Complainant

'5

Rebuttal Exhibit

CPX

- Complainant's

Physical Exhibit

MRX

- :4 i t s u5 is hi

MRPX

- Mitsubishi Respondent Physical Exhibit

Exhibit (follswed by its n3rnber and tha
referenced ?age ( s )1.

Res pond 8 n t Exh ib i t

- Sony Respondent Exhibit
SRPX - Sony Reswndant Physical Exhibit

SRX

- TEAC Respondent Exhibit
TRPX - TEAC Raspondent Physical Exhibit
sx - Staff Counsel Exhibit
SPX - Staff Counsel Physical Exhibit
FF
- Finding o f Fact

TRX

Tr.

-

.

Transcript

12a

. .

... . -

I1

PATENT INFRINGEMENT
. .

The unfair p r a c t i c e a l l e g e d i n t h i s i n v e s t i g a t i o n i s p a t e n t i n f r i n g e m e n t .
'

.-: .

*

WO

elements m u s t b e p t e s e n t to d e m o n s t r a t e t h a t r e s p o n d e n t s have engaged i n

patent i n f r i n g e m e n t :

(1) v a l i d i t y of t h e p a t e n t ; and ( 2 ) i n f r i n g e m e n t by

respondents.

A.

< '

Patent Validity

1.
U.S.

Background o f t h e ' 5 7 3 Patent.
L e t t e r s Patent 4 , 1 5 1 , 5 7 3

Tandon p a t e n t )

( t e f e r r e d to

as t h e ' 5 7 3 p a t e n t or t h e

e n t i t l e d "Magnetic R e c o r d i n g Device For Double S i d e d Media,"

was i s s u e d on A p r i l 2 4 , 1 9 7 9 , and is a s s i g n e d t o c o m p l a i n a n t .
I

inventors are named:
Hackney; and

cx 6 0 1 .

Three

Mr. S i r j a n g 1. Tandon, P r e s i d e n t o f Tandon; Mr. A l f r e d

Mr. A. A p p l e a u i s t .

CX 6 0 1 .

improvements ovef p r i o t a r t p r o d u c t s .

The ' 5 7 3 p a t e n t d e s c t i b e s c l a i m e d

- a t cols.
Id.

.

1-2.

i

The p r i o r a r t

r e f e r r e d to i n the patent was embodied i n the IBM 43 FD, t h e first
double-sided

d i s k d r i v e marketed i n t h e United S t a t e s .

IBM's advancement ftom

a s i n g l e - s i d e d f l o p p y d i s k d r i v e to a double-sided

d r i v e , i n s t a n t l y doubling the capacity
c o m p u t e r s , was

S e e CX 6 0 9 , 6 4 6 .

of t h e d a t a s t o r a g e d e v i c e s used w i t h

a s i g n a l to t h e i n d u s t r y of t h e need to change t o d o u b l e - s i d e d

d r i v e s since IBM was t h e acknowledged l e a d e r i n t h e computer

13

-

industry.

Many firms simply followed IBM, g a l v a n i z e d i n t o action

oy tne

Technical Disclosure Bulletin (CX 6 0 9 ) issued i n December 1975 and the
shipment of the double-sided floppy d i s k drives i n June 1976 (FF 7 2 ) ' t o

--:
.

develop their own double-sided drives i n order t o remain ,competitive w i t h
IBM.

FF 23-27,

72A.

IBM d i d not, and currently does not, s e l l floppy d i s k

drives to other computer manufacturers.

I t manufactured the drives t o

incorporate them i n its own computer systems.

Rival computer companies

purchased floppy d i s k drives from independent drive manufacturers t o be
incocporated into their computer systems.
companies are known as OEM sales.

Floppy d i s k drive sales t o s u c h

FF 9 2 , 3 0 2 , 312.

IBM had a l s o developed the f i r s t single-sided

floppy d i s k drive w h i c h was

an advance over the use of tape as a data storage device.
t h e single-sided drive was well-established,

drives i n response to customer i n t e r e s t .

FF 13-14C.

Once

IBM began working on double-sided

FF 6 3 .

D i f f i c u l t y was encountered

in developing a double-sided drive w h i c h would accurately store and access
data and, a t the same time, not q u i c k l y wear out the magnetic coating o f the
d i s k and erase the data.

CX 6 0 1 ,

cols. 1-2; FF 36-37.

.

A'key r o i e i n performing the storing and accessing functions for floppy
d i s k drives (commonly referred t o as read/write or data transfer function) i s

played by transducers, or read/write heads, w h i c h contain the magnetic cores.
They are mounted on various supports and arms t o enable the cores t o maintainproper contact w i t h the floppy d i s k and proper alignment w i t h each other.

The

heads, the supports, and mountings are referred t o as the head assembly.
FF 18-19.

Contact between the read/write heads and the d i s k (head compliance)

m u s t be incredibly close and stable.

Comstock, Tr. 1451; Nathanson,

14

Tr.

1548.

I n the Yitsuoishi drives, for example, a gap of greater t h e n 0 . 3 2

microns (between 1 2 and 1 3 millionths o f an i n c h or microinches) between the
read/write cores and the d i s k produces unacceptable error i n the storage or
accessing of information from the d i s k .
.

Hayashi, Tr. 2847.

. contact r e f e r s t o proper alignment of the cores

Stability of

.

-

1

I

.

c

w i t h each Concentric track of

the d i s k , w h i c h ensures that information is deposited or read onto or from the

. .

-

< .

proper location. 1/

m e floppy d i s k i s made of very p l i a n t , limp, droopy material w h i c h
undulates i n rotation.
the hub mechanism.

"Wrinkles" also occur as a result o f being clamped by

FF 35, 164.

The envelope gives i t a certain amount of

s t i f f n e s s and permits the d i s k to be handled.

The d i s k is also subject t o

variations i n i t s w i d t h as a r e s u l t of manufacturing imperfections and of

, being clamped upon loading of the heads against the
read/write operations.

d i s k (startup) and during

These imperfections and deviations from the perfect

plane of the d i s k a r e s i g n i f i c a n t ,enough t o cause error i n the read/write
operations if not compensated for i n the design of the head assembly; y e t , the
range of motions involved i s "unimaginably small.'

Comstock, T t . 1548.

Respondents argue that the patent was anticipated, that i t i s obvious,
and, that w i t h deceptive i n t e n t , some of the inventors were omitted.

fie d i s k has a s e r i e s of concentric t r a c k s , w h i c h distinguishes it
1/
f rom-the single continuous track of an ordinary phonograph record, and is
encased i n a paper envelope or j a c k e t , from w h i c h i t i s not meant to be
removed. The envelope has an opening a t the center so that the disk can f i t
on a center spindle and hub. I n addition, there i s a radial s l o t i n the
envelop on opposing sides to permit the heads t o come into contact w i t h each

af the concentric tracks as the d i s k rotates. The read/write heads can be
positioned to access any location on any track of the d i s k d u r i n g rotation (or
operation) through a mechanism w h i c h moves the heads along t h e radial track
defined by the envelope s l o t .

15

.

-

2.

Anticipation

--

5 102(g).

35 U.S.C.

I t has been alleged that the ' 5 7 3 patent i s invalid under 35 U . S . C .

S 102(g) because the invention had already been made and used i n the'united

.

S t a t e s before the p r i o r i t y date o f the suit patent by 1BM.- l a /
Under 35 U.S.C.

S l O Z ( g ) , a person s h a l l be e n t i t l e d t o

- .. .

c

a patent

unless

.

before the a p p l i c a n t ' s invention thereof the invention was.made.
i n t h i s country by another who had not abandoned, suppressed ar
concealed it. I n determining p r i o r i t y o f invention there s h a l l
be considered not only the respective dates of conception and
reduction t o practice of the invention, b u t a l s o the reasonable
diligence of the one who was f i r s t t o conceive and l a s t t o
reduce to p r a c t i c e , from a time prior t o conception by the
others.

Unlike S 102(a) , under w h i c h prior knowledge an.d use m u s t be p u b l i c when
the patented invention is made, prior invention under S 102(9) "tequires only
that the invention be complete, that i s , conceived and reduced t o p r a c t i c e ,
and not abandoned, Suppressed or concealed.'
United S t a t e s , 159 U.S.P.Q.

International Glass Co., Inc.

4 3 4 , 4 4 0 ( C t . C1. 1 9 6 8 )

V.

( c i t a t i o n s omitted).

Although S 102(9) u s u a l l y a r i s e s i n p r i o r i t y disputes i n Patent and Trademark
Office (PTO) interference proceedings, " i t may a l s o be an appropriate defense

t o patent v a l i d i t y i n infringement l i t i g a t i o n where a patent application was
never f i l e d by the prior inventor..

--

Id.

I n the present c a s e , it i s claimed that the ' 5 7 3 patent was conceived and-

reduced t o p t a c t i c e by IBM well before t h e time the application which-matured
i n t o the ' 5 7 3 patent was filed.

For purposes o f t h i s discussion, the date

l a / Anticipation under 35 U.S.C. S 102(a) and ( e ) i o a l s o alleged by
respondents. PEO B r i e f , a t 3-7.
The argument is that the IBM system was in
fact asymmetrical (although i t claimed not t o b e ) , l i k e the Tandon system.
This anticipation argument i s insubstantial and is rejected. FF l l O B . These
arguments are relevant to infringement and discussed i n that section below.

16

o f Tandon's invention i s deemed to be the date of f i l i n g the patent

a p p l i c a t i o n , June 1 3 , 1977.

Hoechst Corp.,

214 U.S.P.Q.

IBM's e a r l y work

PF 16.

Cosden O i l 6 Chemical Co. v . American

2 4 4 (D. Del. 1 9 8 2 )

.

The record is c l e a r t h a t

on double-sided floppy d i s k drives occurred d u r i n g

,

*.:

z

PF 51, 57.

1973-1974.

A t t h a t time, IBM tested three d i f f e r e n t types o f head

confiyuration i n i t s d i s k drives.

I n the f i r s t t y p e of d r i v e , b o t h heads were

f i x e d , i n t h a t neither was designed to t i l t
d i s k i n operation.

OK

move towards

OK

away from the
-

.

I n the course of t e s t i n g , IBM was unable t o o b t a i n

s a t i s f a c t o r y results and decided not to pursue t h i s d e s i g n for commercial

FF 58-60.

ptOdUCtiOn.

However, a patent was obtained on t h i s configuration.

FF 60.
Another d e s i g n tested by IBM u t i l i z e d one f i x e d head and one gimbaled
I

head.

FF 61.

'

T e s t i n g on a prototype of t h i s d r i v e occurred i n l a t e 1973.

IBM was not s a t i s f i e d w i t h the performance o f t h i s second configuration i n

stress t e s t i n g , and i n January 1 9 7 4 terminated further
.--.-- development
----.. .-.. of
- this
design.

FF 62-63.

This d e s i g n vas never embodied i n a commercially available

product, .its existence was known o n l y w i t h i n IBM, and no patent application

was ever f i l e d on t h i s concept. .FF 6 4 , 66.

Later, a t the e a r l i e s t i n 1975 or

1976, IBM developed a precision writer s t r i c t l y for in-house use w h i c h
u t i l i z e d a head configuration i n w h i c h one head was f i x e d and the other
gimbaled.

T h i s i n v o l v e d immobilizing the lower head of the 43 FD.

FF 67-60..

I n the t h i r d approach developed by IBM, b o t h heads were gimbaled.

FF 71-72.

Based on successful testing of t h i s C o n f i g u r a t i o n , further

development
work was done, the design was u t i l i z e d i n IBM's
-which

43 FD d r i v e s ,

were commercially produced, and a patent was a p p l i e d for and o b t a i n e d .

FF 69-72.

17

The foregoing faccs suggest t h a t

IBM a c t u a l l y c o n c e i v e d and

testec a

double-sided disk drive w h i c h emoodred the same design and invention as t h a t
disclosed
-.-.
- - i n the ' 5 7 3 patent.

There i s no dispute t h a t IBM's a c t i v i t i e s

..

occurred well before Tandon's.

.

c

I n order for IBM's work on i t s type two head configuration t o constitute

an anticipating prior invention, it m u s t be found t h a t IBM reduced i t t o
p r a c t i c e and d i d not abandon, conceal or suppress it.

There has not been a

sufficient showing that IBM reduced t h i s concept t o practice.

The evidence

indicates that IBM tested the concept for about four weeks, far l e s s time t h a n
it spent on developing i t s type three design, and d i d not apply for a patent

as it d i d for the two fixed head design.

FF 62, 70.

T h e IBM type two design

appears t o be more l i k e preliminary experimentation, rather than reduction t o
practice.

FF 62-65.

For purposes of considering abandonment, concealment or

suppression, however, a reduction t o practice w i l l be assumed.
Abandonment is irrelevant to t h i s section unless it occurred before the
time of the applicant's invention.

Allen

Brady CO.,

184 U.S.P.Q.

385,

386 ( 7 t h Cir. 1974); Leesona Corp. v. Varta B a t t e r i e s , Inc., 213 U . S . P . Q .

222,

250 (S.D.N.Y.

1981).

V.

W.H.

I n addition, 'the concept of abandonment contemplates a

voluntary decision by the original inventor t o terminate any e f f o r t to
practice h i s conception."

Allen, 1 8 4 U . S . P . Q .

or suppression m u s t be intentional.

Cosden O i l

257.

18

a t 386.
6

Similarly, concealment

Chemical, 2 1 4 U . S . P . Q .

at

-

2

Irrespective ai a reauc:ion

t o practice and an arguably successful i s e of

an invention, i t may be Eound to have been abandoned, suppressed or concealed
i n the absence of further steps taken w i t h i n a reasonable time a f t e r the

invention to make at p u b l i c l y known.

“Thus, f a i l u r e to f i l e a patent

. , .; t o describe the invention
document . . .; or t o use the invention
application

i n a p u b l i c l y disseminated

publicly

. . ., have been held t o

c o n s t i t u t e abandonment, suppression or concealment.*
a t 4 4 1 ( c i t a t i o n s omitted),

U.S.P.Q.

International G l a s s , 159

The measure of whether there has been

abandonment, suppression or concealment by the f i r s t inventor i s whether the
p u b l i c has gained any knowledge o f h i s invention.

...

l i e s i n the policy and
The true ground of the doctrine
s p i r i t o f the patent laws and i n the nature of the equity that a r i s e s
i n favor of h i m who gives the p u b l i c the benefit of the knowledge of
his invention, who expends h i s time, labor and money i n discovering,
perfecting, and patenting, i n perfect good f a i t h , that w h i c h he and
a l l others have been led to believe has never been discovered, by
reason of the indifference, supineness, or w i l l f u l a c t of one who
may, i n f a c t , have discovered it Long before.
Mason
Taylor

V,
V.

Hepburn, 13 App. D.C.
D u d t i k , 178 U.S.P.Q.

86 (D.C.

--

Cir. 1898); see a l s o Palmer and

608, 615 (C.C.P.A.

1973).

The f a c t s relating to IBM’s a c t i v i t i e s compel the conclusion that IBM
voluntarily abandoned, suppressed and concealed i t s invention before the time
o f the same application w h i c h led t o the ‘573 patent.
.

At

the time of i t s

development work on double-sided floppy disk d r i v e s , IBM was pursuing three
different design concepts,

Problems were encountered w i t h two o f these

designs, whereas the third showed promise.
ISM

FF 58, 60-63, 69.

As a r e s u l t ,

stopped development work on the f i r s t two designs, i n c l u d i n g the design

that i s claimed t o anticipate the ‘573 patent, and d i d not disclose the l a t t e r

19

concept to the p u b l i c .

FF 6 0 , 6 2 , 6 4 .

When an a r t i c l e was published i n 1981

w h i c h de'scribed IBM's work on floppy disk drives, the basic head design o f its

second approach was b r i e f l y discussed, together w i t h an indication of the
problems encountered. -FF 6 3 .

To the extent that t h i s may be considered a

disclosure t o the p u b l i c , it occurred well a f t e r the date of the invention o f
the ' 5 7 3 patent.
I t is noteworthy that of the three designs developed by IBM, the one

design that is alleged t o anticipate the suit patent is the only one for w h i c h
IBM d i d not seek patent protection.

FF 66.

There i s nothing on t h i s record

t o suggest that IBM believed that i t s type two design was a patentable
invention, or that it had p r i o r i t y over Tandon's claim.

IBM's only use of

t h i s particular configuration occurred e n t i r e l y in-house, and was c l e a r l y not
p u b l i c l y disclosed before June 1977.

FF 64-68.

The f a c t that IBM

subsequently took a license from Tandon under the ' 5 7 3 patent (Cx 6 2 ) further
supports the conclusion that IBM voluntarily abandoned, suppressed and
concealed t h i s invention.

For the foregoing reasons, IBM's development work before 1977 d i d not
a n t i c i p a t e the invention of the '573 patent because IBH w i l l f u l l y abandoned,
canceled or suppressed i t s prior work.

20

.

3.
'

Inventorship of the '573 Patent

--

S 116.

35 U.S.C.

I t i s alleged that the invention of the '573 patent was f i r s t conceived a t

CalComp and that Tandon only participated i n r e d u c i n g ' i t t o practice.

Thus,

i t is claimed that. the suit patent is i n error i n f a i l i n g t o name Malcolm
S m i t h , of CalComp, as an inventor, and that the coverage of the patent claims

was misrepresented to CalComp i n naming only Tandon employees as inventors
w i t h the deceptive intent t o deprive CalComp o f any ownership rights..

Non-joinder of a j o i n t inventor may render a patent unenforceable.
C h i s u m , Patents 55 2 . 0 2 ,

2.03

1 D.

When a mistake is made i n the joinder

(1984).

o f inventors without deceptive i n t e n t , the mistake may be corrected under the
remedial provisions o f 35 U.S.C.
Foundation, Inc.

V.

5 256.

Iowa S t a t e University Research

Sperry Rand Corp., 1 7 0 U.S.P.QZ

374 ( 4 t h Cir. 1 9 7 1 ) .

However, the defense of improper joinder of inventors is a technical, and t h u s
disfavored, defense.

The party asserting s u c h a defense bears the burden of

proving s u c h improper joinder by c l e a r and convincing evidence.
Rod Treating Apparatus and Components Thereof, I n v . No. 337-TA-97,
U.S.P.Q.

Certain S t e e l
215

--

2 3 7 , 2 5 5 ( 1 9 8 1 ) ; see also Certain F l u i d i z e d Supporting Apparatus and

Components Thereof, Inv. No. 337-TA-182/188,

ID a t 105-07, CD a t 8 ( 1 9 8 4 ) .

During 1 9 7 6 and 1 9 7 7 California Computer Products, Inc. (CalComp), was an
OEM supplier o f single-sided d i s k drives.

FF 91.

when IBM announced i t s

double-sided floppy d i s k drives i n 1976, CalComp sought t o enter the
double-sided d i s k drive market as q u i c k l y as possible so that its OEM
customers could remain competitive w i t h IBM.

21

FF 92.

Since CalComp d i d no€

.

have the tecnnical capaoility to develop a double-sided floppy d i s k d r i v e , i t
entered into a contract w i t h Tandon Magnetics (predecessor o f Tandon) to
design the double-sided heads.

__

FF 93-94.
.,

I n i t i - a l l y , -it was the expressed view of Tandon and CalComp t h a t IBM's
c

preeminent position i n the market would require CalComp t o develop'an IBM
compatible d i s k drive.

As

a r e s u l t , Tandon's original proposal to CalComp was

to reverse engineer the IBM double-sided d i s k drive.

FF 95.

Preliminary work

on the reverse engineered IBM drive revealed that the head assembly would- not
f i t i n CalComp's existing single-sided drive carriage.

Therefore, for a

variety of reasons, CalComp preferred t o develop a double-sided d i s k drive
that could be adapted to i t s single-sided drive.

FF 96-97.

Tandon expressed

and attempted t o dissuade CalComp from following
resistance
.-- ..- . t_o.- t h i-s approach,
_.
i t , t h o u g h Tandon a t the same time had d e c i d e d to adapt the single-sided drive
d e s i g n for use i n a double-sided drive.

Hackney Dep., MRPX 3 6 , a t 28-38.

In

agreeing t o develop t h e reverse engineered IBM drive and the modified CalComp
i n p a r a l l e l (FF 9 8 - 1 0 0 ) ,
drive
..-

Tandon apparently d i d not disclose t o CalComp

that it was i n any event proceeding w i t h the l a t t e r approach.-1b/

.D e e s s e n t i a l cont,roversy relating to CalComp's r e l a t i o n s w i t h Tandon
concerns the participation o f Mr. Malcolm S m i t h i n the double-sided drive
.
-.

project.. IC'

Mt. S m i t h was the mechanical engineerhat CalComp's Small D i s k

Operations and served as liaison between Tandon and CalComp on this project
and monitored and tested the prototype developed a t Tandon.

FF 94.

Tandon b u i l t the IBM d e s i g n head assembly for Control Data, b u t this
lb/
d e s i z was unsuccessful. Hackney Dep., MRPX 3 6 , a t 2 9 , 56.

-

IC/ An additional controversy may r e l a t e to ownership r i g h t s to the ' 5 7 3
patent. FF 102-06. However, this matter does not appear to r e l a t e to the
question of patent validity.

22

-

J

i n an e f f o r t t o ~?rsusr!e Tsndon * c cc.nzenc? *:evel.3i1aznt cf t n i s !esiqn.

!.Ire S n i t h ' s vie*, t h i s nods1 war not ri.311y a c c + p t a S l P , a l t h o u g h

19

.,
i c showed
c

some a b i l i t y t o r e a d and w r i t ? b e c a u s e i t d + s t r o y e c i ?ne nediurn.

FF 17, 3 9 .

.After Y r . Smith pr+par+d the . m d e L , Tandon pcoducad a p r o c o t y p e o f Cnis
modif i*d CslCong d e s i g n , a n d p r e l i n i n a r y t e s t i n g g a v e v e r y e n c o u r a j i n q

re3ults.

FF 100.

Subsequent

W O C ~a t

m o d i f i e d CslConp d e s i g n , w i t h !4r.

Taniion a p p a r e n t l y c o n c e n t r a t e d on t h i s

Smith i n ErPquent a t t e n d a n c e , w i C h the

o b j e c t i v e of h a v i n g the! new doublz-sided

1977.

This d r i v e was i n c o r p o r a t e d i n CalComp's product and Yas shoim a t
A c s o r d i n j t o ?!r. S n i t h , the d r i v e Worked b e t t e r than IB!.!'s

NCC show.
#

d r i v e ready f o r t h e :3CC show i n Juna
the

drive.

FF 9 4 , 1 0 1 .
I t was

not u n t i l about S e p t m b o r 1377 t h a t

:IC.

! k y e C , direcCor of

CalConp's S m a l l D i s k O F e r a t i o n s , d i s c o v e r e d t h a t Tandon had f i l e d a p a t e n t
a p p l i c a t i o n on t h e d o u b l e - s i d e d flo??y d i s k d r i v e t h a t had Seen devclope:!

result of the CalCoinp/Tandon development p r o j e c t .

?.lr. S n i t 5

should be naaed

a

!4r. :?eyer f e l t t h a t

as an inventor and t h a - CalConp's nane s;hou:3

associstizc? w i t h the p t m t ,

98

be

T h e CalComp-Tsndon agreement provided t h a t t h e

head iin.3 flexilrtl d e s i g n s were p r o p r i e t a r y t o Tandon a n d , among o t h e r t h i n q s ,
t h a t the c a r r i a g e a r a was p r o p r i e t a r y t o CalComp.

FP 1 0 2 - 0 4 .

!IK.

-

:4efer's

concerns a p p a r e n t l y ware s a t i s € i a d by :Ir , TanJon's r e p r e s e n t a t i o n that t h e
o a t z n t would o n l y

COWK

the h * a d and the s u s p e n s i o n f l e x u r e ( F F 3 4 , i C 1 - ? 0 3 , -

1061, but i n fact the p a t e n t a F 2 l i e n r i o n 2nd

p3tent

WPKP

not so l i m i t e d .

;acts ~ a yin.?icste a b a s i s € o r c o n t r ~ c t: l i s p U t e between CalComp, O K i t s

23

T!:?

I n Mr.

Meyer's view, the agreements between Tandon and CalComp divided the

ownership o f d i f f e r e n t components of the double-sided disk drive between
Tandon and CalComp, and Tandon patented more than it owned.;'

'

'

F F 102-06.

This may be so, b u t Mr. S m i t h does not claim t o have been one of the

.-

inventors 3/
Mr. S m i t h ' s testimony indicates that i n developing the modified CalCornp
double-sided head, Tandon prepared many of the technical drawings,
p a r t i c u l a r l y those related to the head assembly.

The only drawings provided

by CalComp covered the carriage and the upper arm.

FF 1 0 2 , 1 0 5 .

I n Figure 1

o f the '573 patent, the only part of that drawing "deriveda from calcomp are
the "bosses" or protuberances on the c a r r i a g e , w h i c h i s not a c r i t i c a l part o f
or c e n t r a l t o the invention.

FF 1 0 5 .

Mr. S m i t h a l s o t e s t i f i e d that he had

prepared a crude model of the modified CalComp design.

Although t h i s model

appears t o have prompted Tandon to accede t o CalComp's wishes w i t h respect t o
adapting t h e single-sided drive t o double-sided use, Mr. Smith made q u i t e
c l e a r that h i s crude model d i d not work.

2/

told-that

S m i t h , Tr.

2244-45;

FF 99.

Mr. Meyer sought the advice o f CalComp's patent committee and was
the concept was unpatentable. FF 107.

3/
A t the hearing on temporary r e l i e f , both Mr. Meyer and Mr. S m i t h
testTfied about the CalComp/Tandon double-sided floppy d i s k drive p r o j e c t ,
w h i c h ultimately produced the double-sided drive that is the s u b j e c t o f the
' 5 7 3 patent.
During the course of M r . Meyer's testimonyv particularly on
cross-examination, it became clear that although he had very d e f i n i t e opinions
about the nature o f CalComp/Tandon r e l a t i o n s , h i s memory of the t i m i n g and
sequence of events was unclear. I n addition, Mr. Meyer frequently disclaimed
a c l e a r memory o f certain events on the basis that he was not d i r e c t l y
involved. On balance, I have found Mr. S m i t h ' s testimony appears more
d e f i n i t e on the sequence and timing of events, and I have relied more on his
testimony Lor this purpose.

24

.

Although Mr. Meyer f e l t t h a t

Mr.

S m i t h should have been named a s an

inventor, there is no indication that M r . S m i t h challenged the patent.
Mr. S m i t h

fi'led a declaration w i t h the PTO supporting Tandon's patent

application.3a/

PF 108.

As

the chief mechanical engineer for CalComp and

'.

>'.

c

as liaison between CalComp and Tandon, Mr. S m i t h was i n a better position than
M r . Meyer-to know about the the c a p a b i l i t i e s of his crude model and.the

development o f the double-sided disk drive that.matured into the '573-patent.
The word of the inventors is normally accepted as t o who are the actual
inventors.

Erader, Cavitt, and Cipson v. Schaeffer, 193 U.S.P.Q.

(PTO B P I 1976).

6 2 7 , 631

I n view of Mr. S m i t h ' s c l o s e connection w i t h t h i s p r o j e c t ,

h i s view of inventorship is the most r e l i a b l e .
On the basis
d

inventors..

of the foregoing, I f i n d that there is no improper joinder of

3b/

3a/ During the hearing on permanent r e l i e f , it was disclosed that
Mr. S m i t h was an employee o f Tandon for two to three years, i n c l u d i n g the
period when he f i l e d the declaration. Tandon Depot MRPX 3 4 , a t 3 4 1 - 4 2 ;
Hackney ~ e p . , M R P x 3 6 , a t 3 4 . I n the declaration, Mr. S m i t h depicted himself
a s one experienced i n the i n d u s t r y and l i s t e d h i s various employers but d i d
not include Tandon. C x 611, a t 40. This f a c t was also not disclosed i n
Mr. S m i t h ' s testimony during the TEO hearing.
Mr. Meulners a l s o f i l e d a
declaration i n support of the patent and d i d not disclose the f a c t he was
currently employed by Tandon. Tandon Dep., MRPX 3 4 C , a t 380-81, ; Cx 6 1 1 , a t
34.

3b/
The issues of inequitable conduct by reason of f a i l u r e t o disclose
the Parken Patent during the Tandon patent application and whether the Parken
patent a n t i c i p a t e s claim 1 of the Tandon patent were considered i n the i n i t i a l
determination concerning tempotaty r e l i e f . These issues were reviewed and ther e j e c t i o n o f them affirmed by the Commission. TEO I D a t 2 2 - 2 6 ; Comm'n TEO
Opn. a t 6-11, ( O c t . 11, 1 9 8 5 ) .
No additional evidence or argument on these
issues were offered i n the hearing concerning permanent r e l i e f . The TEO
I n i t i a l Determination and Commission Opinion regarding t h i s issue are
incorporated herein by reference.

25

4.

O:,viDuzn+s;

--

5 193.

35 '-'.S.Z.

.

.

Respondents c l a i n that tha Tandon paitcnt i s invalid as j b v i g a s in light af
the prior e x i s t i n g s i n g l c - s i 2 4

fl.opp\' d i s k d r i v e s , the p r i o r I C : l work on its
'

tY?e two design, and the CalCornp model producad by Xr. S m i t h .

Respondents

. .

-

.dd

.

argue i t was ox-ious to Todify the p r + s s u ~ e . p a darm o f the single-sic?ad d r i v e
t o c a r r y Fhe secon:! head.
~

. Undzc
_
35 'J.S.C.

5 1 0 3 , a parent nay not be obtained i f t h e ?ifEer.?nzes

Setwecn the s 3 b j z c t matter s o u g h t t o be p t e n + e d anci the p r i o r a r t are such
t h a t t h e s u b j e c t matter as a vhole would have been obvious a t the Cine t h e

invention was 2ade to a pecson h a v i n g o r d i n a r y s k i l l i n the a r t t o w h i c h the
subject matter pertains.

T h e t e s t EOK obviousness, established by the Supreme

Court i n Graham v . John Deere

6 C,o.,

involves a ??termination o f :

( 1 ) the scope and content o f the p r i o r a r t ;

3 5 3 U.S.

1, 148 U.S.P.Q.

95-99

(19661,

(2) t h e differences Setwean the p r i o r a r t and the claims a t i s s u e ; an:!

- Level
----.

(3) t h e -

-of- o r d- i-n a- r y s k i l l i n t h s a r t .

The patent i n suit and the prior a r t applied t o i t s claims by the PTO

offers a convenient s t a r c i n g p o i n t for ascertaining t h e scope and content of
Che prior a r t .

Sei. Orthopedic
-

1 0 0 3 , 217 U . S . P . Q .

Equipment CO.,

193, 196 (Fcd. Cir. 1383).

Inc.

V.

[Jnited S t a t e s , 7 5 2 F . 2 d

T h e p r i o r a r t c i t e d by the

examiner consisted p r i n a r i l y o f singla-sided drives and refarenca R, the IE!!
double-sided d r i v e .

CY 6 1 1 , a t 2 4 - 2 5 ,

Tandon patent a p p l i c a t i o n as obvious.

45-49.

The examiner twice. r e j e c t e d ?E?

However, i n doing so he r e l i e d ypon the

p r i o r IBY touble-sided device, and not t h e p r i o r single-sided a r t .

Id.

Until

the I3:4 davice was disclosed i n 1975 (Cx 6 0 9 ) , the i n d u s t r y r e l i e d s o l e l y on
singla-si3Pd

f l o p p y d i s k drives.

The single-sided

26

floppy d i s k drive

transfer uas unknown until

thc Tq'!

4rivs.
.

-.

It vas obvious to ID>l to experinen? with or investigate adding a si.co?C

c

head on a g i m b a l sprinq 3nd

retair! *he fixed hear: contalnsd in +he

singla-headed drive, as i t was to C a X o m p .

It was

not

o:>vious, however,

"hat

of t h o t h r e e nathods it did invcstigats, C h i s was one ?hat coul;? be.;..lada eo
work.

Indasd, IB:l

after some experimentation thought so littla of

tha

asynmatrical configQration that no data was CDiLected and no patent
application vas filed, although such a p a t e n t was filed on the two
fixed-headed design despite the fact IB?! chose not to commercialize it.
Further, CalComp's
-_.- . - . suggestion
...
_-._
- that Tandon investigate whether a double-headed
drive could be made so it coul:!

utilize its inventory and tooling for the

single-5esded drive, goes no further than 'ro show that the a p p r o a c h of
modifying the single-sided drivs to SuSstitute an upper transrlucer for ?he
pressure pad arm is one that should be investigated.

work.

Snith, Tr. 2294.

Kr. Snith:, ?he CalComp

His _.model
Yas extremely crude and appears Co
- .
.~

- .

be

of

the two fixed hesGec! design made for the purpose o€ inducing Tandon to

accelerate work on adapting its single-sided drive to Jouble-sided operation.
Smith, T t .

2292-35.

Shugart, a subsidary of Xarox C o r p . , followed the I B X design of two giabal
heads, 2nd when it examined disk drives incor2orating t h e '573 patent Jesiqn,
Shugart initially rsjected this design because in t h e view of its enginwrs,
it would not rork.

FF 73A, 77-79, 81-55A.

-

Mr. Stoddard has t e s t i f i e d that the s k i l l i n the a r t was h i g h , that he was
a person'skilled i n the a r t , and that i f he had been requested to design a
double-sided floppy d i s k drive head assembly by modifying the existing
single-sided drive, it would have been obvious to h i m t o modify the arm
carrying the pressure pad opposite the lower fixed head by s u b s t i t u t i n g a
gimbal mounted transducer.

Stoddard., Tr. 4 5 3 8 - 4 5 ,

4552.

No one had requested

Mr. Stoddard to design such a head assembly and, of course, he d i d not do so.

A s the Court o f Appeals f o r the Federal Circuit (CAFC) has noted, the
question of nonobviousness is a simple one t o ask b u t d i f f i c u l t to answer.
CAFC precedent instructs that the proper analysis of the nonobviousness

question begins w i t h the presumption that the person of ordinary s k i l l i n the
a r t a t t h e time o f the patentee's invention i s presumed t o have before h i m a l l
o f the relevant prior a r t .

The next inquiry is whether, armed w i t h t h i s

information, it would have been nonobvious to t h i s person of ordinary s k i l l i n
the a r t to coordinate t h e teachings o f the prior a r t elements i n the same
manner as t h e claims i n s u i t .

Orthopedic Equipment, 217 U.S.P.Q.

a t 199.

The

CAFC has cautioned that t h e strong temptation t o rely on h i n d s i g h t i n

evaluating obviousness m u s t be resisted:
It is wrong to use the patent i n suit as a guide through the
maze o f prior a r t references i n t h e r i g h t way so a s t o achieve
the r e s u l t of the claims in suit. Monday morning'
quarterbacking is quite improper when resolving the question of
nonobviousness i n a court of law.

I t i s conceded that technically the ' 5 7 3 patent design is d i f f e r e n t i and

perhaps is radically d i f f e r e n t than the IBM design w h i c h was before the
examiner.

FF l l o ~ ,2 3 5 ~ - 3 5 B .

Respondents' obviousness argument is based

primarily on the prior single-sided d i s k drive a r t .

28

In

hindsight,

i ? appears t h a t tila concs2tion *m!>odic?i.j in ’:h? ‘573 i ) s + r - . *

did not involve a flash of invcntive (jenius, b u t rathar

9

bali+f that this
Sci

3esign would ‘ r J o r k , and suEEieiant affort and ingenuity to make i+.work.

On the basis of the arior art--tt-.e

Hackney Dsp., MRPX 36, at 12-23, 30-44.

sinJl+-side f l o p p y d i s k drive devaloped by ID:.t--it occitrred to I:?:? to

?fy a??

three types of possible arrangcments--two fixed-headed, two qiinbal k,+ndzd, sn,l
one fixed head and one gimbal head--to develop a Jouble si:ied ,drive. * Y e t , i’
discarded thz onz-fixed head, one gimbal head design.

It also oczurrec! to

Calcomp to investigate modification of its singlc-sided drive by replacing

tile

pressure pad on tha opposite side of the single fixed head with another hac!.

Nr. Smith did not know if his crude model would work: he construc?ad it to

prod Tandon to investigate.

Shugart also did not believe this dzsign would

work.
There is no doubt that Yz. Stoddard is highly skilled in the a r t .

.

“Yhat

night appaar t o be obvious to one skilled in the art may well be sh9wn to ha
nonobvious subject matter by a clear showing of obstacles which the a r t h a ?
theretofore found insurmountable.”

--

U.S.P.Q.

1384).

In re Harris and McCdne, 51 CCPA, 139

292, 295, cited in Rosenberg, Patent Law Fundamentals,

§

9.92

( I d +-!.

To Shugart, a leading floppy disk drive manufacturer at the time,

the

obstaclc?s wsre insurmountable, and led to its taking a license from Tandon.

FF

86-86.4,

87.

-

In view of Shugart‘s belief at the time that such a design

would 3ot work, in view of IB:3’s failure to seek patent protection on ies ty?s
two conception when it sought such protection on its type one and three

’

dasigns, the evidence does not show t h a t use of the one fixed head, one
gimbaled head configuration for a double-sided floppy disk drive %as obvious.
In

these

circunstances, and in view of t h e prssunption of validity

29

i s w h s t the Supreme Court has instritcted

us ts av3i.j.

T h u s , although the l e v e l o f s k i l l i n ?he a r c was h i g h , many o f t h e leaders

i n the EieLd e i t h e r 2 i 5 not believe i t would r o c k , or could not reduc?. the
'573 patent to practice.

: f i a t i s obvious i s that a t the t i n e o f ?he patent

application, the structure embodied i n t h e '573 patent was not the way nny o f
t h e leading inanufacturers i n the industry would or could construct a
Eunctioning double-headed f l o p p y d i s k d r i v e .

,

The I B X approach gas t h e only

Successful implementation o f a double-sided drive i n the i n d u s t r y , and the
industry considerad the IB:4 approach the only p r a c t i c a l system.

Cornstock,

T r . 1511.

I n Graham, t h e Supreme Court stated t h a t secondary considerations s u c h as
conmercial success and l o n g - f e l t

and unsolved needs n i g h t be u t i l i z e d i n

a d d i t i o n t o t h a ' t h r e e major c r i t i r i a established by 35 'J.S.C.

5 103.

383 U . S .

susceptible to j u d i c i a l scrutiny s i n c e t h + y a r e o b j e c t i v e evidence based on

motivational or econom'ical inferences capher t h a n technical facts b a s 4 on
s u b j e c t i v e testisony of patent experts.

T h i s , the Court reasoned, would guard

a g a i n s t the temptation to detqrmina obviousness based on h i n d s i g h t .
V.S.

393

a t 36.
T h a t others have f a i l e d t o develop the product i n l i g h t of such a demand

for i t tends t o show nonobviousness of t h e patented product.
Instrument COrp.
1371).

Beckman Instrummts, Inc., 170 3 . S . P . Q .

-

74 ( 9 t h C i r .

Evideme o f commercial success i s "extrenely strong and i s a n t i t 1 4 t o

great w e i g h t . "

C.S.P.Q.

V.

Reeves

Simmons Fastener Corp. v. I l l i n o i s Tool :*Iorks, Inc., 222

7 4 7 , 7 4 4 (Fed. C i r . 1 3 8 4 ) .

I f i t were obvious others would h a v e

30

developed the produce.

See I n

r e Fielder, 1 7 6 W.S.P.Q.

1973)'

500 (C.C.P.A.

Acceptance of a l i c e n s e by a substantial portion of the competitors i n the
market, as is true i n t h i s investigation, has a l s o been regarded as COInmerCial

See,

acquiescence supporting patentability.
Aeroquip Corp., 2 1 a u.S.P.Q.
Of

871

e.g.,

S t r a t o f l e x , Inc.

. .
V.

(Fed. C i r , 1983). The rationale for the use

commercial acquiescence i s that companies would not normally a c t contrary

t o their economic i n t e r e s t s unless they are convinced o f the patent's
validity.

Chisum, 5 5.05[3].

-

Because o f t h e negligible amount and the lack

o f royalty paid by Shugart and IBM, respectively, the Tandon licenses alone
may not provide strong evidence of the patent's nonobviousness, b u t the huge
commercial success of the product defined i n the '573 patent, and the number
and quality o f l i c e n s e e s , is strong evidence o f industry acceptance and
I

nonobviousness.
Based upon the above examination of t h e scope and content of the prior a r t .
and the differences between the prior a f t and the ' 5 7 3 patent, as well as the
secondary considerations, the '573 patent is nonobvious.

For t h e reasons g i v e n above, the '573 patent, is v a l i d .

8.

Patent Infringement
The '573 patent contains 16 claims, of w h i c h three (claims 1 , 5 , and 1 2 ) -

are independent.

CX 6 0 1 .

I t represents a mixture o f two technologies used i n

e a r l i e r data storage devices: namely, the penetrating head o f the tape drive
and
. _the a i r bearing head of the hard or rigid d i s k drive.
Tape, a very pliant

Or

Brown, Tr. 2522.

limp material, is transformed into a f l a t stable

surface i n a tape drive when the data-transfer head penetrates the plane o f
the tape, such that the tape wraps i t s e l f around the head resulting i n close

31

.

head t o tape contact t o enable accurate data t r a n s f e r .

The wrapping action

provides contact over an area rather than a point and assures intimate contact
even i f there i s s l i g h t misalignment between tape and magnetic cote.
Stoddard, Tr. 4888-89;.FF 235C.

--:.

.

The transducer o f a r i g i d d i s k drive i s

e

suspended
on a gimbal spring so that it can move up or down, or p i t c h or r o l l
i n accordance w i t h the t i n y imperfections o f the disk.

This permits the d i s k

and head t o always maintain the same relationship for data transfer.

.The head

i n a r i g i d disk drive f l o a t s on a microscopically t h i n cushion of a i r so i t
w i l l not abrade the d i s k and erase the stored data.
I n the device defined by the '573 patent, the lower head maintains a

similar relationship w i t h the p l i a n t , l i m p , floppy d i s k as the tape head d i d
w i t h the tape.

*

.

The penetration of the lower head into the plane of the l i m p

d i s k r e s u l t s i n similar wrapping action as i n a tape drive (Stoddard,

Tr. 4495; Cx 6 0 1 , col. 5, l i n e s 43-47) and creates a f l a t s t a b l e surface for
the upper head t o s l i d e against.:!

The gimbal mounted upper head r e l a t e s t o

the floppy d i s k as the gimbal mounted head does w i t h the rigid d i s k .
Tt.

Brown,

2522-23.
I n the Tandon system,?'

operation.

the lower head i s not intended to move i n normal

Tandon Dep., MRPX 34, a t 414-15.

The Tandon philosophy i s t o l e t

the lower head s e t the reference plane for the d i s k .

The reference plane i s a

4/ Prior single-sided drives u t i l i z e d spherical heads (Tandon Dep. ,,
MRPX-34, a t 3 6 0 ; Stoddard T r , 4538) , b u t the Tandon patent speciffcation
described a f l a t lower head (CX 601, col. 4, l i n e s 7-11), w h i c h appears
necessary to the Tandon type head assembly. Tandon Dep., MRPX 34, a t 184-85,
377; Stoddard, Tr. 4543-45.
5/ The Tandon system r e f e r s to the three independent claims of the '573
patert that were groupad together by Tandon patent counsel i n making the .
amendments w h i c h resulted i n the patent. CX 611, a t 53; FF 229, 235D-35M.

32

.

r e l a t i v e l y constant non-moving plane, a s t a b l e platform w h i c h nakes head t o
disk compliance for the upper gimbal mounted head easier.
MRPX

34, a t 472-73.

Tandon Dep.,

As the heads are moved t o the various r a d i a l . t r a c k s o f

.*

'

-*a.

the.disk, the penetration o f the lower head and wrapping action of the p l i a n t .
d i s k , transform the disk into a r i g i d surface a t the area where the lower head
penetrates.

=.

FF 228.

Tfi.e '573 patent purports to be an improvement upon-the prior IBM

double-sided d i s k drive.

FF 235-358.

.

The IBM device contained two

transducers, one on either side of the d i s k , w h i c h were gimbal mounted and
during operation permitted a t l e a s t two degress of freedom, p i t c h and r o l l .
The transducers i n turn were mounted upon arms that pivot towards or away from
. .
the floppy d i s k during the load or unload phase. CX 6 4 6 ; CX 611, a t 53. The
I

claim language r e l i e d upon t o d i s t i n g u i s h the prior IBM device, and w h i c h
forms the basis o f the infringement a l l e g a t i o n s , is a s follows:
C l a i m 1 of the '573 patent s p e c i f y i n g that the f i r s t (or lower) transducer

has 'a

fixed position i n a direction normal t o the plane o f the media,' and

that the f i r s t transducer serves "as a fixed positional reference despite
tendencies of t h e media t o deviate i n position from i t s nominal plane.'
.

Claim 5 s p e c i f y s "a f i r s t non-gimbaled transducer

...

r e l a t i v e l y fixed position r e l a t i v e t o the plane o f t h e media.'

33

having a

P

claim 12 specifvs a lower transducer " f i x e d l v coupled

...

i n an

invariant position i n a direction normal to the plane of the d i s c . " - 6/
I n the accused M i t s u b i s h i drives (except for one model), the lower heads

are qimbal mounted, but have a load finaer or backup device underneath them
w h i c h has two e f f e c t s on the movement o f the lower transducer:

It restricts

the lover head from Z-axis motion awav from the d i s k (Stoddard,
Tt.
bv

4568-69),2'

b u t on the other hand promotes p i t c h i n q and rollinq motion

servina a s a fulcrum a b o u t w h i c h the head rotates a n d t i l t s .

HRPX 3 4 C ,

a t 1 5 0 ; Havashi,

Tf.

backup member can be seen a t

The M i t s u b i s h i fixed lower head

4280.-

CX 6 9 3 ,

Tandon Dep.,

photos 2 1 and 2 2 .

The various W i t s u h i s h i

models are the same or similar for our purposes (FF 1 3 5 - 4 5 1 , except for one
model w h i c h does not have the fixed backup memher

h u t has a

heavier, more

6/
M i t s u b i s h i araues that i t s products do not infrinqe these claims, and
moregver that certain of i t s devices--the Mark 1 1 , M3, M2893 and
M2894-4/5--also do not infrinqe because there is a different "means
uraina lthel second transducer toward lthel f i r s t transducer and [thel medCa
to maintain both transducers i n operative relations w i t h the
media,"
then as provided for i n each o f the independent claims of the '537 patent.
M i t s u b i s h i PEO Brief a t 30. L i t t l e evidence other t h a n c o n f l i c t i n s opinions
o f experts (Lewis, T t . 4618-19: camstock., Tr. 5 2 4 3 - 4 4 ) has been produced on
the point, w h i c h has heen raised r e l a t i v e l y l a t e i n the proceedins. I n view
o f the paucitv o f evidence concernino the auestion whether the M i t s u b i s h i
means is actuallv the same or an eauivalent, and because i t i s not a
d i s m s i t v e issue ( i n view of the infrinaement f i n d i n a s ) , no determination has
been made on t h i s issue.

...

...

7/
z-axis direction movement r e f e r s t o movement o f the head towards and
awav-from the d i s k . I t i s also referred to as translational movement.

7a/ The IBM double-sided drive a l s o had load points hackins
aimbzs on w h i c h the heads were mounted. Stoddard, Tr. 4525-27.

34

up

the

other n o d a l s w h i c h have two s 2 r i n g s on t h d 1o:der h c s d and one on *he upper.

,

-a'.

Tandon-argues t h a t the ginbals on w h i c h the :-litsu5ishi lower heads a r e+
mounted
"fixed."

~

K

cosT,eticI
Z
and that i n optration thesa heads bahavi! a s i f they a r e

A l t h o d g h the backup clavicas r e s t r i c t t r a n s l a t i m a 1 novement o f th?
4

lower heads away from tha d i s t beyond a c e r t a i n p o i n t (Stotfdard, TT. 2563-69) I
! - l i t s u b i s h i c l a i x s that i n ogeration, ?he lotrer heads o f i t s devices move

s u b s t a n t i a l l y s n d t h a t i t s systen is l i k e the symmetrical IBH system.
Hayashi, Tr. 2343.
Tandon and : . ! i t s u b i s h i

have conducted various t e s t s purporting t o measure

Sead and d i s k movement and other factors r e l a t i n g t o the p a t s n t claims.
I.

The

s i g n i f i c a n c e o f the t e s t r e s u l t s is the subject o f substantial dispute between
the p a r t i e s .

asymmetrical
-

Tandon's view is tnat s i n c e t h e offending ! , l i t s u b i s h i drives a r e

like the Tandon d r i v e s , and s i n c e the lower heads nove a small

.
I
.
_

arnoont as conparzd Co the amount o f movement i n

3

d i s k (away froa i t s perfect

plana) when not restrained by the headsr the lower h e a d s function as i f they
a r e fixed and non-ginbaled.

X i t s u b i s h i argues t h a t the lower haads i n i t s

drives e x h i b i t much greater movement t h a n the c r i t i c a l angles and distances

necessary for aaintenanca o f head t o d i s k compliance, and taerefore the gimbal
a o u n t i n g s of i t s lower heads a r e functional ( n o t cosmetic) and not " f i x e d l "
"fixedly coupledr" or "non-qimbaled."

8/
Some 'litsu5ishi nodels are admittedly not i n f r i n g i n g . Tandon TEO
Brie? a t 5 2 . The evidence produced a t ?he PEO hearing regarding these models
was insubstantial 3 n d d i d not e s t a b l i s h infringement o f these ;;lod+Ls, even i f
complainant's infringcment views a r e acceptad.

35

.

The patent s p e c i f i c a t i o n describes the "tendencies o f the media to deviate
i n position from its nominal plane."
line

1.2'

CX 6 0 1 ,

c o l . 6, lines 6 7 - 6 8 , . t o c o l . 7 ,

The nominal plane of t h e floppy d i s k i s the "mythical perfect

.a;

c

plane" of the d i s k i f the heads Were not there and i f there were no d i s k

.

imperfections or undulations caused by the clamping o f t h e d i s k by the hub.
Lewis, T t . 2990: Comstock, Tr. 1 5 1 6 : FF 237.

The patent t h u s makes i t . c l e a r ,

and a l l parties. are i n agreement, that the head design o f a floppy d i s k dr-ive
m u s t deal successfully w i t h the movements of t h e d i s k away from i t s perfect
plane, or head t o d i s k compliance w i l l not be s a t i s f a c t o r y , resulting i n
unacceptable e r f o r s i n data transfer.

Mr. Nathanson tested d i s k drives o f t h e respondents as well as the drives
o f Tandon and the IBM double-sided d r i v e , w h i c h exemplified the most tecent
ptior a r t r e l i e d upon by t h e examiner.

FP 146-202.- lo/ The Nathanson t e s t s

measured free d i s k motion unconstrained by t h e heads, Z-axis, p i t c h i n g and
r o l l i n g of the lower heads, and compared the movement o f the lower head t o the
movement of t h e d i s k i n an e m a t i o n , t h e r e s u l t of w h i c h was c a l l e d the degtee
o f i n s e n s i t i v i t y of the lower head.

Nathanson a l s o measured t h e spring r a t e s

of each o f t h e heads and the d i s k in various drives t o measure the f l e x i b i l i t y
or stiffness o f the various parts of the system.

cla

ims.
9/

fie same or closely similar language i s i n cach-of the independent

- l o / The technical experts called t o t e s t i f y by complainant and
respydents have praised the t e s t setupt instrumentation, accuracy and
r e l i a b i l i t y of the Nathanson t e s t r e s u l t s . The one apparent exception i s
Hitsubishi's claim that there was error i n the measurement o f the p i t c h angle
i n operation of the lower head of i t s M a t k I model. No r e t e s t of t h i s
measurement has been made by complainant although i t was suggested i n the TEO
i n i t i a l determination that it do so. Respondents have presented evidence
showing that i t is an errOK OK aberration. FF 2 2 4 .

36

. .

Mitsubishi conducted t e s t s w h i c h compared the head compliance i n
Mitsubishi and Tandon drives, measured the spring r a t e s of the lower heads i n

I

these drives, the degree of movement of the lower heads u?on 1oading.and i n

.

operation, and the e f f e c t of the operation o f the lower heads upon removal of

:: .

c

the upper head.
-

-. .

FF 203-24.

There is general agreement among a l l the technical experts that there are

€kb t y p e s of d i s k movements away from the nominal plane o f the d i s k , and t h a t

these movements exert 'substantial'

forces on the heads while i n operation;

large s c a l e waviness, sometimes referred t o as undulations, and small s c a l e
movements s u c h as manufacturing imperfections and variations i n the thickness
o f the media.

Brown, Tr. 2 6 2 8 , 2630; Hayashi, T r . 2848-49;

Lewis, Tr. 2892.

I n each o f the systems, the two heads and t h e d i s k make up a sandwich.
I

Each

head plays a r o l e i n providing close and s t a b l e head t o d i s k compliance.
Comstock, Tr. 1 5 5 2 ; Lewis, TK. 2887; Brown, TK. 2523.
The heads are loaded upon the d i s k through arms and s p r i n g s , cooperating
w i t h the head mountings to b r i n g the transducers into data transfer

relationship w i t h the d i s k .

Stoddard, Tr. 4526-27; Tandon Dep., MRPX 3 4 , a t

428-29; Hackney Dep., MRPX 36, a t 24.

The ' 5 7 3 patent specification makes

c l e a r that these l o a d i n g forces are separate from the force exerted by the

.

fixed positional reference:

'The s l i g h t wrapping of the pliant d i s c about the

surface o f the fixed transducer provides a part t h e function of insuring c l o s e
or contacting r e l a t i o n , and the remainder of the c o r I r l e c t i v e action needed i s
supplied by the force of the slider transducer.'

-

(Emphasis added.)

col. 5 , l i n e s 4 3 - 4 7 ; see Tandon Dep., MRPX 3 4 , a t 182-183.
important part o f the design.

CX

601,-

The load arm i s an

Hackney Dep., MRPX 3 6 , a t 116-18.

The loading

forces of the arms transmitted into the d i s k through the heads p l a y a more
s i g n i f i c a n t r o l e i n dealing w i t h unwanted d i s k movement then the penetrating

37

-

lower head.

Cornscock, Tr. 5246-47.

s c a l e waviness o f the disk.

These Loading forces eliminate the La,rge

Hayashi, T r . 4 2 8 2 : FF 2 2 1 .

After the large s c a l e

movements are eliminated, the heads can e i t h e r iron out the s m a l l . s c s l e

..

variations i n the d i s k , or move i n response t o d i s k motion t o accommodate

.

z

these var i a tions.
With t h i s

background i n - m i n d , we should now consider the questions o f

. .

infringement l i t e r a l l y and under the doctrine of equivalents.

.

1.

L i t e r a l Infringement.

The term "fixed" i n claim 1 and "fixedly coupled" i n claim 1 2 , based on
the way the terms are used i n the patent and i n l i g h t of the testimony of the
meaning of s u c h terms i n the industry, indicate that these terms mean the
I.

lower head was not designed t o move i n response t o the forces it would l i k e l y
encounter i n a floppy disk drive.

Lewis, Tt. 2919.

FF 230, 232-33.

According t o t w o of the inventors, a fixed lower head means that the lowet
head not move i n any direction w i t h respect t o the carriage.

Hackney Dep.,

MRPX 36, a t 31, 5 4 : Tandon Dep., MRPX 34, a t 414-15,

The independent

417-19.

claims of the '573 patent describe the structure or relationship of the
various elements when .they a r e i n "data t r a n s f e r " position (claim 12) or i n
"operative" relationship (claims 1 and 5 ) .
Complainant's spring rate t e s t s show that the mountings of the lower heads
i n the M i t s u b i s h i drives are asymmetrical,
- .
that i s , the.lower heads- are l e s s

f l e x i b l y mounted than the upper heads.

FF 165, 173, 201.

I n t h i s general

respect, the M i t s u b i s h i drives are l i k e the Tandon system and unlike the IBH
system i n w h i c h the head mountings and arms are v i r t u a l l y symmetrical.

The

upper and lower gimbals i n almost a11 the H i t s u b i s h i drives are i d e n t i c a l ,

38

2

l i k e the IBM system, b u t the backup load point

OK

finger l i m i t s travel i n the

lower head, whereas the b a c k u p elements of the upper head are much.more
flexible.

FF 138, -176;
.
CX 7 1 6 , a t 37.

Asymmetry, however, does not

,

...

c

necessatily show that the M i t s u b i s h i lower heads are fixed or non-gimbaled,

OK

t h a t the lower heads provide a positional reference for the d i s k .
-

- . Complainant

r e l i e s on the i n s e n s i t i v i t y calculations t o prove t h a t . t h e

M i t s u b i s h i lower heads are fixed or non-gimbaled as t h e y function i n a floppy
d i s k drive.

The i n s e n s i t i v i t y calculations compare movement of the lower head

and movement of t h e f r e e d i s k t o a r r i v e a t a conclusion concerning the degree

of lower head fixedness.

See, e.g.,
-

FF 165-69.

HOwevet, these calculations

are flawed i n that t h e y leave out the loading force o f the heads on the media,
which
I

i s exerted by t h e force of the upper arm spring through the upper

transducer against the d i s k and lower transducet.
37-38.

FP l l O A , 221.

See Opn.,

at

.

These forces a f f e c t the d i s k mote s i g n i f i c a n t l y then penetration of a

lower fixed head.

Comstock, T r . 5247.

A l t h o u g h these forces p l a y a

s i g n i f i c a n t r o l e i n controlling d i s k movement, they are not included i n
Nathanson’s i n s e n s i t i v i t y calculations.-

loa/

On the other hand, M i t s u b i s h i ’ s t e s t 8 show s i g n i f i c a n t movement i n the

M i t s u b i s h i lower heads.

Significant movement means mote than a half minute of

p i t c h motion a r c (Lewis,

n.2 9 0 1 ) ,

OK

s u f f i c i e n t translational motion t o

a f f e c t the r e l i a b i l i t y and accuracy of data transfer.

-

FF 2 3 4 .

The lower

loa/ Further , the i n s e n s i t i v i t y calculations produce wide variations i n
results depending upon where the measurement is made, w h i c h c a s t s f u t ther
doubt on? the v a l i d i t y of the formulas as a method of determining whether the
lower head i n a particular d i s k drive i s “fixed.” FF 2 0 2 , 2 4 0 , 2 4 0 A . The
mere presence of the lower head i n the Tandon dtive under the point of
measurement a l s o reduces d i s k movement over 9 0 percent. FF 220.

39

~

Sxtent i n o p r a t i o n .

FF 2 1 0 , 213, 215-16, 2 3 4 A ; 'IRPx 42 ( a vi:leotap?

g r a p h i c a l l y depicting t h r o u g h aagnification the g i n b a l i n g action. i n comparison
t o the Tandon drive bas?d on data recorded i n !4RY 92).

The movement of the
_.

upper anc! lower :litsubishi heads are v i r t u a l l y synmetrical or synchronous i n

p i t c h i n g and r o l l i n g motion.

XRPX 46-47; :my 44.

Conszquently, the g i n b a l s

supporting the Y i t s u b i s h i lower heads a r e not "cosmetic" disguises for the

purpose o f a v o i d i n g the patent; these heads move s i g n i f i c a n t l y and a r e not

" f i x e d , " " f i x e d l y coupled," or non-gimbaled.
Of

the independent claims, claim 5 is t h e only one t h a t provides the

"non-gimbalad" lower head has "a r e l a t i v e l y Eixed position relative t o
movements o f the plane of the media,"

(Emphasis added.)

I n the i n i t i a l

determination concerning temporary r e l i e f , t h i s language was r e l i e d upon t o
d i f f e r e n t i a t e claim 5 from claims 1 and 12 i n t h a t it appeared t o i n c l u d e

w i t h i n i t s scope a lower h'ead t h a t could move t o some extent.
Floppy D i s k Drives, TEO I D a t 40-42.

Double-Sided

W h i l e t h e l i t e r a l language appears

support t h e view that i t means "somewhat fixed"

( L s w i s , Tr. 2921-221,

t3

i t was

added as arr amendment while the application w h i c h Led t o the ' 5 7 3 p a t e n t was
under f i n a l r e j z c t i o n ; t h u s , i t s scope must be interpreted i n accordance w i t h
t h e p a t e n t o f f i c e history to determine whether complainant i s astoppec? from

c l a i m i n g the f u l l breadth of t h e term.
Whenevzr the doctrine of f i l e h i s t o r y estoppel i s evoked, a c l o s e
examination must be made not o n l y as t o ishat was surrendered by the parentea,
b u t a l s o the reason

for s u c h a surrendar.

I n t ' l Research, 222 U.S.P.Q.
Petroleum Co.,
1079 (1973).

177 U.S.P.2.

Bayer Aktiengesellschaft

V.

DQphar

649, 653 (Fed. C i r . 1984); Ziegler v. P h i l l i p s

-

481, 489 ( 5 t h C i r . 19731, c r r t . denied, 4 1 4 U.S.

Close examination o f the prosecution history of the '573 patent

40

determines "not only what was surrendered, b u t a l s o the reason for such a

-

surrender" (Bayer, 177 U.S.P.Q.

a t 653).

Attorneys arguments t o Secure

issuance of the patent can limit the scope o f the claims.
Co.

V.

United S t a t e s , 717 F . 2 d ,

1 9 8 3 ) ; Coleco Industries, Inc.
U.S.P.Q.

4 7 2 , 4 8 0 (C.C.P.A.

1351, 1362, 219 U.S.P.Q.
V.

573 F.Zd,

U.S.I.T.C.,

Hughes.Aircraft
4 7 3 , 481 (Fed. Cir.

1247, 1257, 197

1 9 7 8 ) ; I n the Matter o f Certain Rotary Wheel

P r i n t i n g Systems, I n v . No. 337-TA-185,

a t 37 (Aug. 1 9 8 5 ) .

The patent was twice rejected by the examiner as anticipated by reason
primarily of reference R, the IBM Technical Disclosure Bulletin.
23-25,

44-49.

CX 611, a t

The patent application was under f i n a l r e j e c t i o n when

additional amendments were s u b m i t t e d a f t e r an August 3 , 1978, interview t o
d i s t i n g u i s h reference R concerning "the d e f i n i t i o n of fixedness o f the heads
f

and the s i g n i f i c a n t relationships."

E,a t

53.

The term " r e l a t i v e l y fixed"

i n claim 5 was included for the f i r s t time i n these amendments t o d i s t i n g u i s h
reference R without "the addition o f new matter."

Id.

Further, i n connection

w i t h the f i n a l amendments, and i n d i s t i n g u i s h i n g reference R, it was stated

that 'applicant's

system u t i l i z e s one head that has an invariant position

bearing against one side of the media without spring loading, and t h i s head is
non-gimbaled."

E

.

T h u s , the term " r e l a t i v e l y fixed" lower head i n claim 5

cannot be interpreted so as t o i n j e c t new or additional matter into the
claims, and it further m u s t be interpreted t o be limited t o a structure w h i c h '
i s "invariant" against the d i s k without "gimbaling" or "spring loading."

Professor C h i s u m , complainant's patent law expert, has stated that

-

insertion o f the term " r e l a t i v e l y " before "fixed" i n claim 5 had no "major
impact on the scope of the claim a t a l l . "

41

C h i s u m , Tr. 4373.

The examiner h a d

.

considered similar language i n claims 1 and 1 2 and "consistently interpreted
i t as not b e i n g s u f f i c i e n t t o define the invention" i n view of reference R;
t h u s , simply adding 'relatively"

that.-.interpretation.'
c.

Id.,
-

before fixed i n claim 5 would not '.change

a t 4373-74.

Mr. Jessup,

respondents' patent law

expert, is of the view that addition of t h e term 'relatively'

i n clalm 5 is 'redundant.'

before "fixed"

Jessup, .T- t- . 4459. ,The views of b o t h experts,

although
---- d
.-i f f e r e n t l y s t a t e d , are i n basic ag,reement: Both s t a t e t h a t 'relativelyn before 'fixed'
5-11'

They are correct.

had no substantial e f f e c t on the scope of claim
Since the amendments s p e c i f i c a l l y were represented

not t o include 'new matter' and since applicants sought t o show that the lower
head i n the claims as amended were fixed i n a way that the heads i n reference

R were not f i x e d , that i s , one head has an *invariant position bearing against
one side o f the media without s p r i n g loading' and 'non-girnbalcd.

as opposed t o

the two pivoted, gimbal& heads i n reference R, the addition o f t h e word
'relatively''

i n claim 5 before 'fixed*

i r superfluous.

T h u s , i n l i g h t of t h e arguments made by applicants patent counsel i n order

to secure issuance of the patent m i l e under f i n a l r e j e c t i o n , complainant is
estopped fran contending that the term 'relatively'

expands the scope of claim

5 t o include a lower head that moves i n response t o t h e forces normally

encountered i n the operation.of a flopw d i s k drive.

... .
.{$

8.

11/ Moreover, one of the inventors, Mr. Tandon, s t a t e s that 'relatively
f i x e 7 i n claim 5 does not have any meaning d i f f e r e n t from 'fixed' i n claims 1
and 12. Tandon Dep., MRPX 3 4 , a t 613-14. Another inventor, Mt. Hackney,
s p e c i f i c a l l y s t a t e s that a gimbaled lower head is not part of the invention.
..Hackney Dep., MRPX 3 6 , a t 45.

42

Since i t has been shown i n the discussion above that respondents' g i m b a l
mounted lower heads move, and B i t c h and r o l l s i g n i f i c a n t l y , complainant has
f a i l e d t o e s t a b l i s h that the Mitsubishi disk drives l i t e r a l l y infringe claims
1 , 5, and 12 of the ' 5 7 3 patent.

2.

Doctrine of Equivalents.

Respondents argue that e s s e n t i a l l y no range o f equivalents should be
afforded the Tandon patent claims because of the l i m i t i n g amendments and
attorneys arguments made while the application was under f i n a l rejection.
S p e c i f i c a l l y , respondents argue that because o f the attorney's arguments i n
attempting to d i s t i n g u i s h reference R, the examiner's principal prior a r t
reference, a gimbaled or spring loaded lower head is not w i t h i n the patent
,

claims.

CX

611, a t 5 3 ; Jessup, Tr. 4469.

Complainant takes the.position that

any patent is e n t i t l e d to a f a i r range of equivalents and that although the
lower heads of the M i t s u b i s h i devices are mounted on g i m b a l springs, i f they
are s u f f i c i e n t l y fixed so that they function as positional references i n
floppy d i s k drives, they are w i t h i n the independent claims.
.

e

.

Chisum, Tr. 4 3 8 3 .

If the M i t s u b i s h i devices perform substantially the same function i n

substantially the same way to obtain the same r e s u l t , then they are equivalent
t o the device defined i n the '573 patent.
A i r Products, 339 U.S.

Computervision Corp.,
1984).

6 0 5 , 608, 8 5 U.S.P.Q.

6 Mfg.

Co.

V.

Linde

328 (1950); Perkin-Elmer Corp. v ;

732 F.2d 8 8 8 , 9 0 0 , 221 U.S.P.Q.

..or function

The r e s u l t

See Graver Tank
-

6 6 9 , -679 (Fed. C i r - .

is t o provide accurate and e f f e c t i v e data

a

t r a n s f e r , w h i c h is provided by the drives or a l l parties.

M i t s u b i s h i argues

that i t s devices do not perform t h i s function i n the same way as i n the Tandon
system.

r.

43

Complainant cannot regain through the doctrine of equivalents what has
been surrendered in order to obtain the patent..

As

shown above, much has been

surrendered, but nevertheless we should examine the claims and t h e allegc+,d
infringing devices under the doctrine of equivalents to determine if the
Nitsubishi gimbal mounted lower heads function as a positional reference. for
the disk.

.

-

--. ...

- .--

. -

The heads in the Mitsubishi drives in operation pitch and roll
synchronously.

FF 217-19, 223.

*

Although the backup member in the Mitaubishi

drives restrict Z-axis movement away from the disk, the role of this element
is in providing a backup for the loading force of the heads.

FF llOA, 221;

Stoddard, Tr. 4565-69.
In the Tandon system, data transfer is achieved by the loading force of
the upper arm and by penetration of the lower head into the plane of the
disk.

-.

The disk thus takes the shape of the lower head, while that portion of

the disk resting on top of the head assumes the characteristics of a hard
disk.

Tandon Dep.,

MRPX

34, at 472-74.

The Tandon system radically differed

from the IBM system in transforming the unstable, limp floppy disk into a
media that assumed the characteristics of a rigid, hard disk.
CX

611, 1 6b; Tandon Dep.,

MRPX

34, at 477.

Meulners Aff.,

The limp, floppy disk in the area

directly above the Tandon lower head, becomes a rigid, stable platform, and
permits the upper Tandon gimbal mounted head to pitch and r o l l in accordance
.:..

-

.
i
.

with the upp&='bikk surface thickness variations. Tandon Dep., MRPX 34, at
'n .
3-J
- .:
. '& *: Tandon system, the positional reference is achieved through a
473-75. In,tea

.

7,&+D:

:a

penetration of a flat lower head at least as large as the upper head, and
preferably larger (Hackney Dep., HRPX 36, at 4 1 ; Stoddard, T r . 4543-45) , into
the plane of the disk to a greater extent than in prior singlekidad systems.
FF 228-29,

235.

44

Xr. Nathanaon, one of complainant's technical witnesses measurad the

extent of penetration of the lower haads of various drives into the plane of
the disk.

The penetration of the Tandon drive is 274 ten thousands of an

',:.
inch, as compared to 51 ten-thousands of an inch for the Xitsubishi drive.

CX 716, at 34-35.-

12/

The penetration of the Tandon drive is about five

times greater than the penetration of the Xltsubishi drives.- 13/' The prior
standard for penetration in single-sided drives, and for actual penetration in
the IBM 43 FD drive, is about 10 ten-thousands of an inch.
Tr. 4505-27.- 14/

Stoddard,

In the Mitsubishi devices, were it not for the loading

force of the upper head, the disk would tend to fly off the lower head
producing unacceptable signals.

This is not true of the Tandon drives which
.

exemplify the patent.

FF 224.

i

The movement of the lower head in the

12/ The penetration of the Mitsubishi drives i s alleged to be geometrical
only%
that, because there is a space or rubber spring between the load point
and the lower gimbal, the disk moves the lower head down. Lewis, Tr. 4621-25;
Stoddard, Tr. 4566-69. The Mitsubishi lower head i s more resilient than the
Tandon lower head and can be moved by the disk until it hits the supporting
load point. FF 140, 143, 177, 206.
13/ Complainant refers to other measurements for penetration of
Nitsubishi Model M485lA-3 as .0143 and Model MF 535 as .0071. CX 782 at 17,
49. These are references to the laboratory notebook of Tandon employees and
are not part of the testimony of Mr. Nathanson, who supervised the tests. In
his witness statement (CX 716), Mr. Nathanson referred t o the Mitsubishi Model
No. 4851 and to the measurement of penetration as .0051. There is no
explanation why the additional penetration measurements in the laboratory
notebooks were not in the witness statement, but since they were not, they
were not subject to cross-examination, and thus are raw data and less
reliable. In any event, the penetration referred to in the notebooks is
substantially less then measured in the Tandon Nodel 100-2A, which exemplifies
the patent claims.
14/
The IBX patent which embodies the technology of thz IBM 43 FD does
not c f e r to penetration and speaks of the symmetrical relationship
of the
_.heads to the disk. FF 1109.

'

~

Mitsublshi drives varies substantially depending upon the brand o f disk

FF 222.

used.

These facts tend to show t h a t the penetration of the lower head i n

the Mitsubishi devices is not s u f f i c i e n t to establish a physical reference for
the d i s k . -

...

.

There is not s u f f i c i e n t proof that i n the M i t s u b i s h i drives t h e small
s c a l e variations are dealt w i t h by penetration of t h e lower head s u f f i c i e n t t o
press out the small scale variations.

On t h e contrary0 the M i t s u b i s h i drives

deal w i t h the small scale variations i n the d i s k by permitting both heads t o
p i t c h , r o l l , and move to accommodate these variations.

PF 226-27.

Upon

loading of the heads, only the small s c a l e movements are l e f t , t o w h i c h the
M i t s u b i s h i heads react l i k e the heads i n the old IBM drive.

Tr. 2891-920 2907-08.
0

Lewis,

Thus, the lower heads i n the M i t s u b i s h i drives do not

function as a 'fixed positional reference'

pressing

Out

the small scale d i s k

variations.
Therefore, the M i t s u b i s h i drives do not i n f r i n g e the claims of the ' 5 7 3
patent under the doctrine of equivalents because data transfer is achieved i n
a d i f f e r e n t way then i n t h e Tandon system.

For the reasons stated above, the accused M i t s u b i q h i floppy d i s k drives do

not infringe any of the claims of t h e 'S73 patent.
#

. .*

46

111.

INPORTATION AND SALE

To invoke the subject matter jurisdiction of the Commission and to support
a finding that a violation of S 337 exists, complainant must establish that
the accused product has been imported andlor sold in the United States.
MELCO is a Japanese corporation which manufactures and s e l l s doublc-sided
floppy disk drives in the United States through its U.S.

MELCO manufactures and s e l l s into the United States 3 - 1 / 2 inch

FF 268-69.

and

subsidiary, %LA.

5-114 inch double-sided flopqy disk drives alleged to infringe the '573

patent.

TF 273-75.

MELA performs quality assurance, service and repair

functions, and application engineering support in the United States on disk
FF 280-84.

drives which it distributes.
,C*

C

the Hitsubishi respondents shipped
United States, of which about

From October 1982 to September 1983,

double-sided disk dr ivcs to the

percent were 5-114 inch disk drives.

About

of these disk drives were 8 inch drives which do not infringe the '573
patent.

FF 270.

From October 1983 t o September 1984, the Mitsubishi

C

respondents shipped

C

States.

C

about
drives,

Of this total, about

FF 271.

3-1/2 inch disk drives,

C

States.

C

dr ives,

double-sided floppy disk drives to the United

Of this .total, about

were

double-sided 3-112 inch disk

were 5-114 inch disk drives, and

FF 272.

were 8 inch disk

From October 1984 to December 1984, the Mitsubishi

respondents shipped

..

were double-sided

were 5-114 inch disk drives, and about

C

drives.

doublc-sided floppy disk drives to the United

were 8 inch disk

The 8 inch drives shipped to the United States from October

1983 to Deccmbar 1984 do not infringe the '573 patent.

* C = Confidential

47

FF 272..

The evidence o f record establishes t h a t , Mitsubishi respondents have

or sold i n the U n i t e d S t a t e s double-sided floppy d i s k drives.

imported into

.

.

On J u l y 24, 1 9 8 5 , the M i t s u b i s h i respondents i d e n t i f i e d for the f i r s t time

the following floppy d i s k drives:

.

. 1

(1) 5-1/4 i n c h h a l f - h e i g h t models--MF 501,
c

MF 503, MF 504, MF sos, MF SOLA, MF S O ~ A MF
,
5 0 4 ~ .MF 5 0 5 ~ ; ( 2 ) 3412

inch

h a l f - h e i g h t models--MF 353A, MF 3 5 4 A , MF 3 5 S d t . a n d ( 3 ) 3-1/2 i n c h 41mm h e i g h t
model--MF 353.

M i t s u b i s h i , Supplemental Anawers t o Tandon's F i r s t Set of

Interrogatories, No. 1.
3 0 , 1985.

Three of these models were produced t o Tandon on J u l y

Tandon, PEO Reply Brief a t 28.

An additional three floppy d i s k

d r i v e models, Mx 1 , HF 354, and MF 3 5 5 , were i d e n t i f i e d by respondents a t the
deposition of Mr. Foster on August 6, 1985.
109-10.
I.

Foster Dep.,

CX 5 7 3 , a t 52-54,

.

The l a t e date on w h i c h respondents i d e n t i f i e d these d i s k drives,

together w i t h the complexity of the subject matter involved, precluded
complainant fran conducting adequate discovery r e l a t i v e to whether theee
models are i n f r i n g i n g .

i
L

-.

To include these models i n t h i s investigation would

unduly prejudice complainant's

interests.

For t h i s reason, the above 14

floppy d i s k d r i v e models should not be considered by the Commission i n its

determination of whether or not there exists

to the subject matter o f this investigation.

. . ..

...<.....i
:
.- , . :
.. .
*:i

.-.

:

48

8

violation of S 337 w i t h regard

IV. . DOMESTIC INDUSTRY

The Commission has customarily defined the domestic industry in

.

-

1

patent-based investigations as the domestic operations of the patent owner and
c

its licensees devoted to the exploitation of the patent.

Certain Methods for

Extruding Plastic Tubing, Inv. No. 337-TA-1-10, 218 U.S.P.Q.

348 (1982);

Certain Slide Fastener Stringers and Machines and Components Thereof,'Inv.
No. 337-TA-85,

216 U.S,P.Q.

1st Sess. 78 ( 1 9 7 3 ) .

-

907 (1981); see H.R.

Rep. No. 93-571, 93 Cong.,

The domestic industry is not limited to manufacturing

per se but may encompass distribution, research and development, and sales.
Certain Personal Computers, Inv. No. 337-TA-140, 224 U.S.P,Q.

270 (1984);
2

Plastic TubinQ, supra.

-

s

The Commission docs not adhere to any rigid' formula in

determining the scope of the domestic industry as it is not precisely defined
1
.

in the statute, but will examine each case in light of the realities of the
marketplace.

Slide Fastener Stringers, supra$ Certain Apparatus for the

Continuous Production of Copper Rod, Inv.

NO.

337-TA-52, 206 U.S.P.Q.

138

(1979)

A.

Oomestic Industry Definition:

Double-Sided Floppy Disk Drives

Tandon was incorporated in California in February 1976.

FF 366.

Tandon

developed and filed a patent application for its double-sided head assembly i-n
--.., - .
i t s first year of operations, Tandon established itself
1977. FF 368&-:DUring
. *.-->*.
.-I-<;

*'

:

as a leading-baufacturer of flexible disk drive recording heads (including
.

*.

.

its patented double-sided head) and captured approximately 80 percent of the
total floppy disk drive market for head assemblies.

FF 367.

Tandon in 1979
.a-

49

introduced its 5-114 inch doublt-sided floppy disk drivc.product line, and by
1982 had become the largest independent manufacturer of floppy disk drives
sold to OEMs.

c

FF 396.

assemblles-totaledunits.

-

a

For fiscal year 1984, complainant's net Sales of head
. .- units; its net sales of disk drives totaled

FF 371.

.--.-.Respondentsassert that the domestic industry in a patent-based
investigation i s l i m i t e d to the ar-ticle covered. by thc claims of the patent.
Respondents conclude that the claims of the '573 patent are limited to head
assemblies, do not include floppy disk drives, and that the domestic industry
should be strictly defined by the domestic activities of the patentee and its
licensees devoted to the! production and sale of head assemblies.

Mitsubishi

PEO Brief? at 44-46 (Sept. 16, 1985).

Complainant asserts that the specifications and claims of of the '573
patent are directed to a double-sided floppy disk drive or magnetic recording
system.

.

Tandon-TEO-Br ief ? - at- 32-33 , ,46048 CApr '29, 1985) ;. Tandon PEO Br ief ,

at 49-51 (Sept. 16, 1985).

Based on this premise, complainant concludes that

Tandon and its licensees constitute a domestic industry.

Tandon PEO Brief,

at 32-46; Tandon PEO Reply Brief, at 2-4 (Sept 23, 1985)
The Commission investigative attorney, while taking the position that the
invention disclosed by the '573 patent is a transducer or magnetic head
assembly, agrees with the adainistrative law judge's earlier determination
that the precise coverage of the patent is not a controlling factor-in this
case.

Staff PEO Brief, at 11 (Sept. 17, 19851.

The staff attorney supports

the administrative law judge's decision that the domestic industry is defined
by the domestic activities of complainant and its licensees devoted to

50

manufacture, distribution, research and development, and sale of doublc-s.idcd
Staff PEO Brief,

floppy disk drives covered by the claims of the '573 patent.
at 17-18 (Sept. 17, 1985).

.

The claims of the '573 patent are directed to head assemblies.
at 13-46.

-,
2

Opn.,

The administrative law judge in his initial determination

concerning the question of temporary reliefr however

found that the domestic

industry in this investigation incorporated the domestic activities. of the
patentee and its licensees devoted to the manufacture, distribution, research
and development, and sale of double-sided floppy disk drives.
Determination, Inv. No. 337-TA-215, at 53.

TEO Initial

The current arguments of the

nitsubishi respondents on this point are similar to those raised by
respondents at the early stages of this proceeding, and fail to persuade the
administrative law judge to alter his original conclusion.
Respondents rely on the Court of Appeals decision in Schaper Manufacturing
Co.

V.

U.S.

Int'l Trade Comm'n, 219 0 . S . P . Q

665 (Fed. Cir. 19831, and the

cases cited therein, to assert that "the relevant domestic 'industry' [in a

S 337 investigation] extends only to articles which come within the claims of
the patent relied on..

See 219 U.S.P.Q.

at 667.

The Commission's decisions

in Certain Apparatus for Production of Copper Rod, 206 U . S . P . Q .

138 (19791,

and Certain Slide Fastener Strinq,ers and Machines, 216 U.S.P.Q.

907 (19811,

hold that the Commission i s not bound by any rigid formula in defining a
domestic industry, but w i l l evaluate each case in light of the realities-of
the marketplace.

206 U.S.P.Q.

at 161; 216 U.S.P.Q.

at 316.

An in depth

I

analysis of Schaper demonstrates that the court's decision is consistent with
topper Rod and Slide Fastener Stringars and does not Create, as suggested by
..-

respondents, a rigid industry formula for patent-based investigations.

51

'

Schaper X a n u f a c t u r i n g Co. was engaged i n dcvcloping,.manufacturing, and

marketing of t o y products.

Complainant had been granted an exclusive l i c e n s e .

t o manufacture, use, and sell t o y vehicles under U . S . L e t t e r s Patent

Complainant arranged for the manufacture of these v e h i c l e s - i n

No. 4 , 3 0 6 , 3 7 5 .
Hong Kong.

-.'.

.'

219 U.S.P.Q.

a t 666-67.

The court agreed w i t h the Commission's

decision that a portion of complainant's

business a c t i v i t i e s r e l a t i n g t o

production of accessories for the toy v e h i c l e s , a l l o f w h i c h occurred i n - t h e
United S t a t e s , could not be considered part of any domestic t o y vehicle

i n d u s t r y as t h a t term is defined under S 337.

The court held that it was a

l o n g s t a n d i n g rule t h a t , " [ i l n cases under 5337 i n v o l v i n g United

well-settled,

S t a t e s a r t i c l e patents, the relevant domestic ' i n d u s t r y '

extends only to-

articles w h i c h come w i t h i n t h e claims of t h e patent r e l i e d on."
1.

a t 667.

-

.
I

219 U.S.P.Q.

T h e court then applied the facts of the case t o t h i s rule:

Appellants' complaint alleged infringement o f t h e ' 3 7 5 patent,
w h i c h covers o n l y the Stomper toy vehicles.
The f a c t that the
- _- existence of t h e accessories derives from t h e t o y vehicles does not
make t h e i r domestic production by Schaper
a part of a toy
vehicles industry i n this action under section 337. The accessories
a r e not a necessary part of t h e v e h i c l e s , nor are t h e y i n t e g r a l t o
. them. Most of t h e appellants' vehicles are sold w i t h o u t t h e
a c c e s s o r i e s : the l a t t e r do not come w i t h i n the claims of t h e '375
patent; nor do they have t h e claimed product configuration of the
Stomper toy vehicle. The Commission could r i g h t l y conclude from
these facts that- 'the Stomper accessories cannot be part of any
domestic industry i n t h i s investigation.'
(Footnotes deleted.)

...

219 U.S.P-.Q.

'at-' 667-68.

_-

-

-

The court-in Schaper d i d not r e l y simply upon an industry d e f i n i t i o n

.-.. ..

derived frm'the
z

- ,

claims of the ' 3 7 5 patent t o h o l d t h a t complainant d i d not

c o n s t i t u t e an industry i n the United S t a t e s w i t h i n t h e meaning o f S 337.

It

found t h a t It-was the nature and extent of complainant's domestic a c t i v i t i e s
i n - t h e United StaTes t h a t were i n s u f f i c i e n t t o c o n s t i t u t e a domestic

52

industry.

219 U.S.P.Q.

at 669;

337-TA-198, at 91-95 (1985).

- Certain Portable Electronic Calculators,
see

While the court agreed with the Commission's..

decisions in Certain A i r t i g h t Cast Iron Stoves, 215 U.S.P.Q.
Certain Airless Paint Spray Pumps, 216 U.S.P.Q.
,

963 '(19611, and

.,,

465 (Isel), that the servicing

and installation activities of a complainant within the United States may meet
the domestic industry requirement under S 337, it distinquished these cases in
Schaper because the Commission did not err in its finding that "Schaper's
activities in the United States are too minimal to be considered an 'industry'
under section 337."

(Emphasis added.)

219 U.S.P.Q.

at 669.

Consistent with

the Commission's decision in Copper Rod and Slide Fastener Stringers, the
court recognized that the domestic industry in patent-based investigations play
encompass a broader definition than the article covered by the claims of a
,

patent

.

Respondents assert that the "market realities exception. has been invoked
in cases involving patented, manufactured articles only when the patented
product is not an article of commerce.

Mitsubishi PEO Brief, at 45.

Respondents, however, fail to recognize that the market realities test is not
an isolated exception to the definition of a domestic industry, but is taken
into account in each S 337 investigation.
A

head assembly can be sold as a separate article of commerce.

Tandon was

originally established as a manufacturer of flexible disk drive recording
heads and dfd-not-introduce its 5-1/4 inch double-sided floppy- disk drive

.- .- - .
product line inti1 1979.

FF 365-66, 396.

A

small portion of Tagdon's sales

in fiscal year 1984 involves the sale of recording heads directly to
customers.

FF 371.

At the same time, the head assembly is a necessary and
c*

53

-

A

intcgral part of the floppy disk drive.

floppy disk drive functions

t'3

store and transfer data, and it is the heads within the head assembly that

-_

perform the readlwrite
function. 151
. _ _ _
- ._.

-.- TheCommission
in
Certain Personal Computers and Components Thereof, USITC
- ~ -- - . .
Pub. No. 1504, 224 U.S.P.Q.

270 (1984), held that if the intellectual property

right involved in the investigation is an essential component of an article,
the. industry should be defined in terms of the complete article and not just

the intellectual property right.

USITC PUS. No. 1504, at 41.

The Commission

found that one copyright at issue, a computer program known as the Autostart
ROM, was

used every time the personal computer was
used.
.
.

The Commission did

not make similar findings with respect to the other intellectual property
rights at issue.

The

Commission also made no finding whether the copyrighted

software or the patented technology were a r t i d e s of commerce separate from
the personal computer, but held that the actual article of commerce involved
in the investigation w a s the compiate- personal computer and defined the
domestic industry as those portions of complainant's activities devoted to
certain personal computers.

C

USITC Pub. No. 1504, at 41-42.

15/ Complainant conducted a value-added analysis for double-sided head
assezlies used in the TH 65, T M 100, T M 101, and TN 848 disk drives. Based
on this analysis, value-added ranged from
percent for-TM 65 head assemblies
to
percent for TM 101 head assemblies in April-June 1985. W s t of the
domestic value-added came from domestic material costs. FF 395A-95F.
Because
double-sided disk drivas, rather than double-sided head assemblies, properly
define the industry, it is not necessary to analyze the head assembly
Value-added analysis.

54

Respondents assert that the Commission's decision in Certain Modular
Structural Systems, Inv. No. 337-TA-164, USITC Pub. 1668 (1984) considers
Personal Computers as a mere exception and that the definitior. of a domestic
industry is limited to complainant's intellectual property right.
TEO Reply Brief, at 14 n. 1 4 (Xay 3, 1985).

Mitsubishi

This view is incorrect.

After determining that the investigation in the matter of Modular
Structural Systems should be terminated for mootness, the Commission
reiterated its longstanding practice of defining the domestic industry by the
exploitation of the intellectual property right at issue.
8, 12.

USITC Pub. 1668, at

The Commission underscored that a domestic industry was not to be

defined according to a rigid formula: "In certain circumstances, the realities
of the marketplace require a modification of that principle."
1668, at 12.

USITC Pub.

The Commission gave as an example an instance in which a

patented article is not itsel€ the actual article of commerce, but is
physically incorporated in an article of commerce, and cited Personal
Computers as an authority from which such a proposition might follow.
Pub. 1668, at 12 n. 40.

USITC

The Commission held that the industry in the

investigation should be defined in terms of the patented article, FSD's # 600
connector, because the record clearly showed that the connector was not only a
separate article of commerce, but the actual article of commerce at issue.
USITC Pub. 1668, at 9-12, 12-15.

Thus, Personal Computers cannot be read

simply as a unique exception or as an aberration.
.

.

The patented article in this investigation may be in and of itself an.
article of commerce, but unlike the articles at issue in Modular Structural
Systems, head assemblies are not the actual articlos of commerce at issue when
.I

55

. .

viewed according to the competitive realities Of the marketplace.

In Modular

Structural Systems, respondants exported connectors to the United States.
Complainant
..
- .. also typically sold connectors.

USITC

Pub. 1668, at 8-11.

The

Commission thus determined that the industry should be defined in terms of-the

. patented connector, rather than the complete modular structural system.
In this case, the actual article involved in competition is doubla-sided

-- .
disk drives.
floppy

ft is the importation and sale.of respondent's

double-sided floppy disk drives, rather than head assemblies, that compete
directly with the domestic activities of the patentee and its licensees.
FF 256-57, 268-69, 285.

Complainant's net sales of disk drives for fiscal
units, while its net sales of head assemblieq

C

year 1984 totaled

C

equaled only a small fraction of its sales of drives, or
FF 371.

units.

Finally, the head assembly is the most significant part of a floppy

disk drive.

It insures intimate and stable head to disk contact necessary for

accurate data transfer, and without it, this critical function could not be
performed.

Based upon the foregoing discussion, the domestic industry in this
investigation is defined by the domestic activities of the patentee and its
licensees devoted to the manufacture, distribution, research and development,
and sale of double-sided floppy disk drives. . .

56

,

B.

The

Adversely Affected Domestic Operations

Tandon currently manufactures the following patented double-sided floppy
(1) the TEI 100, a 5-1/4 inch full-height floppy disk drive;

disk drives:

-

( 2 ) the TM 65, a direct drive 5-1/4 inch half-height floppy disk drive;

(39 the TM 848, a direct drive 8 inch half-height floppy disk drive; (4) the
TN 50, a belt-driven 5-1/4 inch half-heighr fioppy disk drive; and (5) the

TM 101, a modification of the TM 100.

FF 398.

. .

Tandon is currently.utilizing

its patented technology to develop a half-height, 3-1/2 inch double-sided
floppy disk drive.

FF 475-90.

Tandon has produced evaluation units of this

drive for sale to potential customers.

FF 481, 487A, 488C.

The patented double-sided floppy disk drives manufactured by Tandon

,

-

c

licenseas at the time the complaint was filed in this investigation include:
,

(1) Texas Peripherals TM 65-2, a direct drive 5-1/4 inch half-height floppy

-.

disk drive; ( 2 ) Control Data Model No. 9409 and No. 9409-TI 5-1/4 inch
full-height floppy disk drives: (.3) Control Data Model No. 9428 and No. 9429,
5-P/4 inch half-height floppy'disk drives; (4) Shugart Model No. SA-850, an
8 inch floppy disk drive; ( 5 ) Shugart Model No. SA-450, a 5-1/4 inch floppy
disk drive; and ( 6 ) Shuqart Model SA-350, a 3-1/2 inch floppy disk drive.
FF 345A, 505-06, 513A.

See

Complainant asserts that all of the doublc-sided

floppy disk drives of Tandon and its licensees which incorporate the claims of
the '573 patent .comprise
the domestic industry in this investigation.
..
* '.
s.-.*;

Though a complainant- may incorporate the patented technology in a number
.,

-.

.

of the products may not necessarily be included,in the
of products,.'all
%.
,
domestic industry for purposes of S 337.

The industry consists of those

domast ic operat ions which are adversely affected by the alleged.unfair methods
e-

57

of competition or unfair acts.
No. 337-TA-137,

Certain Hcavv-Duty Staple Gun Tackers,

Initial Determination, at 66-68 (1983), adopted

Inv.

& Cornmissiq,

49 Fed. Reg. 668 (Jan. 5, 1984); Certain Drill Point Screws for Drywall
Construction, Inv. No. 337-TA-116, USITC Pub. 1365, at 11-15 (1983); Certain
Headboxes and Paperaakinq Machine, Inv. No. 337-TA-82, USITC Pub. 1138, at

.

27-29 (1981)

A l l floppy disk drives perform essentially the same storage and retrieval

functions; therefore, from both a technical and a broad economic perspective,
all floppy disk drives arc potential substitutes for one another.

FF 543.

The economic concept of floppy disk drive substitutes incorporates, but at the
same time goes beyond, technical possibilities of substitution,

Not oniy must

it be technically possible t o substitute one floppy disk drive product for
another, but the marketplace must perceive the products as subst’itutes.

_-

I

FF 544.

competition for the principal floppy disk drive configurations has
‘

come from newer floppy disk drives offering increased capacity, smaller size,
and/or lower price.

PF 545.

In 1976, the state of the art for floppy disk drives was the 8 inch
drive,

Sales of 8 inch double-sided disk drives in the United States

FF 548.

continued to outnumber sales of 5-1/4 inch double-sided disk drives both in
1980 and 1981.

FF 552.

In 1982, a cu8tomer asked Tandon for a quote on both

the 5-1/4 inch and 8 inch disk drives.
.

Tandon has received a number of

P -

similar reqaaest8:for quotes since that time.

.

FF 553.- Tandon currently offers

.I

1.4

*..*

its full r q k t t o i r e o f disk drives, including the 8 i n c h drive, !o customers
<.

who are designing new computer systems, but there is no evidence of any new
computer systems that use the 8 inch disk drive.

58

FF 554-59.

The market for 8 i n c h d i s k d r i v e s is f l a t , but r e p l a c e m e n t s a l e s
o p p o r t u n i t i e s e x i s t for customers who s t i l l use an 8 i n c h d i s k d r i v e in t h e i r
system.

Tandon estimates the 8 . i n c h d i s k d r i v e market a t s e v e r a l

FF 555.

hundred thousand d r i v e s per y e a r , and e x p e c t s t o compete w i t h M i t s u b i s h i and

on? or two ot_her Japanese companies for t h i s b u s i n e s s .

FF 554.

Over the l o n g

term, however, t h e 8 i n c h d i s k d r i v e i s n o t e x p e c t e d t o be an important f a c t o r

i n t h e marketplace.

The d e c l i n e i n t h e 8 i n c h d r i v e market is

-FF 555-56.

a t t r i b u t e d t o a g e n e r a l i n d u s t r y t r e n d toward t h e use o f smaller, less
e x p e n s i v e components, t h e use by IBM and Apple o f 5-1/4

i n c h and 3-1/2

formats, and t h e wealth o f software a v a i l a b l e for t h e 5-1/4

inch

i n c h disk drives.

FF 555-57.

-

A p r o t o t y p e of t h e 5-1/4

,

i n c h d i s k d r i v e was u n o f f i c i a l l y shown by S h u g a r t

t o c e r t a i n companies i n about A p r i l 1976.

Shugart l a t e r i n t r o d u c e d t h e

5-1/4

i n c h d r i v e at a t r a d e show i n M y 1976.

5-114

i n c h aingle-sided

FF 305.

-

A t f i r s t , s a l e s of t h e

f l o p p y d i s k d r i v e were slow due t o an i n d u s t r y

reaction o f d i s b e l i e f b e c a u s e IBM was u s i n g 8 i n c h d r i v e s and the product was
not IBM-compatible.

FF 307.

The i n i t i a l market expansion for 5-1/4

d r i v e s was also h i n d e r e d by a software s h o r t a g e .

FF 561.

The 5-1/4

inch disk
inch

f l o p p y d i s k d r i v e began to s e l l i n 1977-1978 with t h e growth of the p e r s o n a l
computer market (FF 3 0 7 ) and became a c r i t i c a l factor i n t h e m a r k e t p l a c e i n
1978-1979 when IBM
began
i t s i n i t i a l use of t h e 5-1/4 i n c h d r i v e (FF 5 6 0 ) .
.
.
.
-.;.:;;+
,;
..-I;
..
-.>:.?;- '.
The first yeac..
.
..in..uhich double-sided 5-1/4
inch floppy disk- d r i v e s outsold
;,;'Y-:.,; !,&
.,*-..
d o u b l e - s i d e d ' S - i n c h d i s k d r i v e s was 1982.
FF 547. The 5-1/4 i n c h

.--

C .

'

. I

'

. , & . - .-

double-sided' d i s k d r i v e is e x p e c t e d to dominate t h e f l o p p y d i s k d r i v e market

a t l e a s t through 1987.

FF 547.

59

P

The first 3-1/2 inch singla-sided floppy disk drive (nicro-floppy) was
introduced in June 1981 at a computer trade show.

FF

562.

At first there was

no standard size for the micro-floppy disk drive, and diameters for the
product ranged from 3.4
,

inches to 3.9

inches.

FF 565.

An industry standards

committee was formed in May 1982, and a standard micro-floppy disk size of
3-1/2 inches was agreed to approximately a year later.
U.S.

FF 566.

The first

shipment of micro-floppy disk drives took place in 1982 when 9,000 units

were sold.

In 1983, 269,000 units were sold.

1,064,000 units.
FF 563.

FF 563.

Estimated sales for 1984 are

Most of these drives have been single-sided.

Shugart introduced a single-sided 3-1/2 inch disk drive in April 1983

and a double-sided 3-1/2 inch floppy disk drive in October 1983.

FF 567.

In

1983, Shugart sold evaluation units of the double-sided 3-1/2 inch disk drive
to approximately 15 to 20 accounts.

FF 568.

-.

The most intense competition between different diameter disk drives occurs

at the early design or product planning stage of the personal computer.
FF 546.

A

“marketing window” is created as the OEM, in the process of

designing a new computer system, considers vendors and evaluates and tests
disk drives,

FF 604.

In terms of media (disk) interchangeability, a 3-1/2 inch double-sided
disk drive cannot be made compatible with a 5-1/4 inch double-sided disk
drive.

FF 573.

The electrical interfacing between 3-1/2 inch and 5-1/4 inch

disk drivea i s the same, however, for those devices quoted as being
compatible.

FF 576,

Some Japanese 3-1/2 inch disk drive manufaqturers-

advertise their product as being compatible with 5-1/4 inch disk drives.
FF

577.

Given the industry trend toward the use of smaller and less expensive
..-

60

components, the possibility exists at the design stage for the substitution of
3-1/2 inch double-sided disk drives for 5-11'4

inch disk drives.

With respect

to new computer systems, Compaq has switched its computer from a 5-1/4 inch

.,.-

drive to a 3-1/2 inch drive, and IBM may have a 3-1/2 inch drive in its new
generation PC.
.

FF 596A.

The effect of IBM not having introduced a 3-1/2 inch disk drive computer

in the'united States up to this time, has been to limit the market for this
drive, especially among the OEMs considered to be "IBM followers."

FF 599-600.

In addition, software availability has limited the market for

3-1/2 inch computers and disk drives; there are currently 170-175 software
programs available on 3-1/2 inch diskettes compared to approximately 10,000.
software programs available on 5-1/4
4

inch diskettes. FF 597.

If IBM enters

the United States market with a computer using 3-1/2 inch drives, and recent
events indicate that IBM may be preparing to do so, it is likely that other
OEM's would follow with similar computers systems.

PF 6 0 0 : CX 877.

Thus, the

future market for 3-1/2 inch disk drives, and their viability as a substitute
at the design stage for 5-1/4 inch disk drives, is largely dependent on IBM's
decision with respect to the introduction of a 3-1/2 inch disk drive computer
and the speed at which IBM and the industry develop 3-1/2 inch software.

cx

e

877.

Once the design stage of the computer is completed, competition tends to
be limited to disk drives having the same diameters and dimensions.

FF 546.

:
:'

The most critical factors affecting the compatibility of technically different
floppy disk drives include:

-

(1) media interchangeability; (2) physical

interchangeability: ( 3 ) use of the same set of signals; and (4) use of the

..-

same set of connectors with the same output.

61

FF 570-71.

~ a s scritical

f a c t o r s o f c o m p a t i b i l i t y i n c l u d e i n t e r c h a n g e a b i l i t y o f s p a r e parts, timing of
i n p u t s i g n a l s , and ;rower usage d i f f e r e n t i a l s .

FF 570.

For e x a m p l e , w i t h r e g a r d t o media i n t e r c h a n g e a b i l i t y , a 5-1/4
d i s k cannot be p l a c e d i n
double-sided

an 8 i n c h d i s k d r i v e (FF 5 7 2 ) ; a 3-1/2

inch

c

f l o p p y d i s k d r i v e cannot b e made c o m p a t i b l e w i t h a 5-1/4

I f d a t a s t o r e d on a 5-1/4

d o u b l e - s i d e d d i s k d r i v e (FF 5 7 3 ) .
be t r a n s f e r r e d t o a 3-1/2

laborious p r o c e s s .
3-1/2

i n c h floppy

inch

i n c h d r i v e is t o

i n c h d r i v e , t h e d a t a would h a v e to be r e g e n e r a t e d ,

FF 575.

The c h a n g e from a 5-1/4

i n c h d r i v e i n an e x i s t i n g s y s t e m would

a

inch drive to a

also b e d i f f i c u l t b e c a u s e i t

would involve s u b s t a n t i a l d e s i g n c h a n g e s , i n c l u d i n g size, w i r i n g , and p l u g s .

FF 587.

T h e r e f o r e , to s w i t c h an e x i s t i n g computer s y s t e m

f l o p p y d i s k d r i v e s u p p l i e r t o a new s u p p l i e r ,

from t h e incumbent-

or from one d i s k d r i v e d i a m e t e r

t o a n o t h e r d i a m e t e r , may involve s u b s t a n t i a l costs.
Some J a p a n e s e

3-1/2

i n c h f l o p p y d i s k d r i v e manufacturers, however,

advertise t h e i r p r o d u c t as b e i n g ' c o r n p a t i b l c w i t h 5-1/4
Also,

an OEM c o u l d p o t e n t i a l l y s u b s t i t u t e a 3-1/2

formerly o c c u p i e d by a 5-1/4
full-height

5-1/4

keeping t h e l a r g e r b e z e l ) .
i n c h d r i v e s for 5-1/4

inch drives i n

s u b s t i t u t i o n of h a l f - h e i g h t
d r i v e d i f f e r 8 from t h e 59/14

--

.
g:

1'.

~

S t i l l , if the 3-1/2

FF 583.

FF 577.

inch d r i v e i n t h e space

i n c h d r i v e t h e same way

inch d r i v e s with half-height

inch drives.

5-1/4

some OEMs r e p l a c e d
i n c h d r i v e s (i.e.,

by

The p r o b a b i l i t y of s u b s t i t u t i n g 3-1/2

an e x i s t i n g p r o d u c t is less t h a n t h e

for f u l l - h e i g h t d r i v e s b e c a u s e t h e 3-1/2

inch

inch drive i n its basic-physical configuration.

i n c h d i s k d r i v e is p r i c e d lower t h a n t h e 5-1/4

d r i v e , s u b s t i t u t i o n may be made.
s o l d by OEMs are e v o l v i n g r a p i d l y .

-

FF 584; see FF 589A..

ifich d i s k

The computer s y s t e m s

To remain c o m p e t i t i v e , an OEM producer

*.

62

m u s t b r i n g i n t o t h e market a new system w i t h t h e l a t e s t a d v a n c e s as soon as
p o s s i b l e or r i s k f a l l i n g behind.

smaller 3-1/2
a 3-1/2-inch

FF 6 1 0 .

I f t h e market moves toward a

d i s k d r i v e computer as a r e s u l t of IBM's future i n t r o d u c t i o n o f
c o m p u t e r , t h e c o s t - o f not i n t r o d u c i n g a 3-1/2

i n c h disk drive-

computer i n terms o f l o s t market s h a r e may outweigh any conversion costs.

Another i n d u s t r y t r e n d is t h e move from f u l l - h e i g h t
drives.

to half-height disk

I n t h e s p r i n g 1 9 8 2 NCC show, o n l y S h u g a r t showed a h a l f - h e i g h t

p r o d u c t ; however,

i n t h e f a l l 1 9 8 2 Comdex show, h a l f - h e i g h t d i s k d r i v e s were

d i s p l a y e d by Tandon, S h u g a r t , and CDC, as well as by 1 2 t o 1 5 J a p a n e s e
suppliers.

FF 591-92.

I n nany cases, customers s w i t c h e d from f u l l - h e i g h t

d i s k d r i v e s to half-height

d r i v e s w h i l e keeping t h e f u l l - h e i g h t

of lower p r i c e a s s o c i a t e d w i t h t h e h a l f - h e i g h t d r i v e .
,

half-height

b e z e l bqcause

FF 589-89A.

The

d i s k d r i v e a l l o w e d miniaturization and t o o k a d v a n t a g e of t h e

a v a i l a b i l i t y of 5-1/4

i n c h software.

FF 595.

d i s c o n t i n u e d i t s p u r c h a s e of f u l l - h e i g h t

-.

I n January 1 9 8 3 , PBM

d i s k d r i v e s from Tandon, b u t a g r e e d

t o p u r c h a s e newer p r o d u c t s s u c h as fast-access Winchester d i s k d r i v e s and
half-height

5-1/4

inch f l e x i b l e disk drives.

,FF 593.

-

Contra FF 693A.

There

e x i s t s a wide and broad-based i n d u s t r y t r e n d toward h i g h e r c a p a c i t y ,
half-height

5-1/4

inch f l e x i b l e disk drives.

FF 594.

4

A l l f l o p p y d i s k d r i v e s are t e c h n i c a l s u b s t i t u t e s i n t h e sense that t h e y

perform t h e same function.
The d e g r e e of economic s u b s t i t u t a b i l i t y between
-.
d i s k d r i v e s of d i f f e r e n t sizes, or from d i f f e r e n t s u p p l i e r s , d i f f e r s depending
-.
L

C .

on factors s u c h as t h e p l a n n i n g s t a g e of t h e c o m p u t e r ' s development and t h e r e l a t i v e costs to s w i t c h .

The costs of s w i t c h i n g from an incumbent s u p p l i e r

and/or a p a r t i c u l a r d i s k d r i v e size are c l e a r l y g r e a t e r once t h e OEM is p a s t
C.

63

the initial planning stage.

The costs of not switching may include an

inability to take advantage of the lower price of a substitute disk drive or
the loss of market share if a substitute disk drive is widely accepted in the
. .. .. -. -.
.. - . . -.
market

.

The degree of substitutability between the different size disk drives is
relatively high at the design stage for a new computer.

This conclusion is

qualified, however, by the fact that the market has effectively determined

-

that the 8 inch floppy disk drive is a relic (i.e.,

since 1982, no new

computer system has been designed with an 8 inch drive) and many large OEMs
have already passed the design stage for S-1/4 inch floppy disk drive
computers and selected vendors for their products.

FF 640K-40L.

The

degree of substitutability between different size disk drives after the
computer design stage is relatively limited.

Clearly an 8 inch drive cannot

be substituted for drives in a system designed for S-1/4
drives.

inch or 3-1/2 inch

There is constant competitive pressure on OEMs to upgrade their

systems, and to reevaluate the use of smaller diameter disk drives and
different suppliers, thereby creating only limited substitution in the
post-design stage period.

Evidence of this is especially evident in the

pressure to switch from full-height to half-height disk drives and in the
uncertainty involved in the future market for 3-l/t inch floppy disk drive
computers.

-.,. .. -

,

'

:.='I

. .

.

..'A._. , .
-,
.., ..,.++.+'
;?z
..$a:y
,

n .
,

.

'

._

Respondek$r:.fiapott
.,,;.*-fL ?..

into or sell in the United States S-1/4 inch-and

...*$y:-:.<;;
;
3-1/2 inch 'floppy disk drive products that directly compete with,specific disk
...-'c: * -.
'

I

.

'

-

drives of complainant and its licensees,

Tandon's TM 848 is also in

competition with Mitsubishi (and one or two other Japanese companies) for
>.-

Shugart's 8 inch disk drive accounts.

F'F 554.

The 8 inch drives shipped by

the Mitsubishi respondents to the United States from October

64

1 9 8 2 t o December 1 9 8 4 , howevero d o not i n f r i n g e t h e ' 5 7 3 p a t e n t .
272,

Also,

FF 2 7 0 ,

no OEM h a s d e s i g n e d a new computer s y s t e m u t i l i z i n g an 8 i n c h

d r i v e since 1 9 8 2 .

.,

While there i s a d e g r e e o f s u b s t i t u t a b i l i t y between t h e
c

8 i n c h and smaller d t i v e s , t h e 8 i n c h d r i v e o n l y c o m p e t e s a g a i n s t similar
s i z e d d r i v e s as p o s s i b l e r e p l a c e m e n t s i n o l d e n s y s t e m s for e x i s t i n g 8 i n c h
d r i v e s , and a f f o r d s no r e a l market c o m p e t i t i o n t o 5-1/4
,.
. . double-sided

floppy d i s k d r i v e products.

Machine. suma

inch

i n c h and 3-1/2

S e e Headboxes and Papetmakine

.

I n conclusion, t h e d o m e s t i c i n d u s t r y i n t h i s i n v e s t i g a t i o n i s r e s t r i c t e d

t o t h e 5-1/4

i n c h and 3-1/2

inch double-sided

f l o p p y d i s k d t i v e s o f Tandon a n d
*

-

its d o m e s t i c licensees which incorporate t h e claims of t h e ' 5 7 3 p a t e n t .
,

Complainant and Its L i c e n s e e s

C.
*. .

The p r o p e-r d a t e -.
for d e t e r m i n i n-g whethet
t h e d o m e s t i c a c t i v i t i e s of
.

.

c o m p l a i n a n t constitute an i n d u s t r y e n t i t l e d t o p r o t e c t i o n under S 3 3 7 i s t h e
d a t e on which t h e c o m p l a i n t
Trade Comm'n,

219 U.S.P.Q.

is f i l e d ,

Bally/Midway

9 7 , 100 (Fed. C i r , 1 9 8 3 ) .

c o m p l a i n t i n t h i s matter on December 6 , 1 9 8 4 .

1985).

Mfg. Co.

V.

U.S.

Int'l

Tandon f i l e d t h e

50 Fed. Req. 4 2 7 6 (Jan.

T h e r e f o r e , t h e d o m e s t i c i n d u s t r y w i l l be d e f i n e d

30,

as of t h a t d a t e ,

Deterioration o f t h e d o m e s t i c i n d u s t r y d u r i n g Commission p r o c e e d i n g s d o e s not
undermine t h e conclusion t h a t t h e b u s i n e s s c o n s t i t u t e d
t h e c o m p l a i n t was f i l e d .

Bally/Midway,

2 1 9 U.S.P.Q.

65

an i n d u s t r y a t t h e time

a t 101*02.

-

J

Tandon.

1.

a.

Offshore operations.

Since i t s formation, Tandon has Contracted w i t h offshore manufacturing
-facil'i'ties

I .

?n 'India fdr

- 2

h i g h volume- production o f labor intensive components

and various completed products.

FF 3 7 2 , 456. The companies located i n I n d i a
.
e
.
include Tandon .Yagnetics ( I n d i a ) P v t . , Ltd.- (TMI) w h i c h assembles recording
.. .
., . .
.
..
heads and c e r t a i n labor inte-nsive d i s k d r i v e sub-assemblies; Tandon'. Xotots

-

-..

- L

.

Pvt.,

,

C

Ltd.

(TMM)

, which

manufactures precision stepper motors used i n Tandon's

f l e x i b l e and r i g i d d i s k drives; Barnala E l e c t r o n i c s , w h i c h manufactures
harness assemblies for use i n Tandon's d i s k dr ives: Tancom E l e c t r o n
- ics, which
manufactures r i g i d d i s k drive record heads; and Eastern Peripherals P v t . ,
Ltd.,

w h i c h manufactures completed half-height

drives.

FP'457.

48 T P I 5-1/4

.

i n c h floppy d i s k

Tandon arranged for t h e assembly o f TM 50, TM 6 5 , and TM 1 0 0

overseas only after i n i t i a l production problems were i d e n t i f i e d and design
changes made in response thereto.

- .-

Tandon has provided t o the overseas

- -

operat ions the drawings, speci f icat ions, manuf actur i i g assembly instruct ions,

-*Vest equipment, t e s t procedures, and gelated documentation from w h i c h the
--'drives c o u l d be assembled and tested.

FP 4S7A.
was the first component moved overseas

The manufacture of head assemblies

by complainant because of t h e r e l a t i v e l y large amount of labor involved i n the

manufacture of t h i s component.

E
T 374.

Tandon f i r s t contracted w i t h TMI i n

June 1978 for t h e assembly and t e s t i n g of certain ' f e r r i t e recording head and

* .
_

I

-

d i s k d r i v e products.

FF 375.

On December 1 , 1980, Tandon and TfI

entered

into a contract i n w h i c h conditions were established t o govern TMI's assembly
and t e s t i n g i n Bombay, I n d i a , of these products.
expire on December I , 1985.

FF 376, 458.

66

The contract is due t o

The specific services to

be

performed by TMI, and the dates of the

performance, is to be determined according to the purchase orders issued by
Each purchase order specifies the dates

Tandon during the contractual period.

upon which the BssembIy is to be completed and shipped to Tandon and the
price.

FF 377.

For each purchase order issued, Tandon pays TMI a fee

calculated by Tandon according to the quantity of units purchased, Tandon's

c

determination of the amount of labor required to perform the service, a joint
determination of the hourly labor rate, and a joint determination of operating
9

expenses other than labor costs.

FF 378.

Tandon provides TMI with all

equipment, material, and know-how; TMI provides reasonably sufficient
Structural facilities and a skilled labor force.

FF 380.

All

property,.

materials, know-how, and other proprietary rights furnished to TMI by Tandon
rr

remain the property of Tandon.
from TMI and all duties.

FF 381.

Tandon pays all costs of shipment

FF 382.

- T h e transactions between Tandon and the companies located in India are
coordinated and effected through Tandon Associates, Inc., which acts on behalf
of the various Indian companies.

Tandon Associates invoices Tandon for the

products and services performed by these companies at prices reflecting a
mark-up for its services.
from complainant.

FF 460.

Tandon Associates is a separate company

Ff 387.

Tandon Singapore Ltd., a wholly-owned subsidiary of Tandon located in
Singapore, manufactures the TM 100, the TM 101, and certain Winchester disk
drives.

FF 465.

In April 1985, Tandon Singapore produced approximately

150,000 units of the TM 100 a month.

c

FF 467.

Approximately 149,000 of the TM

iOOs were doubla-sided floppy disk drives, of which

67

-

units were shipped

to Tandon's facility at Chatsworth, California.

FF 467,,469. Approximately

129,000 of the TM 100s were quality-tested in Singapore, then drop-shipped
directly to IBM.

FF 470.

Head asseablies for the following Tandon double-sided floppy disk drives

. .

are assembled offshore and subject to quality control in India:

TM 50,

FF 385-86.
. .
Tandon does not currently manufacture commercial quantities of head.assemblies

TM 65-2, TM 65-4, TM 100-2, TM 100-4, TM 101-4, and TM 848.

in the United States.

FF 389.

Any production of head assemblies in the

United States by Tandon is limited to engineering and development programs and
small initial production runs of less than 100 units.

FF 390.

Tandon's offshore and domestic manufacture of floppy disk drives by model
number as of fiscal year 1984 (October 1, 1983, through Saptenber 30, 1984)
was as follows:

I

Model

C

Domestic
Units

Off shore
Units

Total
-

TM 50

C

TM 551551)

C

f M 65

C

TM 100

C

TM 101

C

TM 848
i

The above figures reflect production of both single-sided and double-sided
floppy disk drives.

FF 401.

In fiscal year 1984, however, approximately 95

percent of Tandon's total floppy disk drive business involved double-sided
drives (FF 399).

68

.

For the period July 1984 to June 1985, Tandon's manufacture of

double-sided floppy disk drives was as follows:
Offshore
Units

Model

Domestic
Units

Total
-

TM 65
TM 100

FF 402A.

The TM 50 is not included in this list because it was determined

that during this period it was predominantly a single-sided product.
Mitchell, Tr. 3254.

The TM 55/55D is

d

double-sided product, but production

of this product had virtually ceased prior to December 6, 1984.
d

Dep.,

MRPX

52, at 62.

FF 411;

Huenemeier,

The TM 848 is an 8 inch drive and thus not considered

part of the domestic industry in this investigation.

Opn. at 64-65.

Therefore, those domestic activities of complainant dedicated to the
production of the TM 5 0 , TM 55/55D, or TM 848 will not be considered part of
the domestic industry as defined in this investigation.

be

TM 65, TM 1 0 0 , TM 101.

The existence of a domestic industry must be determined according to an
assessment of the nature and significance of the activities carried out in the
United States in connection with the product.

Certain Miniature,

Battery-Operated, All-Terrain Wheeled Vehicles, InV. No. 337-TA-122 (1982),
aff'd sub nom.
---

Schaper, 219 U . S . P . Q .

665.

One method to assess the nature and

significance of donestic activities is to determine the value added to the
product by domestic activities as a percentage of the product's total value.

69

.

Certain Cuba Puzzles, Inv.

'

219 U.S.P.Q.

NO. 337-TA-112,

322, 331-35

(19821.

This type of evaluation is important because it helps to determine whether

,

complainant's domestic activities differ in kind from the activities that
would normally be performed by an importer.
A three-part value-added analysis for

disk drives produced by Tandon follows.

Schrpar, 219 U.S.P.Q.

The first analysis is based on

U.S. Mfg. and
Domestic Content

FP 404A-Ok.

Total Cost

s

4Q 1984
1Q 1985
2Q 1985
3Q 1985

C
C
C
C

at 669..

T?I 65-2Lr TM 100, and TM 101 floppy

quarterly data for the period from July 1984 to June 1985.

Time Period

,

s

FF 404D-04E.

The second analysis estimates.the percentage of total product cost for the
TM 65-2L, TM 100, and TM 101 attributable to domestic manufacturing and
materials content:

,

July-Sept
1984
C

TM 65 :

C

m

C

TM 101:

Jan-Mar ch

Oct-DeC
is84

1985

t

t

100:

FF 40455.

70

.

April-June
1985
$

The final analysis estimates the unit costs of production for t h e
TM 65-2LP TM 100, and TM 101 for April-June 1985 and represents current
activity and costs:

. TM 65
$/unit

percent

TM 100
Slunit
mrcent

TM 101
$/unit
oercrnt

4

C
C
C
C
C
C
C

U.S. Mfg cost
:
Engineering
Technical Support
Operational GLA
Labor
Material Support
Labor Support
TOTAL

C
C
C

Material Cost
For e ig n
Domestic
TOTAL

I

C
C
C

8

*

:

U.S. Non-Mfq
Mar ke t ing
Mkting-Related GLA
TOTAL

C

Foreign assembly:

C
C
C

:
Other
Freight
Customs
Material Var iance

C

TOTAL

C

TOTAL COST

FF 404KK;

-

See FP

404F-0411.

The Commission has never determined t h e exact percentage of domestic
value-added required to constitute a domestic industry under 5 337.
Certain Cube PuZzlPs, Inv. No. 337-~A-112, 219 U.S.P.Q.

E.g.,
-

322 (1982)(domestic

industry based on 50 percent value added); Certain Papcrnakinq Nachine Forming

.

Sections, Inv. No. 337-TA-147 (1984)(domestic industry based on 30 percent
Because of the differing circumstances for each investigation,

value added).

the Commission has also never precisely defined those industry Components

..*

.

which constitute domestic value-added, but rather relies on an evaluation of
the nature and extent of complainant's domestic activities in the United

-

States (see Schaper, 219 U.S.P.Q.

at 669) minus those activities normally

performed by an importer, including customs,and components of transportation,
marketing, and general and administrative activities.
Complainant modified the value-added analysis it conducted at the
temporary relief stage of this investigation by excluding costs associated
with all marketing activities (except technical support) and general and.

-

administrative expenses related to marketing salaries and the credit
department.

Mitchell,

CX

836, at 6.

Complainant has thus defined domestic

value-added in this investigation as the percentage of total cost derived from
U.S.

manufacturing costs and domestic material content.
The cost of U.S.-produced

components (domestic material) purchased by

Tandon should be included in the U.S.

value added, especially since material

Costs constitute a large portion of the total cost of Eloppy disk drive
production.

FF 404AA.

The inclusion of U.S.-produced

components i s also

.

supported by the fact that when Tandon re-imports completed disk drives from
India after assembly, the value of U.S.
I

.

special tariff ..consideration.
-. .

components in the drives qualifies for

FF 404Y.

r.

The largest single component of U.S.
general and administrative expenses
percent of

GLA

manufacturing costs is qperational

(GLA).

Tandon considers less than one

to be related to import activities and deducted this percentage

72

,

FF 4041.

from Overall GLA.

Tandon Associates perforas many of the

administrative activities related to the importation of disk drives, and these
costs are not included in the domestic Value-added calculation.

FF 4045-04K.

It would appear. that a larger portion of Tandon's

See
G&A

expenses

should have been allocated to import-related activities, however, given the
importance of -imported disk drives in Tandon's overall sales.

Therefore,
?

while there exist certain

GLA

expenses eypically -not performed by an importer

and properly included in a domestic value-added analysis, there remain
questions concerning Tandon's allocation methods for GLA.
I

See, e.g,,
-

FF 404M.

The percentage of value-added calculated by Tandon varies quarter by

quarter, unit by unit.

The average percentage domestic value-added for the

C

TM 65 floppy disk drive during the period July 1984 through June 1985 is

C

percent; for the TM loos
See FF 40455.

If

GLA

c

f.igures decline to

c

and

percent; and for the TM 101,

percent.

expenses are excluded from the value-added, these
percent for the TY 65;

percent for the TM 101.

percent for the TM 100;

The actual domestic value-added lies

somewhere between these two calculations.
The Nitsubishi respondents argue that a substantial portion of Tandon's
U.S.

manufacturing costs consist of activities performed by a typical importer

of head assemblies and disk drives; that is, an importer of floppy disk drives
must perform quality control and assurance activities, maintain engineering
facilities, and conduct service and repair activities.

Respondents conclude

that such activities, because they are also performed by an importer, do not
support the existence of a domestic industry.

73

Mitsubishi, PEO Brief, at 46-49.

Respondents' argunent nisrzads Cornmissron precedent.

The f s c - tt.3:

activities performed by cornplainant within the 3nitad States are also
performed by respondent within the United States, does not requite the

-

Commission to disregard these activities when formulating its definition of a
domestic industry.

I t is. the nature and extent of complainant's activities in

the LJnitad Stat'as that defines the relevant- domestic industry (Opn. a t
51-56).

That is, an analysis of domestic value-added should not incorporate

activities usually performed by an importer, and while the Commission may look
to a respondent's activities to assist in its determination of whether an

activity is one norqally performed by an importer, the fact that respondent

-

performs the activity does not ips0 facto define it as usual import-related
activity.

.

-

To aake such a finding, for example, would require the Commission

to delata fram its consideration of domestic industry all activities performed

-.

by complainant within the United States, even though complainant does not
engage in offshore activities, simply because respondent also performs such
activities within the United States.
The above analysis leaves serious questions as tb whether the amount of
domestic value added by Tandon to its floppy disk drives is sufficient to
constitute a domestic industry.

A value-added analysis, however,

is

recognized as "simply one factor in considering the nature and significance of

- -. -.

a party's relevant activities in the United States.
dispositive -fah;-*-

No.

this issue]

- .
.'tz.*..-*y-337-TA0f82h8, at
.. - .. ..-' ..__.
4 J 8

."

15 (1984).

It is not necessarily

-

Certain Fluidized Supportinq Apparatus, Inv.
The addition of the following faceors to

.%-:A

the value-added analysis demonstrates that the activities of Tandon in the
United Stat&

are substantial enough to constitute a domestic industry in this
c-

investigation.

74

C.

Domestic activities.

Tandon in fiscal year 1 9 8 4 leased 515,000 square feet of building space
for its principal executive offices and domestic manufacturing operations at

Chatsworth, Simi Valley, Thousand Oaks, San Jose, and Santa Clara,
,

C

California.

FF 438.

As

*

of April 1985, the buildings leased by Tandon in the

United States occupied

square feet.

FF 439.

Tandon's €acility at

Simi Valley is not involved in the assembly of floppy disk drives, but its
operations do include the assembly of printed circuit boards used in floppy
disk drive production and its employees provide support production for Tandon
models made offshore.

FF 400E, 440.

The Santa Clara facility also is not

involved in the production of floppy disk drives, but its research and
development may have assisted Yicrotek with regard to the 3-112 inch floppy
disk drive product.

I

FF 441-42.

The Thousand Oaks facility houses the Voyager

Division of Tandon which aakes computer systems and subsystems.
C

C

The Chatsworth facility occupies
Approximately

FF 443.

square feet of building space.

individuals are employed by Tandon at Chatsworth in

activities relating to the manufacture, marketing, administration, and
research and development of floppy disk drives.

FF 444-44A.

All research and development concerning Tandon floppy disk drives, with
the exception of the 3-1/2
the Chatsworth facility.
C

inch disk drive, is done in the United States at
The research and development facility occupies

square feet of building space and employs

engineers,

five document control individuals, and nine drafting individuals.

75

technicians,

FF 447.

in

on research and development, or

C

fiscal year 1 9 8 4 , Tandon expended

C

approximately

z

Product research and development expenses increased by

c

year 1 9 8 3 and
~

$

percent of the cost value for its floppy disk drives.
percent in fiscal

percent in fiscal year 1 9 8 4 , while remaining essentially

constant as a portion of net sales.

-

FF 448A; see FF 448.

During the period

from January 1984 to present, the following double-sided head development
programs were conducted in Chatsworth:
TM 3 0 4 , T M 3 0 6 , TM 308, and TM 309.

T M 3 5 , T M 65-8, T M 75-2,

TM 75-8,

FF 425A.

The research and development associated with, and the engineering
prototype units and pilot production for, the T M 5 0 , TM 6 5 , T M 100, and
T M 101, had Seen conducted in the United States, but was completed prior .to
December 1984.

FF 413-51.

Problems that may be associated with the

continuous production of floppy disk drives, however, require technical
evaluation by manufacturing engineers, or sustaining engineering.

Virtually

all sustaining engineer ing activities are performed in the United States.
There are also ongoing efforts t o improve the production process by both
enhancing tho quality of the product and reducing costs.
C

Approximately
at Tandon.

to

FF 4 2 8 , 428B, 453.

individuals perform sustaining engineering activities

FF 420A.

For all head assemblies assembled in Chatsworth, or at one of Tandon's

offshore assembly plants, Tandon's Chatsworth facility performs a number of
engineering functions:
conducted in Chatsworth.

The design of all double-sided head assemblies is
The Drafting Department takes engineering sketches

and turns them into standard approved vellums.

76

They also update all documents

as required through engineering change orders.

Tandon's Chatsworth model shog

fabricates initial prototypes and assist in fabrication of assembly tooling.
FF 423A.

Tandon's "advanced head production" section includes engineers who

supervise initial production of new heads and head assemblies.
C

currently has

to

C

Tandon had about

to

Tandon

people in this section, and in December 1984,
people in this section.

FF 4238.

The design of all

tooling used to fabricate piece parts is conducted by Chatsworth engineering
personnel.

The design of all assembly tooling and the fabrication of such

tooling is also conducted in Chatsworth.

FF 423C.

Finally, Manufacturing

Engineering develops, debugs, and documents all manufacturing assembly
instructions for use by assembly personnel.

Engineering personnel located in

Chatsworth approve all first article reports and any new vendors that nay be
,

developed during the life of the product.

In the event that technical

problems arise, these individuals are dispatched to offshore assembly plants
to spearhead the corrective action process.

FF 423D.

Tandon is currently developing the TM 300 series o f 3-1/2 inch
double-sided floppy disk drives (TM 304, TM 306, and TM 308) at its Microtek
subsidiary located in San Jose, California.

Microtek

square feet of manufacturing space, and is starting to occupy

C

occupies

C

an additional

C

appr ox imat sly
series.

-

FF 475; see FF 47%.

FF 477-77A.

square feet adjacent to its present facility, and employs
individuals in the design and development of the TM 300
Tandon has completed development of a one megabyt$

3-1/2 inch micro-floppy disk drive, built engineering evaluation models of'
this drive, and proceeded into preproduction.

Tandon has fully tooled the

product and has produced preproduction models that it has evaluated and which

77

F

customers a r e e v a l u a t i n g .

-

FF 4 8 8 A ; see FF 476.

u n i t s of the T!4 3 0 4 and TM 3 0 6 t o customers.

Hicrotek .has sold e v a l u a t i o n

FF 4 8 1 , 407A.

X i c r o t e k has a c q u i r e d t o o l i n g for t h e manufacture o f t h e TM 3 0 0 s e r i e s
d i s k d r i v e and i n t e n d s to commence p r o d u c t i o n a t i t s S a n Jose f a c i l i t y as soon

a s an o r d e r for commercial p r o d u c t i o n has been r e c e i v e d .

To

FF 477-78.

commence p r o d u c t i o n , however, Microtek would have t o o r d e r p a r t s , h i r e and

t r a i n workers i n t h e a s s e m b l y of t h e d i s k d r i v e , and s e t up q u a l i t y control
procedures.

FF 482-82A.

I t would take from 9 0 t o 1 2 0 d a y s for Microtek t o

a c h i e v e p r o d u c t i o n o f 1 0 , 0 0 0 u n i t s p e r month of t h e TM 3 0 0 s e r i e s f l o p p y d i s k
drive.

The Microtek f a c i l i t y h a s t h e c a p a c i t y t o produce 2 0 , 0 0 0 t o

FF 403.

3 0 , 0 0 0 d r i v e s p e r month.

e

485.

Once Microtek a c h i e v e d p r o d u c t i o n of . l O , O O O

u n i t s p e r month, its f a c i l i t i e s would employ 1 0 0 t o 2 5 0 workers, of which 5 0
p e r c e n t would be i n v o l v e d i n the d i r e c t p r o d u c t i o n of t h e d r i v e ' w h i l e t h e
r e m a i n i n g i n d i v i d u a l s would be e n g i n e e r i n g and s u p p o r t p e r s o n n e l .

-

FF 4 8 4 .

Microtek a t t h i s time h a s not r e c e i v e d any p r o d u c t i o n o r d e r s for 3-1/2

inch

'

f l o p p y d i s k d r i v e s and h a s no p l a n s t o manufacture t h e s e d r i v e s for i n v e n t o r y
p u r p o s e s (FF 4 8 6 ) ; however, if p r o d u c t i o n o r d e r s are received, i n i t i a l
p r o d u c t i o n of t h e d r i v e s would commence (FF 488-88D).

Tandon i n c u r r e d

e x p e n s e s of 5 8 7 5 , 0 0 0 for fiscal y e a r s 1 9 8 4 and 1 9 8 5 w i t h r e s p e c t t o Microtek's
development of the 3-1/2

inch double-sided technology.

-

FF 476A: see FF 480.

T h e C h a t s w o r t h f a c i l i t y as of December 6 , 1 9 8 4 , h a s p r o v i d e d t h e f o l l o w i n g

--

q u a l i t y servfccs for a l l head a s s e m b l i e s a s s e m b l e d

-. .

- ' ,?

Tandon's

offshore a s s e m b l y p l a n t s :

i n Chatsworth or a t one o f

Q u a l i t y e n g i n e e r s s u p p o r t t h ) procurement

c y c l e by a s s i s t i n g i n vendor s u r v e y s .

Chatsworth q u a l i t y e n g i n e e r s also are

r e s p o n s i b l e for d e v e l o p i n g d e t a i l e d r e c e i v i n g i n s p e c t i o n and i n - p r o c e s s

78

inspection procedures.

Quality engineers working with engineering

representatives approxre the disposition of all discrepant material and
coordinate and approve vendor corrective action programs.

Quality control

personnel perform incoming inspections on 100 percent of the lots of material
received as well as perform all first article inspections.

-

FF 462A; see

FF 462B.
Servicing and repair of Tandon's disk drives, with the exception of TM 100
disk drives under warranty, are performed at Chatsworth or elsewhere in the
United States by subcontractors under Tandon's control.
C

repair for Tandon disk drives sold to

which are out-of-warranty

in Chatsworth or elsewhere in the United States.
C

Chatsworth facility had a staff of approxinately
repair.

The service and
is handled

In December 1984, Tandon's
employees for service and

FF 471-71A.

Based upon the above evidence, the activities of Tandon in the Unitzd
States dedicated to the manufacture, distribution, research and development,
and sale of double-sided 5-1/4

inch and 3-1/2

inch floppy disk drives

constitute part of the domestic industry in this investigation.

2.

Texas Peripherals.

Texas Peripherals (TP) is a joint venture owned equally by Tandy
Corporation and complainant.
January 1984.

FF 493.

Tandon became a member of this joint ventur-e in

Tandon and Tandy each own equal interests in TP, and

revenues and profits are divided equally between the two companies.

FF 494.

The initial cost to Tandon for joining the joint venture was th$: contribution

79
,

of Tandon's half-height flexible disk technology and a cash payment of $1.9
million.

FF 496.

In fiscal year 1984, Tandon was allocated $808,416 in

profit from the TP venture.

FF 494.

TP was formed for the purpose of manufacturing disk drives in the United
%

States for sale either to Tandy or Tandon.

FF 495.

TP facilities consisted

of approximately 87,000 square feet of manufacturing and commercial space.
FF 497.

As of December 1984, TP manufactured at its facilities in Fort Worth,

Texas, the TM 100-1, a full-height single-sided floppy disk drive, the
T X 65-1, a half-height 5-1/4 inch singlc-sided disk drive, and the TM 65-2, a
half-height 5-1/4 inch double-sided disk drive.
its head assemblies for the TM 65-2 from Tandon.

FF 503.

TP purchases all of

FF 392.

On April 25, 1984, the projected production of TP floppy disk drives for
October 1984 was 27,117; for November 1984, 43,450; and for December 1984, -.
39,430.

Of those drives planned for production in October 1984, 1000 were to

be half-height double-sided floppy disk drives; in November 1984, 32,350 were
t o be half-height double-sided floppy disk drives; and in December 19841

28,230 were to be half-height double-sided floppy disk drives.

TP forecasted

continued growth of its floppy disk drive production such that by
February-March-April 1985, TP planned to ship 68,652 drives a month, 50,052 of
which would be half-height doubla-sided floppy disk drives.

This projection
FF 764.

was based upon the forecasted requirements of Tandy and Tandon.

In

the spring of 1984, the joint venture committee authorized $300,000 for
tooling in which to set up TP.

FF 766.

On Hay 15, 1984, TP delivered working samples of the TM 65-2 to various
Tandy divisions, including Tandy Advanced Products, Tandy Home Computer, Tandy
Computer Assy.,

Tandy Systems Design, and Computer Product Engineering.

80

.

This

drive was assembled at TP from a kit supplied by Tandon and did not
incorporate any components procured or tooled by TP.

FF 767.

On June 15,

June 16, and July 15, 1984, TP scheduled the delivery of preproduction samples

of the TM 65-2 to Tandy Home Computer, Tandy Computer Assy.,
Design, and Tandy Advanced Products.

Tandy Systems.

Some of these preproduction samples were

later delivered to the various Tandy divisions in late June, July, or August
The preproduction samples were more representative of TP's production

1984.

units and contained some degree of TP's configurations.

FF 768.

TP's profit plan for fiscal 1985 indicated that production of the
half-height 5-114 inch double-sided disk drive was scheduled to begin October
1984.

By May 23, 1985, production of this floppy disk drive was expected to

reach 30,000 units per month.
I

This level of production was less than

originally anticipated because Tandy had decided to continue to use the
full-height product in its Model 4 computer instead of switching to a
half-height 'product,
As

FE 769.

of September 1984, $264,300 of the equipment budget had been committed

to vendors to fabricate the tooling for the TM 65 product.
its tooling in place by December 1984.

TP planned to have

The commitments to vendors for tooling

were made in expectation of volume business for the TM 65 ftom Tandy.
FF 770,

As of

September 19, 1984, TP's production line was capable of

producing the quantities needed to achieve its financial objectives,
L

TP cormpcnced production of the TM 65-2 in late 1984.
c
c

-

TM 65-2s wcrf-assembled from kits supplied by Tandon.

FF 505.

FF 506.

Most of t h e

TP received- a

purchase order on October 9, 1984, frm Tandy Home Computer for 6,000 TIY 65-2

81

floppy d i s k drive.

FF 508.

The o r d e r was s c h e d u l e d f o r . d e l i v c t y as follows:

1 , 0 0 0 by November 15, 1 9 8 4 ; 2 , 0 0 0 by December 1 5 , 1 9 8 4 ; and 3 , 0 0 0 by
January 1 5 , 1985.
order:

TP f a i l e d t o meat its p r o d u c t i o n s c h e d u l e for this

FF 775.

TP delivered t h e f i r s t 5 0 u n i t s

'

November 1 9 8 4 .

FF 776.

for q u a l i f i c a t i o n t e s t i n g i n

c

TP o n l y d e l i v e r e d SO o f the 1000 f l o p p y d i s k d r i v e s

r e q u e s t e d by Tandy Home Computers for November 1 9 8 4 b e c a u s e of problems
encountered with t h e d r i v e s .

TP d e c i d e d that it would b e b e s t t o d e l i v e r just

5 0 u n i t s i n o r d e r t o i d e n t i f y p r o b l e m s , make m o d i f i c a t i o n s , and allow customer

evaluation of t h e d r i v e s : TP c o u l d t h e n correct t h e s e problems for future
shipments.

FF 7 7 7 .

T P ' s next d e l i v e r y o f 4 0 0 u n i t s d i d not t a k e p l a c e u n t i l

t h e f i r s t d a y s o f J a n u a r y 1985.
qualified
4

TP hoped t h a t t h e u n i t s would become

a t t h a t time and t h a t it c o u l d p i c k up p r o d u c t i o n q u i c k l y and

c o m p l e t e t h e o r d e r s by F e b r u a r y and March 1 9 8 5 .
shipped 450 double-sided
. As

,

FF 776.

f l o p p y d i s k d r i v e s t o Tandy.

of A p r i l 1 5 , 1 9 8 5 , TP employed 3 5 0 persons.

p l a n n e d t o l a y o f f a p p r o x i m a t e l y 25 to 50 employees.

to l a y o f f an a d d i t i o n a l 7 5 t o 1 0 0 employees.
would continue t o produce

To d a t e , TP h a s -.

FF 509.

During A p r i l 1 9 8 5 , TP

I n May 1 9 8 5 , TP p l a n n e d

T h o s e employees l e f t a t TP

current o r d e r s of t h e TM 65-1 u n t i l J u l y 1 9 8 5 , a t

which time t h e y would be l a i d O f f .

FF 4 9 8 , 806.

After t h e announcement of the i n i t i a l d e t e r m i n a t i o n w i t h r e s p e c t t o
Tandon's

motion for temporary r e l i e f , Tandon and Tandy d i s c u s s e d the future df

TP and e x p l o r k t h e inmredirte r e q u i r e m e n t s of b o t h Tandy and Tandon for t h e
... -.
TM 65-2 d o u b l e - s i d e d d r i v e . Tandy a d v i s e d Tandon t h a t i t s p u r c h 3 s e a r d e r
I

5

.

.

commitments t o o t h e r vendors were more t h a n a d e q u a t e t o s u p p l y a l l of i t s
..-

82

needs for t h i s t y p e o f product through November 1 9 8 5 .

has not y e t been a b l e t o p e n e t r a t e t h e 5-1/4

S i m i l a r l y , since Tandon

i n c h half-height

double-sided

.

d i s k d r i v e market, Tandon i t s e l f had no immediate need for t h i s product from
TP.

FF 509A.

_ ,

I n o r d e r t o p r e s e r v e T P ' s p r o d u c t i o n c a p a c i t y t o the f u l l e s t

extent p o s s i b l e , Tandon proposed t h a t Tandy and Tandon each p r o c u r e 5 , 0 0 0
d r i v e s p e r month from TP for t h e months o f J u l y ,

FF 509B.

A u g u s t , and September 1 9 8 5 .

S h o r t l y a f t e r p r e s e n t i n g t h i s p r o p o s a l , Tandon was n o t i f i e d by Tandy

t h a t , b e c a u s e it had no need for 5-1/4

inch half-height

double-sided

disk

d r i v e s b e f o r e December 1 9 8 5 , Tandy was u n w i l l i n g t o order 5 , 0 0 0 u n i t s p e r

month from TP for t h e months of J u l y , A u g u s t , and September 1985.

FF 509C.

Tandon a u t h o r i z e d a unilateral commitment to p u r c h a s e TM 65-2 d r i v e s , f r o r n
TP for t h r e e months s t a r t i n g a t a p p r o x i m a t e l y 2,000 u n i t s p e r month.
I

This

p r o p o s a l was s u b m i t t e d t o TP and Tandy by l e t t e r d a t e d June 2 8 , 1 9 8 5 .
FF 509D.

On J u l y

future of TP.

-

1 0 , 1 9 8 5 , t h e TP joint v e n t u r e committee met to d i s c u s s t h e

a p r o j e c t e d p r o f i t and loss p l a n b a s e d

Mr. Hochman p r e s e n t e d

upon Tandon's o f f e r t o p r o c u r e 2 , 0 0 0 u n i t s per month from TP.

Assuming t h a t

Tandon p u r c h a s e d s u c h d r i v e s a t $90 per u n i t and p r o v i d e d TP w i t h Tandon's
refurbishing business,

it was e s t i m a t e d t h a t TP would suffer losses of

$ 1 0 1 , 0 0 0 i n t h e months o f August, S e p t e m b e r , and October 1985.

FF 509E.

W h i l e Tandon and Tandy b o t h a g r e e d t h a t it was d e s i r a b l e t o p r e s e r v e the
a b i l i t y of TP t o manufacture TH 65-2s
need for s u c h p r o d u c t i n t h e future as

. .

if e i t h e r Tandon or Tandy s h o u l d have a

a result of t h i s p r o c e e d i n g , Tandy d i d

not a g r e e t h a t it was n e c e s s a r y to k e e p T P ' s m a n u f a c t u r i n g f a c i l i t y i n
o p e r a t i o n for t h a t purpose.

MOreover, Tandy was d e s i r o u s of u s i n g the TP Fort

Y o r t h f a c i l i t y for other p u r p o s e s .

Tandy was o n l y w i l l i n g t o a g r e e t o t h e
C-

83

c o n t i n u e d o p e r a t i o n o f TP i f Tandon a b s o r b e d a l l of t h e losses i n excess o f
t h e costs o f S t o r i n g TP'S p r o d u c t i o n e a u i p m e n t , e s t i m a t e d t o b e $ 1 8 , 0 0 0 p e r
month.

Tandy b e l i e v e d t h a t r e a c t i v a t i n g p r o d u c t i o n w i t h s t o r e d eauipment

would not t a k e a n y l o n g e r t h a n ramping up from l i m i t e d p r o d u c t i o n i n t h e

, i n t e r i m , and TP s h o u l d t h e r e f o r e cease p r o d u c t i o n pending f u r t h e r
developments.

FF 509F.

After t h e J u l y 1 0 , 1 9 8 5 1 m e e t i n g , Tandon's management r e v i e w e d t h e
continued operation

of

Tp.

S i n c e Tandon was u n w i l l i n g t o a b s o r b any o p e r a t i n g

losses i n excess o f $ 1 8 , 0 0 0 p e r month, even i f Tandon p u r c h a s e d TM 6 5 s from TP
a t a p r i c e of $ 9 0 per u n i t (a p r i c e a t which Tandon would suffer a d d i t i o n a l

l o s s e s ) , Tandon d e c i d e d t h a t it was u n w i l l i n g to a b s o r b s u c h losses
Tandon c o n c l u d e d t h a t it had no c h o i c e b u t t o acauiesce i n

unilaterally.

Tandy's p r o p o s a l t h a t T P ' s p r o d u c t i o n equipment be s t o r e d pending t h e r u l i n g

of t h e Commission on permanent
relief.
..

as of A p r i l 1 9 6 5 , h a s never produced p r o d u c t i o n u u a n t i t i e s o f t h e

TP,

- an

TM 65-2

(i.e.,

FF 509H.

order

double-sided

5-1/4

December 1 9 8 4

, TP

loo, a

TM 6 5 - 1 ,

parts

of 1 5 1 0 0 0 d r i v e s a month o f any one type of d r i v e ) .

T P , however, h a s a s s e m b l e d i n i t s p l a n t a p p r o x i m a t e l y 1 5 0 0 TM 65-2

floppy d i s k d r i v e s .

TM

FF 509G.

TP h a s not produced a n y commercial uuantities

FF 7 9 6 .

i n c h d i s k d r i v e s since A p r i l 1 9 8 5 (FF 5 0 9 I ) t but as of
had produced a p p r o x i m a t e l y

full-height single-sided

a h a l f - h e i g h t 5-1/4

to

u n i t s of t h e
u n i t s of the

f l o p p y d i s k d r i v e , and

inch s i n g l e - s i d e d d i s k drive._

The m e c h a n i c a l

of t h e TM 6 5 - 1 , e x c e p t for t h e head assembly, are t h e same as t h o s e -

found i n t h e TM 65-2.
TM 65-2

of

FF 797.

TP c o u l d have produced on a d o u b l e s h i f t

d o u b l e - s i d e d f l o p p y d i s k d r i v e s a month.

84

FF 7 9 8 .

-

3.

Control Data Corporation/Xagnetic Peripherals.

.

Control Data Corporation (CDC) was granted a license by Tandon on
September 3 0 , 1984, to manufacture and sell disk drives under the ' 5 7 3
patent.

FF 513.

The license agreement resulted from a claim by Tandon that

the drives manufactured by Magnetic Peripherals, Inc. (hlPI), a partially-owned
subsidiary of CDC, Were covered by the ' 5 7 3 patent.

-

FF 7 2 3 : see FF 513A.

Some, if not all, of the head assemblies used by CDC in its double-sided
floppy disk drives produced in the United States are manufactured by Lafe,
FF 393.

which is located in Taiwan or Korea.

MPI is located in Oklahoma City, Oklahoma, and manufactures disk drives
for sale by CDC to the OEM market.

FF 511.

As of 1983, the Oklahoma City

FF 523.

facility occupied approximately 100,000 square feat of building space.
4

The floppy disk drive market was relatively stable until mid-1984.

At

that time the market became unstable and prices dropped an average of $10 per
unit per month.

FF 696, 739.

Based upon CDC's cost of production in the

United States, CDC in the third quarter of 1984 started to question whether it
should stay in the floppy disk drive business and made! the decision to move
production of drives offshore.
C

assemble and test approximately

FF 525.

to

As

of April 1985, CDC continued to

percent of its requirements for

half-height 5-114 inch doublc-sided floppy disk drives at its Oklahoma City
facility.

c
C

FF 520A, 526.

Oklahoma City facility is
units a month.

The estimated maximum production capacity at CDC's
drives per year, or approximately

to

It would take CDC at least three months to produce at

this lcveh: the necessary tooling is in place, but CDC has laid off or
furloughed a number of its personnel.

FF 518, 5 2 7 , 741.

85

,

C

CDC in 1983 shipped

FF 729.

worth of floppy disk drivrs or

$

C

units.

C

floppy disk drives or

C

had firm purchase orders for 1985 of

C

projected a high probability sales forecast for 1985 of

FF 731.
C

CDC by December 30, 1984 had shipped
units,

FF 730.

CDC as

worth of

$

of December 30, 1984,

flospy disk drive units and had
units.

Most of the above floppy disk drives are 5-114 inch half-height or

full-height drives.

percent of

The old 8 inch products constitute about

Of the 5-114 inch full-height products, 90 percent plus are

CDC's sales.

double-sided configurations: of the 5-114 inch half-height products, almost
all are double-sided configurations.

FF 514-15.

In 1983, CDC/MPI employed approximately 350 individuals at its Oklahoma
In 1984, the number of employees involved in the floppy disk

City facility.

drive business increased to between 650 to 675 individuals.

The

closing of

CDC's Oklahoma City facility, however, has bean ongoing since the third
quarter of 1984.

In October 1984, CDC laid off 450 individuals from its

Oklahoma City facility.

In .February 1985, CDC made its final announcement

with respect to the termination of employees at its Oklahoma City facility.

-

FF 521, 750; see FF 527A-27C.

On April 15, 1985, CDC laid off approximately

150 employees at its Oklahoma City floppy disk drive facility, leaving 75

employees primarily engaged in continuation and support engineering with
respect to the overseas assembly of drives and CDC's customers.

FF 521A.

As of April 1985, CDC had research and development facilities in Oklahoma
City, Oklahona, and Minneapolis, Minnesota.
C

approximately

$

FF 520A.

In 1984, CDC expended

million for research and development for floppy disk

drives, including research and development for its 5 - 1 1 4 inch 1.6

86

A l l such research and development

megabyte drive and its 3-1/2 inch drives.

took place in the United States, and virtually all such expenses relate to
double-sided drives.

..: .

FF 528B.

-

Drawings, specifications, manufacturing assembly instructions, and
~

'

technical support for disk drives manufactured overseas for CDC originate from
the Oklahoma City facility.

FF 529.

The engineering prototypes and

evaluation units for the 5-1/4 inch double-sided full-height and half-height
floppy disk drives manufactured by CDC/MPI were developed and tested in the
United States.

FF 529A.

The preproduction units and initial production units

of the CDC/MPI full-height and half-height 5-1/4 inch floppy disk drives were
assembled and tested in the United States.

FF 529B.

As of April 1985,

,

-

manufacturing engineering and sustaining engineering for all 5-1/4 inch
d

double-sided disk drive products marketed by CDC were performed in OklahomaCity.

FF 529C.

As of April 1985, engineering field change and design changes

to solve production problems for a11 5-1/4 inch floppy disk drive products
currently offered by CDC were performed in Oklahoma City.

FF 529D.

As of

April 1 9 9 5 , technical support and supervision for all overseas manufacture of
CDC drives comes from Oklahoma City.

FF 5293.

In 1984 and continuing into 1985, CX's Oklahoma City facility procured
all materials used in the foreign assembly of its floppy disk drives with the
exception of head assemblies.

CDC's Oklahoma City's facility was

FF 529F.

responsible for evaluating and selecting vendors for assembly materials ,

. -.

providing drawings and specifications generated in the United States for the
materials to such vendors, and insuring that the materials actually provided
conformed to specifications.

FF 5296.

During 1984 and continu,ing into
..-

87

.

c

1985, over

percent of the total material cost of CDC's 5-114 inch

half-height floppy disk drives that were assembled offshore was attributable
In addition, CDC conducted

to materials produced from domestic sources.

.

substantial domestic
activities in connection with the manufacture of its
. . , .
drives that were assembled offshore, including research and development,
design engineering, manufacturing and support engineering, material
procurement, testing, and overhead and general and administrative costs in
C

connection with such activities.
..

FF 529H.

Approximately

percent of the

materials used to assemble drives offshore is currently procured by CDC in the
United States: however, with the exception of initial vendor qualification,
testing of incoming parts takes place at the manufacturing site.

FF 5 3 0 ,

Those disk drives that are manufactured offshore are tested offshore,
though quality control for these products also is conducted at Oklahoma City
through a sampling process.

FF 531.

As of April 1985, all 5-114 inch

double-sided disk drives which are currently being manufactured offshore for
CDC are received in Oklahoma City and tested.
meet vendor specifications.

The drives are certified to

CDC tests the 5-114 inch drives manufactured

abroad to comply with U L requirements and CSA certification.

FF 532A.

CDC

customer liaison, application and engineering support, and service and repair
for disk drives produced both offshore and in the United States is based in
the United States.

FF 533.

CDC's remaining production facility for floppj disk drives in Oklahoma
.

City, as well as its capital equipment, including production and test

-

.

equipment, are used in the production of floppy disk drives at that facility.

88

d i s k d r i v e s and has a commitment'with

CDC has an i n v e n t o r y of

C

FF 5271).

C

an offshore s u p p l i e r t o b u i l d

c

offshore a s s e m b l y of a p p r o x i m a t e l y

c

remainder of 1 9 8 5 , of which over
half-height

drives.

units.

CDC i s o b l i g a t i o n t o pay for t h e

f l o p p y d i s k d r i v e s o v e r the
p e r c e n t are d o u b l e - s i d e d

5-1/4.inch

CDC would g o i n t o d o m e s t i c p r o d u c t i o n o n l y i f there i s

i n c r e a s e d demand for q u a n t i t i e s beyond t h o s e s p e c i f i e d i n its contracts w i t h
I

foreign suppliers.

FF 5 4 2 , 7 3 4 - 3 4 8 .

CDC h a s not y e t commenced any e f f o r t s t o

l i q u i d a t e i t s Oklahoma C i t y f a c i l i t y or t h e p r o d u c t i o n and t e s t equipment a t

t h a t f a c i l i t y and has not y e t d e c i d e d when t o commence s u c h l i q u i d a t i o n .

FF

527E.

4.

,

Shuaart.

S h u g a r t Associates was formed i n t h e mid-1970s by A l l e n S h u g a r t and

several key employees who had worked t o g e t h e r a t IBN and
designs.

MemOreX

on d i s k d r i v e

S h u g a r t was g r a n t e d a license by Tandon on J u l y I , 1 9 8 0 , t o

FF 299.

manufacture and s e l l d i s k d r i v e s under t h e ' 5 7 3 p a t e n t .

FF 3.

By t h e end of

1 9 8 1 , S h u g a r t employed 2 , 7 0 0 i n d i v i d u a l s and had annual sales o f a p p r o x i m a t e l y
$ 1 9 8 million.

FF 3 2 4 .

The company was l o c a t e d i n S u n n y v a l e and R o s e v i l l e ,

C a l i f o r n i a , and N o g a l e s , Mexico ( 4 0 0 e m p l o y e e s ) .
Shugart's

annual sales for 1 9 8 3 was $ 2 4 0 million d o l l a r s .

S h u g a r t was the w o r l d ' s
b e h i n d Tandon.

FF 340.

FF 3 0 0 , 3 4 4 .

FF 339.

Shugart's

A t t h a t time,

s e c o n d l a r g e s t manufacturer o f f l o p p y d i s k d r i v e s
S h u g a r t f i r s t became p r o f i t a b l e i n - J u l y 1 9 7 5 .

-

t o t a l annual revenues i n s u c c e e d i n g y e a r s was $ 1 8 million

i n 1 9 7 7 , $ 3 4 million i n 1 9 7 8 , b70 million i n 1 9 7 9 , $134 million i n 1 9 8 0 , and
$198 million i n 1981.

FF 302A.

I n fiscal year 1983, Shugart s o l d

89

d r i v e s and had sales volume o f $

c

approxiaatcly

7

$

c

p r o d u c t s , of which $

,million.

A t least

m i l l i o n of t h i s was a t t r i b u t a b l e t o S h u g a r t ' s t o t a l f l o p p y d i s k d r i v e

d r i v e sales.
d r i v e company.

FF 3 4 4 3 .

to $

million c o n s t i t u t e d d o u b l c - s i d e d f l o p p y d i s k

-

I n January 1 9 8 4 , S h u g a r t was a v i a b l e f l o p p y d i s k

A t t h a t time, S h u g a r t was s e l l i n g e v e r y t h i n g it c o u l d nake i n

i t s f l o p p y d i s k d r i v e p r o d u c t i o n f a c i l i t i e s , and S h u g a r t ' s U n i t e d S t a t e s

factories were running d o u b l e s h i f t s t o meet customer demand.

FF 3 4 4 F .

The

extreme c o m p e t i t i v e environment a t t h e end of 1 9 8 3 , however, c a u s e d a
s u b s t a n t i a l erosion i n Shugart's p r o f i t a b i l i t y .
t h i s r a p i d erosion was i n 1 9 8 3 .
1984.

The f i r s t time S h u q a r t saw

S h u g a r t r e c o r d e d an o p e r a t i n g loss i n J a n u a r y

FF 340.

On J a n u a r y

1 5 , 1 9 8 4 , S h u g a r t employed 2 , 6 0 0 p e o p l e i n t h e U n i t e d S t a t e s

and 600 i n Mexico and o c c u p i e d a b o u t 4 9 0 , 0 0 0 square feet of s p a c e
and S u n n y v a l e , California.

FF 3 4 4 .

a t Roseville

By December 6 , 1 9 8 4 , S h u g a r t had

e x p e r i e n c e d several l a y o f f s , and its employment force had Seen r e d u c e d t o

1 , 6 0 0 t o 1 , 7 0 0 e m p l o y e e s , 400 of whom were i n X e x i c o .

As of December 6 , 1 9 8 4 ,

8 0 0 of t h e 1 , 2 0 0 U n i t e d S t a t e s employees were d e v o t e d to f l o p p y d i s k d r i v e
p r o d u c t i o n , manufacture, e n g i n e e r i n g , d e s i g n , sales, service, and m a r k e t i n g .
All

of S h u g a r t ' s U n i t e d S t a t e s m a n u f a c t u r i n g f a c i l i t i e s were s t i l l i n t a c t w i t h
to

a j o i n t c a p a c i t y of
A t t h i s time, S h u g a r t

f l o p p y d i s k d r i v e p r o d u c t s p e r month.

was running a r e d u c e d , one s h i f t p e r day o p e r a t i o n i n

each of t h e two f a c i l i t i e s .

FF 344.

I n January 1 9 8 5 , - X e r o x f o r m a l l y

announced t h e c l o s i n g of S h u g a r t a t a time when it s t i l l employed 1 , 4 0 0
individuals.

FF 346.

90

S h u g a r t ' s R o s e v i l l e f a c i l i t y had a p r o d u c t i o n c a p a c i t y for 5 0 , 0 0 0 t o
6 0 , 0 0 0 d i s k d r i v e s p e r m o n t h and m a n u f a c t u r e d b o t h 8 i n c h and 5-114

double-sided

floppy disk drives.

As

'

inch

of December 6 , 1 9 8 4 , t h e r e were 1 5 0 t o

2 0 0 p e o p l e l o c a t e d a t t h e R o s e v i l l e f a c i l i t y for p r o d u c t i o n and i n a n u f a c t u r i n g

c

of d o u b l e - s i d e d f l o p p y d i s k d r i v e s .

FF 344A.

S h u g a r t ' s Sunnyvale f a c i l i t y

had a p r o d u c t i o n c a p a c i t y for

to

double-sided d i s k d r i v e s per

month and m a n u f a c t u r e d 3-112 i n c h , 5 - 1 1 4
disk drives.

i n c h , and 8 i n c h d o u b l e - s i d e d

A s o f December 6 , 1 9 8 4 , t h e r e were 200 t o 4 0 0 p e o p l e l o c a t e d a t

t h e S u n n y v a l e f a c i l i t y for the manufacture of d o u b l e - s i d e d
drives.

floppy disk

Another 2 0 0 p e o p l e l o c a t e d a t t h e S u n n y v a l e p r o d u c t i o n f a c i l i t y

produced p r i n t e d c i r c u i t b o a r d s t o be used i n d o u b l e - s i d e d
drives.

floppy

FF 3448.

floppy disk

S h o r t l y a f t e r December 1 9 8 4 , S h u g a r t c l o s e d the Roscville

p l a n t , l e a v i n g only the Sunnyvale p l a n t i n o p e r a t i o n i n t h e U n i t e d S t a t e s .

I

S h u g a r t remains i n the d o u b l e - s i d e d f l o p p y d i s k d r i v e b u s i n e s s t o t h e extent

it continues t o manufacture i t s 8 i n c h d o u b l e - s i d e d p r o d u c t , t h e SA-850.

FF 345E.
I n J a n u a r y 1 9 8 4 , a l l r e s e a r c h and d e v e l o p m e n t , e n g i n e e r i n g s u p p o r t ,
m a r k e t i n g and s a l e s , t e s t i n g , and s e r v i c i n g for S h u g a r t p r o d u c t s manufactured

i n t h e U n i t e d S t a t e s was performed a t S h u q a r t ' s U n i t e d S t a t e s f a c i l i t i e s .
C

FF 344C.

I n January 1 9 8 4 , S h u g a r t employed some

d r i v e r e s e a r c h alone.

A t least two-thirds

p e o p l e for f l o p p y d i s k

o f t h i s research and development

group were d e d i c a t e d t o t h e development of t h e " S a b r e "

p r o d u c t , w h i c h was t o

b e a low cost d o u b l e - s i d e d d i s k d r i v e n a n u f a c t u r e d i n t h e U n i t e d S t a t e s using
robotics.

FF 344D.

I n December 1984, a l l research and development and o t h e r

91

f

Support activities for United States-produced products were being performed i n
the United States.

Additionally, United States support activities for the

disk drives purchased from Matsushita were performed in the United States.
Printed circuit boards were manufactured in the United States for all of
~

Shugart-produced double-sided floppy disk drives, and lot testing was being
performed in the United States for those drives received from Japan.

As of

December 1984, Shugart's research and development program equaled
approximately seven percent of Shugart's gross sales.

c

December 6, 1984, approximately

I

As of

people were left in the Shugart's quality

organization for double-sided floppy disk drives.

C

FF 345B.

FF 345D.

In December 1984, Shugart was manufacturing approximately

to

c

doubla-sided floppy disk drives in the United States, and was receiving

C

to

units and selling

double-sided floppy disk drives

to

produced in Japan by Wtsushita for Shugart.

c
C

FF 345.

SA-~SOS, for a total of appioximately

orders for delivery in December 1984 for

Shugart's backlog order

SA-350S ,

summary for December 1984 indicated sales of

drives to be manufactured in the United States.

c

.

S A - 4 5 0 ~ and
~

double-sided floppy disk
The same document indicated
to

Shugart disk drive

Models SA-455 and SA-465 assembled for Shugart in Japan by Matsushita.

(The

SA-850, an 8 inch drive, and the SA-455 and SA-465, half-height 5-114 inch
drives, are not properly considered part of the domestic industry.
C

64-65, 94.

Shugart sold over

December 1984.

Opn. at

worth of double-sided disk drives in

$

FF 345A.

Shugart manufactured a 3-112 inch double-sided floppy disk drive at
Sunnyvale, California, in 1982.

FF 347.

Followinq a meeting in nay 1982 with

Dysan Corporation's president, Shugart formed a venture group to pursue the

92
,

d e s i g n and development of t h e 3-112

inch drive.

A small company e n v i r o n m e n t

was c r e a t e d , and t h e b e s t e n g i n e e r s from S h u g a r t were p i c k e d for the
engineering organization.
production.

3-112

FF 3 4 9 .

3-112

i n c h d r i v e s were i n t r o d u c e d i n t o the m a r k e t p l a c e i n
I n O c t o b e r 1 9 8 3 , a d o u b l e - s i d e d version of t h e 3-112
The d o u b l e - s i d e d

patented technology.

FF 350.

3-112

i n c h d r i v e employed

E v a l u a t i o n sales were made of t h e

i n c h d o u b l e - s i d e d d i s k d r i v e s t o 1 5 - 2 0 accounts, i n c l u d i n g Apple

Computer, Wang, C o n v e r g e n t T e c h n o l o g i e s , N i x d o r f , and Honeywell-Bull.
Approximately 2000 t o 3000 double-sided
1983.
3-112

,

FF 352.

S h u g a r t 3-112

FF 3 5 1 .

i n c h d r i v e s were s o l d i n

On December 6 , 1 9 8 4 , S h u g a r t had p l a n t c a p a c i t y for 1 0 0 , 0 3 0

i n c h double-sided floppy d i s k d r i v e s per y e a r l o c a t e d i n Sunnyvale,

California.

FP 353.

On December 1 9 , 1 9 8 3 , a f t e r examining economic s t u d i e s c o n c e r n i n g w h a t
would be r e q u i r e d t o make t h e b u s i n e s s f u l l y p r o f i t a b l e , Xerox c o n c l u d e d t h a t

it c o u l d no l o n g e r s u p p o r t S h u g a r t .

A s of January

1 , 1 9 8 4 , S h u g a r t ' s annual

r e w r t e d sales for f i s c a l y e a r 1 9 8 3 was $ 2 4 0 million.

Xerox Concluded t h a t

even g i v e n s u b s t a n t i a l investments, S h u g a r t c o u l d not be! made p r o f i t a b l e
w i t h i n t h e next 12 to 1 8 months.
double-sided

c

.

c

i n c h d r i v e was i n t r o d u c e d .
Tandon's

automated' l i n e s for

FF 348.

Single-sided
A p r i l 1983.

The p r o j e c t used high-volume

FF 3 4 3 .

P r o d u c t i o n of the 3-112

inch

floppy d i s k d r i v e ceased i n approximately February 1 9 8 5 , e x c e p t

for t h e f u l f i l l m e n t of t h e e x i s t i n g commitments t o

93

for p r o d u c t i o n of

C

more. d o u b l o - s i d e d u n i t s .

approximately

f o r m a l l y announced t h e c l o s i n g of S h u g a r t ' s
disk drive operation.

S h u g a r t ' s 5-1/4

FF 353A.
5-114

I n January 1985, X e r o x

i n c h and 3-112 i n c h f l o p p y

i n c h b u s i n e s s was s o l d t o H a t s u s h i t a i n

F e b r u a r y 1985, i n c l u d i n g the extensive i n v e n t o r y t h a t had b u i l t up over t h o

FF 3538.

previous quarters.

I n t h e f i r s t q u a r t e r o f 1984, S h u g a r t s o l d d o u b l e - s i d e d

floppy d i s k d r i v e s

a s s e m b l e d for it under Tandon's p a t e n t license by M a t s u s h i t a o f Japan.
d r i v e s were h a l f - h e i g h t models and were d e s i g n a t e d as t h e SA-455

FF 344H.

These

and SA-465.

Complainant h a s f a i l e d t o s u b a i t sufficient e v i d e n c e t o p e r m i t t h e

conclusion t h a t t h e SA-455 and SA-465 s h o u l d be c o n s i d e r e d p a r t o f t h e
S e e FF
-

domestic industry.

5.

3441-44J.

IBM.
-

I n August 1984, IBM commenced t h e manufacture o f 5-114
floppy d i s k d r i v e s i n Boulder, Colorado.

i n c h double-sided

I B X has c o n t i n u e d m a n u f a c t u r i n g s u c h

d i s k d r i v e s from t h a t time u n t i l t h e p r e s e n t .

FF 542A.

c o v e r e d by claims I , 5, and 12 of t h e '573 p a t e n t .

T h e IBZl d r i v e i s

FF 542B.

T h e d i s k d r i v e s manufactured by IBM were for use i n IBM's p e r s o n a l
computer and also i n other IBM small c o m p u t e r s and d i s p l a y p r o d u c t s .

IBM

commenced s u c h manufacture for t h e p u r p o s e of s u p p l y i n g i n s u b s t a n t i a l p a r t

i t s own i n t e r n a l n e e d s for s u c h d i s k d r i v e s i n lieu of p u r c h a s i n g them from
outside vcnfors.

Ff 542C.

IB:3 i n i t i a l l y d e c i d e d t o manufacture d o u b l c - s i d e d

f l o p p y d i s k d r i v e s commencing i n August 1 9 8 4 b e c a u s e it t h o u g h t it would b e a
p r o f i t a b l e venture.

IBW had o n l y p l a n n e d

t o use t h e d r i v e s for i n t e r n a l

p r o d m t i o n p u r p o s e s and never planned t o s e l l t h e d r i v e s i n t h e , m a r k e t p l a c t - .

94

FF 542D.

The IBX Boulder double-sided 5-114 inch floppy disk drive

manufacturing facility features fully automated subassembly and alignment
operations, manual final assembly operations, and smi-automated 'final tests

and packaging.

Robots are us+-d, including thp IBM 7545 and internally

developed "pick and place" robots.

IBM

FF 542F.

employs statistical process

control techniques for quality control and quality assurance activities.
P

Production yields are targeted at 100 percent.

FF 5426.

During the period from August I , 1984, through June 30, 1985, IBPI produced
the following quantities of floppy disk drives:
Period
3rd
4th
1st
2nd

Quarter
Quarter
Quarter
Quarter

Quantity

,

7,150

1984
1984
1985
1985

932
4,168
5,552

The 7,150 drives produced in the third quarter of 1984 were full-height
5-114

inch double-sided drives.

The drives produced thereafter were all

half-height 5-1/4 inch double-sided floppy disk drives of 1.2 megabytes
formatted.

FF 542H.

The head assemblies used in IBM's 5-1/4 inch full-height double-sided
C

.

floppy disk drives arc assernbled in Hong Kong

The head

assemblies used in IBM's 5-114 inch half-height double-sided floppy disk drive

c

.

are assembled in Korea

FF 542T.

The head assemblies

were made in accordance with drawings and specifications provided by 1B:l.
These

head assemblies were procured by IBM purchasing pcrsonnrl in the United

States using normal procurcm~nt,procedurcs. Once selected, the vendor's

.

95

product was qualified by an onsite review of i t s proccss.,
performed by domestic IBM employees.

c

In

some instances,

f i n a l t e s t equipment for use by the vendor.

Product testing xas
IBM

has provided

FF 5 4 2 1 .

subject t h e i r head assemblies t o q u a l i t y control befori?

C

.

s h i p p i n g t h e m t o IBM.

-

IBM does not subject the imported head assemblies t o

quality c o n t r o l , b u t receives them d i r e c t l y into stock.

FF 542X.

IBM procures the printed c i r c u i t board, two motors, and a numbzr of minor

parts for use i n its head assemblies from offshore suppliers.

ApprOXimatPly

75 percent o f the material c o s t s of the cornplated printed c i r c u i t boards, the

completed motors, and the completed head assembly i s procured from offshore
suppliers.

Materials c o s t comprises 8 0 percent of the t o t a l production cost

of the IBN d i s k drive.

FF 5 4 2 5 .

I n December 1 9 8 4 , IBX employed about 10 individuals who were d i r e c t l y

involved i n the manufacture and assembly of i t s 5-114 i n c h doublc-sided floppy
d i s k drives, i n c l u d i n g assemblers and a manufacturing manager, and 37

employees indirectly involved.

Now there a r e 32 employees d i r e c t l y involved

i n t h e manufacturing process and 37 employees indirectly involved.
IBM Boulder w i l l continue t o manufacture 5-1/4

FF 5 4 2 s .

i n c h double-sided d i s k

drives u n t i l current commitments are met, a t w h i c h time IBN plans t o
discontinue s u c h manufacture.

IBM plans t o continue t o purchase complete head

assemblies from a foreign source for these drives during such t i n e .
Completion of the current commitments is expected around J u l y 1986. -FF 542K.
The reason 10:4 plans to cease the manufacture of d i s k drives is t h a t
management has decided that internal manufacture of 5 - 1 1 4

-

i n c h disk drives is

not E i n a n c i a l l y a t t r a c t i v e and t h a t there are adequate supplics,available i n

96

the marketplace.

IBM aanagement has therefore decided to,purchase such

.

drives, othet than the aforementioned commitments, from outside sources rather
than to make them internally.

IBM made the decision

the disk drives in late July 1985.

6.

to cease prohuction of

FF 542L.

Conclusion.
d

As

of December 6, 1984, the date on which the complaint was filed'in thio

investigation? the domestic activities of Tandon and its licensees, Tcxaa
Peripherals, Control Data Corporation, Shugart, and IBM, devoted to the
manufacture, distribution, research and d e w l o p e n t , and sale of double-sided
5-1/4 inch and 3-1/2 inch floppy disk driver constitute a domestic industry
for purposes of 5 337.
4

Cessation or limitation of domestic activities during

Commission ptoceedings does not underminr the conclusion that these activities
constituted an industry at the time the complaint was filed.

97

V.

EFFICIENT

AVD ECONOMIC 'OPE3ATION

In order to prevail under S 337, a complainant must establish that the
domestic industry is efficiently and economically Operated.

..

The guidelines

set forth by the Commission to assess whether a domestic industry is
efficiently and economically operated include: (1) use of modern equipment and
manufacturing facilities; (2) investment in research and development;
(3) profitability of the relevant product line; (4) substantial expenditures
in advertising, promotion, and development of conqumer goodwill; and

%, Certain

( 5 ) effective quality control programs.

Plastic Tubing, Inv. No. 337-TA-110, 218 U.S.P.Q.

Methods for Extruding

348 (1982); Certain Coin

-

Operated Audio Visual Games and Components Thereof, Inv. No. 337-TA-105,
216 U.S.P.Q.

1106 (1982); Certain Slide Fastener Stringers and Machines and

Components Thereof, Inv. No. 337-TA-85, 216 U.S.P.Q.

907 (1981).

A. Tandon
There are three important areas of exploration with respect to the
question of Tandon's efficient and economic operation.

The f i r s t issue

relates to the quality of the d i s k drives manufactured by Tandon both before
and after the complaint was filed.

The second relates to the effect of

Tandon's licensing policy on the domestic industry.
*

I

.

The third relates to

Pi-.

-

Tandon's buoiners structure vis-a-vis its offshore con'tractors and Tandon
Assoc iat e9

.

,:.

--:
-*.

.*

98

1.

Quality.

--. .

a.

.

.

.---

.

,

.

Pre-December 1984.

-

In 1982, Tandon became the largest independent (i.e., non-captivz)
nanufacturer of floppy disk drives sold to OE%s.

FF 612.

At that time,

Tandon's success was largely dependent on sales of full-height disk drives,
which dominated the market.

FF 596.

Tandon commenced production of

belt-driven balf-height disk drives (T:4 50, TM 55) in the fall of 1982.

FF 640A.

Due to production problems with these models, and the recognition

that the market desired direct-drive half-height disk drives, Tandon decided

to modify these models to incorporate a direct drive motor.

Tandon's problems with quality during the 1982-1984 pe&

FF 6408-40D.
.

--

can be traced

to its failure to develop a commercially viable direct-drive disk dr-ive until
,.

its' reliance on the problem-ridden TM 50 and TM 55 models in

lati 1984, an;
the interim.

FF 640E-405, 64.0M, 642-43, 64'7-49, 651-52, 656, 660, 661, 662,

-

Tandon's reputation was further

663A-63CI 664, 665; see Opn. at 126-30.

tarnished by its inability to deliver purchase orders of half-height disk
drives to certain customers during this period.
663, 664.

ET 640H, 653, 657, 658-59,

Tandon's quality problems during the 1983-1984 period in part

explains Tandon's current lack of success with sales of its T!4 65 after it
finally became available in late 1984, as some customers have refused to
evaluate the T H 65 because of quality problems with earlier Tandon models.

-

FF 640Rt 658, 661.
.-

Tandon endeavored to explain away the quality problems its customersencountered by attributing rejects to correlation problems between Tandon and
its customers, or problems at the OEYs themselves.
11-12 (Sept. 23, i985).

Tandon PEO Reply Brisf, at

It is evident that a portion of rejectid Tandon

99

disk drives would have Seen due to differences in technical testing procedures
among Tandon and its customers, or to problems at OEM customers rather than at
Tandon.

FF 643, 646, 650.

However, this does not offset the evidence of

record that OEMs were experiencing unusually high reject rates with Tandon
disk drives during 1983-1984, especially when compared to the low reject rates
experienced at Some OENs when they switched to other suppliers.

FF 663, 663CI

663MI 663P.

b.

Post December 1984.

Tandon developed a half-height disk drive, the TM 65, that became
commercially available to the market in August or September 1984.

FF 640K.

To date, Tandon has not been successful in narketing the TM 65 model.
FF 640N-40P.

There are several factors which nay explain Tandon's lack of

success in 1985 with respect to the TM 65.
First, Tandon's problems with the quality and availability of its
double-sided disk drives during 1982-1984 damaged its reputation in the
marketplace.

FF 640H, 640M, 640R, 658, 661.

At least five former customers

that had quality problems with Tandon disk drives now are neither purchasing
commercial quantities, nor evaluating Tandon double-sided disk drives.

FF

643, 649, 656, 659, 663.
Second, when Tandon's half-height 5-114 inch disk drive became available
in 1984, a large portion of the prinary-supplier marketing window for the 1.0
megabyte TM 65 was closed.

FF 640K, 640L; Opn.,

at 126-30.

Although the

marketing window for 1.6 megabyte disk drives opened during 1985, Tandon sold
C

only

of these drives in the first half of 1985 and had only.

order in June 1985.

Huenemeier, CX 835, at 2.

100

on

.

Finally,

:he

possibility exists that the ?H 6 5 is itself Suffaring f r o 3

quality deficiencies.

Given the problarns cxparienced by Tandon with the

quality of its disk drives through the end of 1984, the burden of proof is on
Tandon to show that it has corrected the quality problems associated with its
earlier balf-height 5-1/4 inch disk drives and turned the situation around
with its TM 65.

Some evidence suggests that the quality of the TZi 65 is good,

while other evidence suggests that quality problems persist.

FF 6 4 0 P ,

64OS-4QU; MRX 49C, at 41054; MRX 105C, at 52510, 52566-67, 52585.
There is no doubt that Tandon's poor quality reputation persisted in the
marketplace long after the complaint was filed.

The evidence of poor quality

produced by respondents placed the burden of going forward with evidence of
Tandon presented no current customer of the TIY 65 as

good quality on Tandon.
,

a witness to verify the quality of this drive or to demonstrate that quality
_.

Because of the small number of TM 65s sold to date,

is no longer a problem.

the evidence concerning the TM 65 quality is inconclusive.

An overall

evaluation of the evidence leads to the conclusion, however, that Tandon
suffers from a poor quality reputation in the marketplace.

2.

Licensing Policy.

Tandon's licensing policy has allowed major foreign and domestic
competitors to use Tandon's doubla-sided head assembly technology in their

-

disk drives, and has allowed potential customers to purchase double-sided disk

... .
5-

:

drives incorporating the '573 patent technology from a number of Tandon's
competitors.

ET 6668.

While Tandon's licensing policy has generated revenue

€or itself, it has also generated increased competition, particularly from
,.Eoteign companies.

1 01

Tandon's licensing of Shugart in 1990 had the effect of allowing Shugart
to market Matsushita-produced double-sided disk drives in the United States

FF 666H-661.

starting in 1983.

The record shows that Shugart/Matsushita

aggressively priced their products during 1983-1984.
666AA;

Cx

FF 666N-66R, 666T, 666X,

546, at 524617, 524636, 524654, 524690, 525471, 525482, 525776.

In

February 1985, a portion of Shugart's disk drive operations was sold to
Matsushita.

FF 666L.

In the same month, Tandon gave Matsushita the right to

make, have made, use and sell double-sided floppy disk drives incorFrating

FF 666M.

the '573 patent anywhere in the world.

Tandon subsequently faced

price competition directly from Matsushita during 1985.
666V, 666W, 666BB, 666DD, 666FF; CX 551.

FF 666K, 666"

6662,

Tandon has recently entered into
I

license agreements with TEAC and Sony.

FF 9-12.

-

With respect to the licensing of potential customers, Tandoti licensed
Hewlett-Packard (H-P) in 1980 and IBM in 1984.

-

FF 6668.

-.

These license

agreements gave H-P and IBM the right to make, have made, us@, and sell
double-sided disk drives utilizing the '573 patent, and in effect gave a
license to any supplier from whom they purchased floppy disk drives.

FF 66611, 666KK.

H-P decided to use a 3-1/2 inch disk drive rather than a

5-1/4 inch disk drive in a new computer model, and since the beginning of 1985
has purchased 3-1/2 inch disk drives from Sony.

FF 66655.

Mitsubishi

recently disclosed that it has contracted to sell 250,000 double-sided 3-1/2
inch disk drives to IBM, with production to begin in the-spring of 19.86.
FF 666LL.

-.

' 5 .

-?-

.

-

.

..-

lo 2

-

Tandon's licansing policy has

thus

generated competition from o v e ~ s a i s

suppliers that has led and will lead to additional pricc pressure in the
double-sided disk drive market.

Tandon's licensing policy may also have cost

itself sales opportunities at two large potential customers, 8-P and IBM.

It

cannot be determined whether these business decisions show that Tandon is
inefficient and unsconomic.

In the short run Tandon benefited from

substantial license payments and technology exchange, but in the long run i t
appears that Tandon's licensing policy contributed to its deteriorating market
posit ion.

3. Business Structure.

.

i

A l l of Tandon's 5-1/4 inch double-sided disk drives are assembled

offshore, either at its Singapore subsidiary or by contract at Eastern

-.Peripherals in India.

Huenemeier, Tr. 436, 449-50: Mitchell, Tr. 3247-48.

Because the.large portion of Singapore-produced disk drives are shipped
directly from the Tandon subsidiary to

IBM

in Singapore, this analysis will

focus on the business relationship between Tandon and its Indian opeKations.

FF 467, 469-70.
Tandon contracts with various Indian companies for the assembly or
purchase of disk drive components used by Tandon or for completed 5-1/4 inch
Only Eastern Periperals assembles completed disk drives.

disk drives.

,

FF 628-30.

.

Tandon believes it benefits in terms of material and assembly

....

.s;-:-

,.

I

costs by assembling disk drives overseas rather than in the Unitsd States.FF 630.

1 03

Tandon Associates i s located i n the.United S t a t e s and coordinates t h e ,
Contract assembly and purchase transactions between Tandon and the Indian
FF 631-31K.

contract companies.
FF 632.
C

Tandon Associates i s independent o f Tandon.

The principal purpose of purchasing d i s k drives through Tandon

.

Associates, rather t h a n d i r e c t l y from the I n d i a n contractors, is t o

C

C

C

FF 632A.

C

I t i s l i k e l y t h a t t h e addition of one nore layer i n . t h e procurement

process

(k
Tandon
,Associates)

has l e d t o c e r t a i n i n e f f i c i e n c i e s and .

additional c o s t s that would not be present i f Tandon dealt d i r e c t l y w i t h the
Indian companies.

For example, Tandon Associates adds a markup and c e r t a i n

additional chatqes for t h e drives it imports from India when it s e l l s these
C

d i s k drives t o Tandon.

FF 631F, 6311.

C

.

C

Mitchell, Tr. 3275.

F i n a l l y , it is possible that by dealing w i t h t h e Indian contractors through
Tandon Associates rather than d i r e c t l y , Tandon has less than optimal control
over t h e production process i n India, w h i c h may explain i n part some of the
past quality problems Tandon has had w i t h its Indian-produced d i s k drives.
Tandon's decision t o lower c o s t s through cheaper overseas labor rather
than through automation may a l s o explain i n part t h e quality problems it has
had w i t h i t s Indian-produced d i s k drives.

One of the main advantages of

automated production methods is that l e s s material is wasted and r e j e c t r a t e s
are lower.

X a l m g r t n , Tr. 5 0 5 2 - 5 4 ,

5957.

10 4

The imposition of the extra layer in the procurement process may have been

c

necessary to protect Tandon from

Oversoas assembly

was probably also necessary to lower costs, though there is littlb information

of record to ascertain the costs and benefits to Tandon of pursuing lowt?r ,

Costs through offshore assembly as opposed to automation.

TherefOK@, although

Tandon's business structure with respect to its decision to move overseas and
utilize the services of Tandon Associates may have added certain
inefficiencies and additional c o s t s , this is not sufficient in and of itself

to reach a determination that Tandon is uneconomic and inefficient.

4. Conclusion--Tandon.
Basad on certain measures, such as RLD expenditures, profitability, and
,

employee benefits, Tandon appeared to be an efficient and economic operation
during 1983 and 1984.

FF 615, 619, 625-27A.

However, the record also shows

that during this same period, Tandon's success was predominantly the result of

c

its reliance on sales of full-height disk drives.

In 1984, Tandon

C

on its full-height disk drives, but in both 1983 and 1984 it

C

on its half-height 5-1/4 inch disk drives.

FF 615D-1%.

The ability

to supply the market with a quality product is critical for success.
Therefore, Tandon's significant problems with the quality of its half-height
5-1/4 inch disk drives during the period January 1983 to December 1984
resulted in a reputation for poor quality in the period December 6 , 1984, .to
date.

10 5

B.

Texas Peripherals
A

determination with respect to the efficient and economic operation

Of.

Texas Peripherals (TP) is complicated because TP was a joint venture owned by.
Tandon and Tandy.
'

The joint venture agreement placed certain restrictions-on

TP's double-sided disk drive materials procurement and sales alternatives.
FF 666.W.
Since purchase orders from Tandon and Tandy were only for one months's
Supply at a time, TP had a difficult time negotiating favorable pricing for

C J . larger quantities of raw materials.

FF 668A.

In addition,

C

C

.

C

FF 667B.

Finally, as of December

1984, most of the parts received by TP from Tandon were not standard, so that

I.

every drive produced by TP had to be "custom built" to insure quality and

c

reliability t o Tandy.

c

received from Tandon and
Tandy.

for head assemblies

TP experienced

for completed TP drives shipped to

FF 667E-67G.

Under the joint venture, T P could sell only to Tandon or Tandy unless
given permission to sell to a third party.

FF 795.

Therefore, TP was

restricted in terms of the market it could pursuer and this in turn restricted
its ability to produce in the volumes necessary for efficient operation.
TP never really got the doublc-sided portion of its business off the

c

ground, producing a total of only

doublt-sided disk drives.

FF 796;

The record shows that TP's problems with the quality of its double-sided disk
drives were largely attributable to lack of support from Tandon,

106

These

,

quality.problcms delayed TP's qualification at Tandy, which in turn
contributed to the fact that TP never produced commercial quantities of

c

double-sided disk drives.

.

TP's equipment is

Ff 509A-09Gt 806G.
TP had successfully produced singlc-sided disk drives for years before
Tandon joined the joint venture.

c

CX

722; Huenemeier, Tr. 301.

of April

TM 100s and

15, 1985, TP had outstanding purchase orders for

TM 65-1s, both single-sided products.

As

The TM 65-1 is mechanically the same a s

the TM 65-2, except for the double-sided head assembly supplied by Tandon.
FF 797.

Therefore, TP was efficiently and economically operated, because TP's

problems with respect to double-sided disk drives are attributable to lack of
support from its joint venture Odntrs, rather than to the internal operation
of TP itself.

See Opn.
-

at 79-84.

c. Shugart
Shugart's double-sided disk drive product lines experienced continued and
sustained profits until the end of the second quarter of 1984, when its
3-112 inch floppy disk drive business substantially deteriorated and the
5-1/4 inch double-sided disk drive market experienced a significant drop in
product pricing.

FF 6691.

Shugart had installed a new equipment and a

progressive assembly line, which used automated testing equipment, for its
Neun, CX 821, at 10.

3-112 inch product line.

c

expended approximately
development.

FF 668F.

Shugart had traditionally

percent of its gross sales on research and
As

of December 6, 1984, Shugart had an employee

benefit package which included life insurance, health insurance, dental
insurance, vision care, and pension and bonus plans.

107

.

FF 666D.

S h u g a r t f a i l e d t o d e v e l o p i t s own h a l f - h e i g h t

5-1/4 i n c h d o u b l c - s i d e d d i s k

d r i v e , and i n s t e a d c o n t r a c t e d w i t h Matsushita i n 1 9 8 3 f o r a s u p p l y of
half-height

drives.

FF 669w.

Shugart's f a i l u r e to develop half-height disk

d r i v e s d o e s not l e a d t o a d e t e r n i n a t i o n t h a t S h u g a r t was i n e f f i c i e n t and

uneconomic.

Once S h u g a r t r o a c h e d the conclusion t h a t it c o u l d not d e v e l o p a

commercially v i a b l e half-height
purchase half-height

p r o d u c t , it made a b u s i n e s s d e c i s i o n t o

d i s k d r i v e s o f f s h o r e a t a p r i c e it b e l i e v e d would e n a b l e

it t o earn a p r o f i t on sales.

FF 3 3 0 , 3 3 2 - 3 4 ;

S h u g a r t was e f f i c i e n t l y and e c o n o m i c a l l y o p e r a t e d .

D.

-

S e e Opn. a t 0 9 - 9 4 .

CDC

I n 1 9 8 3 , CDC had a p p r o x i m a t e l y a 20 p e r c e n t share of the. f u l l - h e i g h t
5-1/4

i n c h f l o p p y d i s k d r i v e b u s i n e s s and a miniaal p e r c e n t a g e

of t h e

I n 1 9 8 4 , CDC's share of t h e

half-height

5-1/4

i n c h disk drive business.

half-height

5-1/4

i n c h d i s k d r i v e b u s i n e s s had grown t o a b o u t 10 p e r c e n t , b u t

by A p r i l 1 9 8 5 , i t s market share had f a l l e n t o two p e r c e n t .

FF 6 6 9 .

During

t h e p e r i o d 1 9 8 0 to 1 9 8 3 , CDC r e a l i z e d p r o f i t s each y e a r from t h e f l o p p y d i s k
d r i v e business.
C

FF 669A.

I n 1 9 8 4 , CDC expended a p p r o x i m a t e l y
development for floppy d i s k d r i v e s .

inillion for r e s e a r c h and

A l l RLD took p l a c e i n t h e U n i t e d S t a t e s ,

and v i r t u a l l y a l l of it r e l a t e d t o d o u b l o - s i d e d d i s k d r i v e s .

FF 6 6 9 8 .

In

1 9 8 4 , CDC d e c i d e d t o move most of its f l o p p y d i s k d r i v e b u s i n e s s offshore
C

b e c a u s e t h e cost of p r o d u c t i o n in t h e F a r E a s t was a b o u t

less t h a n i n t h e United S t a t e s .

FF 669C.

108

to

per u n i t

S e e Spn.
-

P I X was efficiently and sconomicaiiy o p e r a t a d .

a t a5-39.

I B X , on an ongoing basis, engages in research and development at its
.

Boulder, Colorado, facility in connection with the products it nanufacturers
for the purposes of designing new products and i.?proving the designs and
features of its current products.

Such research and development activities

have included research and development activities with respect to I9N's
5-1/4

inch double-sided floppy 3isk drives and the components used in such

drives, including the head assemblies.

FF 6 8 8 3 .

The IBM employee benefits program provides protection, security, 3nd

.

opportunity.

IBi'4 intends to maintain an average level of pay that is high&

than the average level for similar skills in other companies with which

-

IBM

competes for employees and with which it competes in the marketplace, thus
assuring that I B Y rates will be competitive.
wage rates have been competitive to date.

IBll

FF 6831.

IB!4 was efficiently and ccononically operated.

108a

management believes that its

% Opn. at

94-97.

F. Conclusion
The difficulties experienced by :he

domestic industry during l9E3-1935

were primarily the result of a rapid shift in the market demand from'

full-height to half-height 5-1/4 inch drives, and the inability of :hi? Unitsd
States industry to develop and successfully market a domestically prodilccd
half-height 5-1/4 inch double-sided drive.

--See

Opn. at 110-12, 125-35.

A

rapid price decline also took place in the market as a result OE several
factors, including the market entry of numerous double-sided floppy disk drive
suppliers and the downturn in the computer industry.

Given the severity and

rapidity of the market change and price decrease, it would be difficult t o
conclude that the failure of U.S. disk drive producers to sufficiemtly cut
costs while attempting to restructure their produce lines constitutes
inefficient and uneconomic operation.

Indeed, Tandon and CDC reacted to

competitive price pressures by moving assembly to lower-cost offshore
operations,.and Shugart opted to enter into a purchase agreement with a
Japanese supplier

.

With the exception of Tandon's operations during 1983-1994,
that the poor quality of Tandon's half-height 5-1/4

and ths affect

inch disk drives had on

Tandon's reputation during 1985, the firms within the domestic industry as o f
December 6, 1984, were efficiently and economically operated.

Therefore,

domestic industry as defined under 5 337 is as a whole efficiently and
economically operated.

109

?be

,

VI.

AS

INJURY

a final element in a 5 337 investigation, complainant must show t h a t

respondents' unfair methods of competition and unfair acts have the effect or
tendency to destroy or substantially injure the domestic industry.
S 1337(a)

unfair act.

19

U.S.C.

Injury requires proof separate and independent from evidence of an
Complainant must establish a causal relationship between

respondents' unfair acts and the injury suffered as a result of such acts.

A.

Overview: The 1982-1985 Domestic Floppy Disk Drive Market
The United States market for computers and double-sided floppy disk 'dri.Ges

exhibited signiffcant growth beginning in 1981 and continuing through 1983.

'

Sales of double-sided disk drives in the United States increased from 350,000

drives in 1980 to 3,951,000 drives in 1983.

FF 670.

Double-sided 5-1/4 inch

disk drives experienced the most significant growth in 1983 sales, increasing
from 804,000 units sold in 1982 to 3,496,000 units sold in 1983.

FF 670.

This overall sales increase was reflected in sales by individual companies:
Tandon's sales of dauble-sided disk drives increased from 498,000 drives in
1982 to 1,084,600 drives in 1983.

ET 682.

Shuqart's sales increased from

78,900 drives to 215,900 drives over the same period.

FF 683.

CDCls.salcrs

increased from 81,600 to 421,800 drives. Micro Peripheral's sales increased
.-- -from 65,900 -drives to 401,200 drives. FF 683-85.
5-

The estimated market price for 5-1/4 inch full-height doublekidad floppy
disk drives.in mid-1983 was $150 to $200 ger drive and for 5-1/4 inch
half-height double-sided disk drives, $125 to $135 per drive... . FF 694-95.

110

By

the end
Unit.

Of

1983, prices for balf-height disk drives closed at about 8117 per

EF 677, 6915, 696A, 697.

In 1984, declines in the price of disk drives
(1) the emergence of numerous

were attributable to at least three factors:

foreign manufacturers in Japan and elsewhere; (2) a rapid and broad-based
industry trend toward lower-priced, half-height 5-1/4

inch floppy disk drives:

and ( 3 ) intense price competition in the personal computer industry and
corresponding price pressure on disk drive suppliers from OEM firms.
The burgeoning competition from Japanese disk drive suppliers is partly
the result of a mid-1981 request for quote ( R F Q ) by Nippon Telephone and
Telegraph (NTT) for 100,000 to 500,000 half-height doublc-sided floppy disk
.-.

drives.

FF 671-77.

- .

._

The RFQ, which was one of the largest orders in the,

-

world, required that successful recipients demonstrate some production
capacity.

NTT limited its request, however, to 15-20 Japanese companies at- a

time when only TEAC, Mitsubishi, and Matsushita had sufficient disk drive
capacity.

No United States companies were requested to quote.

FF 672-74.

Matsushita, which held a licensing agreement with Shugart, warned Shugart that
the NTT RFQ would generate excess capacity in the Japanese disk drive market
and result in sales of Japanese disk drives to the United States.

FF 675.

Matsushita informed Shugart that Japan's Ministry of International Trade and

Industry had decided that computer peripherals, including floppy disk drives,
would be an important area o f endeavor for Japanese industry in the 1980s.
FF 676.

*.; .
Shuqart first faced price competition from Japanese companies in
. ,

w .

Surope in midi1983, then in the United States in late 1983.

FF !77.

The market trend in floppy disk drive demand may be broadly characterized
as heading towards smaller size, higher capacity drives.

Product life cycles
C-

are also relatively short.

FF 692A-928, 697.

From 1982 to 1983, the market

for double-sided floppy disk drives changed structurally from full-height to

,

111

half-height

drives.

The h a l f - h e i g h t

v e r s i o n o f t h e 5-1/4 i n c h d o u b l e - s i d e d

d i s k d r i v e i n c r e a s e d i t s w o r l d market s h a r e from 24.8
p e r c e n t i n 1983.

FF 691.

p e r c e n t i n 1982 t o 54.7

B o t h Tandon a n d ShUgaKt e x p e r i e n c e d s i g n i f i c a n t

d i f f i c u l t i e s d u r i n g t h i s p e r i o d a n d t h r o u g h 1984 i n d e v e l o p i n g a n d n a r k e t i n g a
,

d r i v e a n d f a i l e d t o c a p i t a l i z e on t h e s h i f t from f u l l - h e i g h t

half-hei9ht.dis.k

Shugart' n e v e r s u c c e s s f u l l y d e v e l o p e d a

to half-height drives.

FF 692-93.

competitive half-height

p r o d u c t a n d f i n a l l y h a d t o contract w i t h H a t s u s h i t a t o

p r o v i d e it w i t h a s u p p l y of h a l f - h e i g h t
have a viable half-height

disk drives.

Tandon d i d not

FF 693.

d i s k d r i v e a v a i l a b l e u n t i l mid t o l a t e 1984.

FF 640A-404, 692, 835A, 836, 843A-43K.

As a consequence, U.S.

producers,

w h i l e c a p t u r i n g 96 percent of t h e w o r l d m a r k e t increase i n 5-1/4
full-height
a

. .

d i s k d r i v e s a l e s between 1982 a n d 1983, c a p t u r e d o n l y 16 p e r c e n t

of t h e increase i n t h e w o r l d m a r k e t for 5-1/4 i n c h h a l f - h e i g h t

sales d u r i n g t h i s same time p e r i o d .

ET 69lA.

T h e r e f o r e , w i t h t h e passage

- >

of h a l f - h e i g h t d r i v e s a n d

c a p t u r e d large a n d increasing s h a r e s of t h e h a l f - h e i g h t

FF 691A.

disk drive

Japanese s u p p l i e r s e n t e r e d t h e

f l o p p y d i s k d r i v e m a r k e t p r i m a r i l y as s u p p l i e r s

1984.

inch

m a r k e t i n 1983 a n d

of time, d o m e s t i c f l o p p y d i s k

d r i v e s u p p l i e r s necessarily lost t h e i r s h a r e of t h e 5-1/4 i n c h d o u b l e - s i d e d
d r i v e m a r k e t as OEMs s h i f t e d from f u l l - h e i g h t

to h a l f - h e i g h t products.

T h e f l o p p y d i s k d r i v e m a r k e t was r e l a t i v e l y p r i c e s t a b l e u n t i l mid-1984.
T h e m a r k e t t h e n became unstable as d i s k d r i v e prices d r o p p e d an a v e r a g e o f $ 1 0
-.

- +.;=-.*

Pi..

'

_I

p e r u n i t each5pIonth.

., - .
.

e '
r

.

FF 696.

5-1/4 i n c h d o u b l t - s i d e d

By t h e e n d of 1984, p r i c e s for f u l l - h e i g h t

d i s k d r i v e s r a n g e d b e t w e e n $85 a n d $95 p$r u n i t :

By

A p r i l 1985, p r i c e s for t h i s p r o d u c t r a n g e d b e t w e e n $65 a n d $85 p e r u n i t .

FF 694.

P r i c e s for h a l f - h e i g h t

5-1/4 i n c h d o u b l e - s i d e d

$85 p e r d r i v e a t t h e end o f 1984.

disk drives equaled

..-

FF 695.

112

P r i c e s continued to d e c l i n e such

that current prices fot 5-114 inch half-height disk drives to major custoaers
are as low as $55 per drive for sales of 48 TPI, 0.5 megabyte drives.
C

FF 691Gv 6911.

(

.I

C

Price erosion is alleged to

major factor in Tandon's and Shugart's decreased profitability.

be

a

FF 678, 811.

Currently, there are between 25 and 50 suppliers of floppy disk drives,
many supplying disk drives produced in Japan.

One market analyst estimated

that 10 suppliers could satisfy today's market demand.

FF 691E-91F.

The

oversupply of disk drives during a period of reduced demand has contributed to
the overall price decrease in the doubls-sided disk drive market.

B.
I .

Substantial Injury
Several factors are relevant to a determination of substantial i n j x y to a

domestic industry, including, but not limited to:

(1) lost and declining

sales; ( 2 ) volume of imports and capaciiy to increase imports: (3) loss of
market share; (4) lost customers: ( 5 ) decreased employment: (6) decreased
production and profitability: (7) underselling: and (8) excess domestic
Capacity.

E.Q.,

Certain Vertical Milling Yachinas, Inv. No. 337-TA-133

(1984); Certain Drill Point Screws for Drywall Construction, Inv.
337-TA-115 (1983): Spring Assemblies, 216 U.S.P.Q.

Units, Inv. No.

3 3 7 - ~ ~ - 4 4 ,208 u.S.P.Q.

at 242-45; Certain Roller

141, 144 (1979).

113

NO.

6-

Injury to Complainant and Its Licmsees.

1.

5

. a.

Tandon.

Tandon's net income earned on its overall operations increasad from about
$1.5 million in fiscal year 1980 to about $29.4 million in fiscal year 1984.

FF 807.

The ratios of net income to net sales for these fiscal years,

however, remained $essentially constant:
1983--7.8%:

€7' 808.

and 1981--7.3%.

1980--7.6%;

1981--8.3%;

1982--10.5%;

Tandon's net income decreased

substantially as it suffered its first losses beginning the third quarter
The ratio of net income to net sales for calendar year 1984 and first

1984.

quarter 1985 are as follows:

1Q 1984--9.9%:

(parenthesis indicate loss): 4Q 1984--(17.0%);

2Q 1984--7.6%:

3Q 1984--(7.6%)

-

FF 810:,sce

1Q 1985 (32.6%).

FF 809.
A

C

t&tal of approximately 3,353,200 double-sided 5-114 inch disk drives

were sold in the United States in 1983.
drives; of'

L1

double-sided

Tandon sold

percent of the 1983 market.

Virtually all of Tandon's sales

of 5-1/4 inch floppy disk drives consisted of full-height units, and Tandon
~

i

was the leading 5-114 inch full-height manufacturer.

share for half-height drives, however, was virtually nil.
*

c

c

Tandon's''sa'1es

~

i

FF 398h.

Between 1983 and 1984, Tandon's sales of doublt-sided floppy disk drives

decreased from

C

Tandon's 1983 market

units to

units.

FF 812-13.

During 1984,

of double-sided floppy disk drives decreased from

in the first half of the year to

units in the-second half df the

units

C

year.

FF 814.

percent of Tandon's total floppy disk drive

Approximately

.

business in fiscal year 1984 was double-aided: however, Tandon sold only
double-sided half-height 5-1/4 inch floppy disk drives during this .

C
C

period after it had projected sales of

C

the period July 1904 to June 1985, Tandon sold only about

Sn

FF 399-931\, 8148.

units.

..

half-hcight

5-114 inch double-sided disk drives, and Tandon estimates that it will sell
C

PP 814A.

during the period of September through December 1985.

only

For the fiscal year which ended September 30, 1985, Tandon originally
projected sales of its S-114 inch half-height double-sided floppy disk drives
C

equal to

, including

$

first three quarters.
C
' C

As

projected sales of

units through the

a result of sales below projections, this fi9ut.c was

revised downward in February 1985 to

units,

this lower estimate, shipping approximately
quarters of fiscal year 1985.

FF 814C.

Tandon has failed to neet
units ih the first three

Tandon has not been able to penetrate
*

the half-height 5-114 inch double-sided floppy disk drive nrarket to'any
significant degree.

FF 014A-14C.

Between January 1984 and January 1985, Tandon l a i d off 1,450 employees

from its doaestic floppy disk drive division,

PP 815C.

Part of this decline

is attributed to the restructure of Tandon's manufacturing opetations to
emphasize offshore production of mature ptaduct lines.
FP 815A-15B.

?? 815:

In December 1984 and January 1985, Tandon terminated 197 United

States employees (Engineering-22:

Production--170; and Purchasing--5),

-The

engineers were laid off because Tandon's expenditures were not appropriate for
the amount of profits being generated.

FF 8150.

From January 1985 through

July 1985, Tandon laid off 167 emplc?jyees in the flexible disk drive and head

115

.

Tandon's decrease in personnel Sctween January and Jul:r

division.

1985 is

'attributable to erosion in the! demand for Tandon floppy disk drives.

FF 815E.

In May 1985, Tandon vacatad and sublet a substantial portion of its

plant facilities because the employee layoffs left Tandon with substantial
FF 815F.

excess space.

b.

Texas Peripherals.

Texas Peripherals (TP) is a joint venture owned equally by Tandy
Corporation and complainant.

TP was formed for the purpose of manufacturing

disk drives in the United States for sale either to Tandy or Tandon.
became a member of this joint venture in January 1984.

Tandon

FF 760-61.

.

-

On April 25, 1984, TP's projected production of half-height double-sided
floppy disk drives was 1,000 units for October 1984, 32,350 units for November
-_
1984, and 28,230 for December 1984. TP forecasted continued growth of its
floppy disk .drive production such that by Fcbruary-March-April 1985, TP
c

planned to ship 68,652 drives a month, 50,052 of'which would be half-height,
doubls-sided floppy disk drives.

FF 764.

The projected average selling price

for the half-height, double-sided drive was $86 per unit.

FF 765.

TP's profit plan for fiscal year 1985 indicated that production of the
half-height 5-1/4 inch double-sided disk drive was scheduled to begin October
1984 so that by May 23, 1985, production of this floppy disk drive was
expected to reach.30,000 units per month.
*.

.

This level of production.was less

c.-

than originally ahticipated because Tandy had decided to continue to use a
full-height product in one of its computers instead of switching to a
half-height-product, but volume buying of 30,000 units per month was
..-

116

s u f f i c i e n t t o achieve reduced costs for the T P floppy d i s k drive.
As

of September 1 9 8 4 , $ 2 6 4 , 3 0 0 of the budget for tooling had bean committed' to

vendors to fabricate t h e t o o l i n g for the TM 65 product.
On October 9 * 1 9 8 4 , TP received
C

.

C

Computers a l s o

C

FF 782.

-

.-.-.- ..-.

.

-.

FF 770.

an order for 6 , 0 0 0 u n i t s of the TM 65-2

floppy d i s k drive from Tandy Home Computers.

C

FF 775.

TP

-

FF 776; see FF 776-81.

Tandy Home

. .

-

*

per u n i t .

C
C

FF 771-73.

By February 1 9 8 5 , however, TP would hav

a

FF 788.

eeded t o qu l i f y i t s product a t $

per u n i t i n order t o get a purchase order from Tandy Home Computers.
C

TEAC and

had competed w i t h TP for the Tandy Home Computers' business, a n d

TEAC had proposed

I

C

per u n i t .

$
0

C

AS

Both

a modified version of its douSle-sided floppy d i s k drive for

FF 789,

of February 12, 1 9 8 5 , the lowest projected t o t a l cost for the TM 65 was

somewhere i n the $

to

$

price range for an order of

half-height floppy d i s k drives per month.

f ull-height and

A t t h i s p r i c e , TP's p r o f i t s on the
and

an

C

sale of floppy d i s k drives would be between

C

average end of the year net p r o f i t before taxes of less t h a n

C

Even a t t h i s optimistic figure, TP would have been required t o sell a t $

C

above the TEAC price.

percent, w i t h

percent

Such a p r o f i t l e v e l was

C
C
C

FF 790.
recommendation was made t h a t Tandy Home Computers

C

117

The

.

.

.

The i n t a n g i b l e b e n e f i t o f p r o x i m i t y t o t h e customer. b a s e no l o n g e r

a manufacturing f a c i l i t y

a p p e a r e d t o b e a v i a b l e c o n d i t i o n for m a i n t a i n i n g
devoted to t h e h a l f - h e i g h t d r i v e .

FF 7 9 1 .

Tandy Home Computers c a n c e l e d i t s o r d e r w i t h TP for 6 , 0 0 0 u n i t s o f the
TM 65-2

f l o p p y ' d i s k d r i v e i n March 1985.

I f TP had been p r i c e

FF 793.

c o m p e t i t i v e with r e s p e c t to t h e o t h e r floppy d i s k d r i v e vendors, t h e

uualification p r o c e s s for i t s d r i v e s would h a v e c o n t i n u e d .

F'F 792.

I

Tandy

Home Computers h a s awarded some o f i t s d o u b l e - s i d e d f l o p p y d i s k d r i v e b u s i n e s s
to

FF 793.
TP a s s e m b l e d i n i t s p l a n t a p p r o x i m a t e l y 15,000TM 65-2 f l o p p y d i s k d r i v e s .

A s s u c h , TP

never produced a " p r o d u c t i o n a u a n t i t y ' of t h e TM 65-2, t h a t i s , an

order of 15,000 d r i v e s

a month of any one t y p e .

December 1984, TP had produced

FF 796.

However, as o f

u n i t s of t h e TM 65-1, a h a l f - h e i g h t

i n c h s i n g l e - s i d e d d i s k d r i v e and as o f A p r i l 1 5 , 1985, had o u t s t a n d i n g

5-1/4

p u r c h a s e o r d e r s for
mechanical p a r t s

FF 797.

TM 65-1s.

E x c e p t for t h e head a s s e m b l y , t h e

of t h e TM 65-1 are t h e same as those found i n t h e TM 65-2.

T h e r e f o r e , it i s not u n r e a s o n a b l e to postulate t h a t TP, g i v e n

a d d i t i o n a l time, c o u l d have produced
drives
As

a month.

TM 65-2 d o u b l e - s i d e d f l o p p y d i s k

-

FF 798: see FF 792.

o f A p r i l 15, 1985, TP employed 350 p e r s o n s .

During t h e month

1985, TP p l a n n e d to l a y o f f a p p r o x i m a t e l y 25 to 50 employees.
p l a n n e d t o l a y o f f an a d d i t i o n a l 75 to 1 0 0 employees.
TP

of A p r i l

I n May 1985, TP

- T h o s e employees l e f t a t

were suppose to continue p r o d u c t i o n o f current o r d e r s for t h e TM 6511 u n t i l

July 1985,

a t which time t h e y were t o be l a i d off.

FF 498, 806.

TP h a s

s t o p p e d p r o d u c t i o n o f f l o p p y d i s k d r i v e s and h a s no p l a n s t o resume

118

-

production.

F F 806A.

The T e x a s P e r i p h e r a l s

I

Joint V e n t u r e Committee r e c e n t l y

c o n c l u d e d t h a t TP'S p r o d u c t i o n ecruipment would be s t o r e d pending the

Commission's r u l i n g on permanent r e l i e f .

C.

FF 509A-09GI

806D.

Control Data C o r p o r a t i o n .

Control Data Corporation (CDC) was g r a n t e d a license by Tandon on
September 3 0 , 1 9 8 4 , to manufacture and s e l l d i s k d r i v e s under t h e ' 5 7 3

patent.

FF 7 2 2 .

C D C ' s i n d u s t r y p o s i t i o n i n 1 9 8 3 approximated 20 p e r c e n t o f
f l o p p y d i s k d r i v e market and a m i n i m a l p e r c e n t a g e o f the

the full-height

h a l f - h e i g h t f l o p p y d i s k d r i v e market.

FF 7 2 5 .

1 9 8 4 approximated 2 0 percent o f t h e f u l l - h e i g h t

CDC's i n d u s t r y p o s i t i o n i n
f l o p p y d i s k d r i v e market and

1 0 p e r c e n t o f t h e h a l f - h e i g h t f l o p p y d i s k d r i v e market.
I

FF 7 2 6 .

CDC's

current i n d u s t r y p o s i t i o n a p p r o x i m a t e s more t h a n 20 percent o f t h e f u l l - h e i g h t
d i s k d r i v e market and two p e r c e n t o f t h e h a l f - h e i g h t
market.

FF 7 2 7 .

Most o f CDC'S f l o p p y d i s k d r i v e s were 5-1/4

or f u l l - h e i g h t d r i v e s .
sales.
5-1/4

floppy d i s k d r i v e
inch half-height

The o l d 8 i n c h d r i v e s c o n s t i t u t e d about

percent of

percent of t h e f u l l - h e i g h t and almost a l l o f t h e h a l f - h e i g h t
i n c h d r i v e s were d o u b l e - s i d e d .

I n 1 9 8 3 , CDC s h i p p e d about

units.

FF 7 2 9 .

FF 7 3 2 .
worth o f f l o p p y d i s k d r i v e s or

$

CDC'S f i v e - y e a r m a n u f a c t u r i n g p l a n p r e p a r e d i n l a t e

1 9 8 3 f o r e c a s t e d i t s 1 9 8 4 reauirements for 5-1/4

at

units and 1 9 8 5 reauirements as

inch half-height disk drives

units.

ET 7 3 3 .

This

-

forecast u n d e r e s t i m a t e d CDC's 1 9 8 4 reuuirements b e c a u s e by December 3 0 , 1 9 8 4 , CDC had s h i p p e d
FP 7 3 0 .

u n i t s or a b o u t $

A h 0 by December 3 0 , 1 9 8 4 , CDC had

119

worth o f d i s k d r i v e s .

firm 1 9 8 5 p u r c h a s e o r d e r s for

C

floppy disk drives and had projected a h i g h probability sales forecast

c

of

3

projected 1985 sales to about

c

connitment to its offshore supplier to build

units.

FF 731.

By April 1985, however, CDC had to reduce its
units even though it had aiready made a ,
floppy disk drives.

CDC is obligated to pay for the offshore assembly of approximately

FF 734.

floppy disk drives for the remainder of 1985, of which over

C

~

are douSle-sided 5-114 inch half-height floppy disk drives.

percent

FF 734A.

CDC is

obligated to accept delivery of these units whether or not it has resale
orders from OEM customers.

FF 7 3 4 8 .

Based upon CDC's cost of production in the United States, CDC in the third
quarter of 1984 started to question whether it should stay in the floppy disk
drive business and decided in September 1984 to move production of disk drives
offshore.

FF 739, 751.

In October 1984, CDC laid off 450 individuals from

its Oklahoma City facility.

FF 750.

In April 1985, as the result of CDC's

decision to phase out its domestic operations, CDC laid off an additional 150
employees.
C

FF 751.

approximately

to

CDC as of April 1985 continued to assemble and test
percent of its requirements for half-height 5-1/4 inch

double-sided floppy disk drives at its Oklahoma City facility.

FF 740.

If

CDC does not resume floppy disk drive production at its Oklahoma City
facility, the facility, as well as equipment used there, will probably be
sold.
C

FF 759E.

In 1984, CDC experienced a write-down and operating l o s s of
its floppy disk drive business.

c

FF 748.

million in

As of April 1985, CDC was operat-ing

its 5-114 inch floppy disk drive business at a loss of S
PF 747.

$

million a month.

Based upon monthly analyses beginning in the fourth quarter of 1984,

120

.

.

c

CDC d e c i d e d i n F e b r u a r y 1 9 8 5 t h a t

.

C
C

s u b j e c t remained the same i n August 1 9 8 5 .

CDC's p o s i t i o n

on t h i s

FF 7 4 9 , 759G.

C

c

.

C

FF 7 5 9 6 .

CDC's d e c i s i o n

C
C
C

d.
Shugart

,

Shugart.

.

was formed i n t h e mid-1970's

by A l l e n S h u g a r t and several key:

employees who had worked together

a t IBM and Nemorex on d i s k d r i v e d e s i g n s .

FF 7 0 2 .

was a s i n g l e - p r o d u c t company w i t h sales o f

By J a n u a r y 1 9 7 6 , S h u g a r t

million t o $3.0 million i n 1 9 7 5 and actual sales o f 9 9 . 0 million for

$1.5
1976.

T h e s i n g l e p r o d u c t was an 8 i n c h s i n g l e - s i d e d f l o p p y d i s k d r i v e , which

s o l d for $400 t o $ 5 0 0 per u n i t .

FF 703.

C o r p o r a t i o n on December 16, 1 9 7 7 .
Tandon on J u l y
patent.

FF 315.

S h u g a r t was a c q u i r e d by Xerox
S h u g a r t was g r a n t e d a license by

1 , 1 9 8 0 , t o manufacture and s e l l d i s k d r i v e s under t h e ' 5 7 3

FF 3.

By t h e end of 1 9 8 1 , S h u q a r t employed 2 , 7 0 0 i n d i v i d u a l s ( 3 0 0 i n Mexico) and
had a n n u a l sales of a p p r o x i m a t e l y 5 1 9 8 million.
announced a f u l l - h e i g h t

5-114

I n 1 9 8 1 , Shugart

FF 704.

inch doublt-sided disk d r i v e

of i t s own d e s i g n .

A t t h e s p r i n g 1 9 8 2 National Computer Conference, S h u q a r t was t h e o n l y company

t h a t d i s p l a y e d a h a l f - h e i g h t product.

A t t h e f a l l 1 9 8 2 Comdex show, S h u g a r t ,

Tandon, and CDC, as well as 1 2 t o 15 J a p a n e s e c o m p a n i e s ,
half-height disk drives.

FF 7 0 6 .

121

also showed

Shugart never entered into commercial production of its own half-height
disk drives because it could not develop a model which was cost effective
relative to market prices.

FF 330, 332-34.

Shugart charted the'price

declines of 1983 and concluded that the decline had a very negative long-term
impact.

Shugart considered several economic alternatives to recover from the

erosion in profits, including setting up an- offshore production facility in
either Singapore, Taiwan, or South Korea.

FF 715.

Shugart task for&

in mid

to late 1982 recommended the immediate establishment of a production facility
Shugart was unable to receive management's approval for the

in Singapore.

,establishment of this facility.

FF 716. 'Shugart turned to its Japanese

.
licensee, Matsushita, and entered into a purchase agreement for half-height

-

doublt-sided floppy disk drives with prices ranging from $124 to under $100
depending upon the quantity ordered.

FF 708.

The extreme competitive

environment at the end of 1983, however, caused Shugart's profitability to
erode substantially, and Shugart suffered an operating loss in January 1984.
F F 713.
In 1983, Shugart was the world's second largest'manufacturer of floppy
disk drives next to Tandon with an annual fiscal 1983 sales volume of 8240
million.

FF 714.

On December 19, 1983, Xerox, after examining economic

studies concerning the steps needed to make Shugart fully profitable,

..-;= -

concluded that Shuqart could not be made profitable within the next 12 to 18

. --.
,>:

I.

'

months evan*wfth,substantial

;*&;.

investments.

FF 717.

Xerox decided that it

,*:,y

could no longer- 'aupport
,
Shugart.
. ....

FF 717.

In February 1985, Shuqart's assets

~

with respect to the 5-1/4 inch business were sold to Matsushita, including the
extensive inventory that had been built up over the previous quarters.

..-

122

FF 7 2 0 .

P r o d u c t i o n of S t l u g a r t ' s 3-112

i n c h double-sided .disk d r i v e o p e r a t i o n

c e a s e d i n F e b r u a r y 1 9 8 5 , e x c e p t for t h e f u l f i l l m e n t of e x i s t i n g commitments t o
IBM for p r o d u c t i o n of a p p r o x i m a t e l y

C

units.

doublc-sided

FF 720A.

.BY O c t o b e r 1 9 8 3 , S h u g a r t employed 3 , 6 0 0 i n d i v i d u a l s , of whom a l l b u t 5 5 0
.

i n d i v i d u a l s were employed i n t h e U n i t e d S t a t e s .
t h e f i r s t time had t o l a y off 7 - 1 / 2
January

I n O c t o b e r 1 9 8 3 , S h u g a r t for

p e r c e n t of i t s work f o r c e .

FF 7 1 2 .

A s of

1 5 , 1 9 8 4 , S h u g a r t employed 2 , 6 0 0 p e o p l e i n t h e U n i t e d S t a t e s and 6 0 0

i n Mexico, b u t by December 6 , 1 9 8 4 , S h u g a r t had t o l a y o f f more workers,
r e d u c i n g t h e number o f i t s employees to l r 6 0 0 - l , 7 0 0 i n d i v i d u a l s , 4 0 0 of whom

were employed i n Mexico.

FF 7 1 8 .

I n January 1 9 8 5 , Xerox f o r m a l l y announced

the c l o s i n g of S h u g a r t a t a time when it employed 1 , 4 0 0 i n d i v i d u a l s .

d

e.

FF 7 2 0 .

IBM.

7

I n August 1 9 8 4 , IBM commenced p r o d u c t i o n o f 5-1/4

i n c h double-sided

floppy

&isk d r i v e s i n B o u l d e r , Colorado.

IBM h a s c o n t i n u e d m a n u f a c t u r i n g d i s k d r i v e s

from t h a t time u n t i l t h e p r e s e n t .

FF 542A.

claims of t h e ' 5 7 3 p a t e n t .

T h e IBM d r i v e i s c o v e r e d by t h e

FF 54213.

I n December 1 9 8 4 1 IBM employed a b o u t 10 i n d i v i d u a l s who were d i r e c t l y
i n v o l v e d i n t h e manufacture and a s s e m b l y of i t s 5-114

inch double-sided

floppy

d i s k d r i v e s , i n c l u d i n g a s s e m b l e r s and a m a n u f a c t u r i n g manager, and 37
employees i n d i r e c t l y i n v o l v e d .

Now t h e r e arc! 3 2 employees d i r e c t l y i n v o l v e d

i n t h e m a n u f a c t u r i n g p r o c e s s and 37 employees i n d i r e c t l y i n v o l v e d .

FF 5 4 2 3 .

The d i s k d r i v t s n a n u f a c t u r e d by IBY are for use i n IBX's p e r s o n a l computer
and a l s o i n other IBN s m a l l computers and d i s p l a y p r o d u c t s .

IB31 commenced

3 u c h manufacture for t h e purpose of s u p p l y i n g i t s own i n t e r n a l ncleds for s u c h

d i s k d r i v e s i n l i e u o f p u r c h a s i n g from o u t s i d e v e n d o r s .

123

FF 542C.

IBM

initially decided to manufacture double-sided floppy disk drives because it
thought it would be a profitable venture.

IBM had only planned to use t h e ,

.

drives for internal production purposes and never planned to s e l l ' the drives
.
.'
.
..a

in the marketplace.

FF 54212.

s

IBM Boulder will continue to manufacture 5-114

inch double-sided disk

drives until current commitments are met, at which time
discontinue such manufacture.
expected around July 1986.

XBX

plans to

Completion of the current commitments is

FF 542K.

The reason IBH plans to cease the

manufacture of disk drives is that management has decided that internal
manufacture of 5-114 inch disk drives is not financially attractive and that
there are adequate supplies available in the marketplace.

IBX made the .

decision to cease production of the disk drives in late July 1985 even though
C

it estimated that it could manufacture a voluine of

c

cost of $

542N, 542R.

to $

disk drives at a

unit and make an acceptable profit at this price.

FF 542L,

The decision to discontinue production o f the IBM manufactured

disk drives was based upon considerations of resource allocations rather than
cost effectiveness of the project.

FF 542H.

In order to show a violation of S 337 has occurred, complainant must
demonstrate a causal relationship between respondents' unfair acts and the
injury suffered as a result of such acts in the importatim of the product.

A

discussion of the facts relating to whether such a causal relationship exists
in this investigation follows.

124

,

2.

Causa? ion.

Section 337(a) states in part that it is unlawful for an owner, inporter,
consignee, or agent of either, to participate in ( 1 ) unfair methods of
competition and unfair acts, (2) in the importation of articles into the
United States, or in their sale, (3) the effect or tendency of which is to
destroy or suhtantially injure an industry, efficiently and economically
operated, in the 'Jnited States, or to prevent the establishment of such an
industry,

19 U.S.C.

S 1337(a). All elements of 0 337 nust be established if

complainant is to prevail; however, the existence of each element is not
sufficient evidence of a violation of S 337 where one element is not related

to another.
(1979).

See generally

Certain Centrifugal Trash Pumps, 337-TA-43, at 9

. .

The unfair methods of competition or unfair acts must be in the

importation or sale of the subject articles such that the combination of these
two elements destroys or substantially injures a domestic industry.

The fact

that a respondent imports the articles in question into the United States does
not result in a violation of S 337 if the importation of that article is not a
substantial cause of the injury.

Sea

Certain Floppy Disk Drives and

Components Thereof, Initial Determination, Inv. No. 337-TA-203, at 51-54
(1985)(extensive review of the legislative history of S 337 supports this
conclusion) (hereinafter referred to as Floppy I).
The critical question is whether a causal nexus exists between the injury'
found and the floppy disk drives imported by the Nitsubishi-respondents.

--_

This

question is 'knnplicated by the existence of numerous non-respondents, foreign
licensees, and settled respondents that compete in the marketplace.
FF 618B-618Ct 6665-666BBt 666HHI 691F-691HI 691K, 699-700AI 744, 756, 823-35,

863-70, 875-78, 898-906,

See Vertical Milling

125

Machines, 223 Lf*.s.P.Q.

332;

Drill Point Screws, U S I T C Pub. No. 1365.

There is also evidence that' Shugart

and Tandon both l o s t sales and market share because of their inability to .
Supply high-quality or state o€ the art disk drives in response 60 market
demand (FF 331-34, 640A-40QI 835A-36, 843A-435), and a broad consensus exists
that qualitative factors, as well as competitive price, are critical for
retaining floppy disk drive customers (FF 6-10, 637-39A).

Market share gains

by imports because of a broad based shift in consumer demand that complainant

is unable to meet, may be considered in a causation analysis.

See Certain

Large Video Matrix Display Systems, Inv. No. 337-TA-75, USITC Pub. 11581 at

25; Centrifuqal Trash Pumps, USITC Pub. 943, at 20-21 (Concurring Opinion of
Vice Chairman Alberqer)
a.

.

,

-

Changes in the Marketplace.

From 1982 to 1983, the market for double-sided floppy disk drives changed
-.
structurally from full-height to half-height drives.
Floppy 1 , FF 39.-

Opn. at 110-13.

The half-height drives introduced by Tandon were the

TM 50 (primarily a single-sided, low performance, Jow cost, 48 TPI half-height
drive) and the TM 55 (a double-sided, high performance, 96 TPI half-height
-that used essentially ,the same mechanics as the T N 50).
belt-driven or indirect drives.

Both drives are

FF 640A; Floppy I, PF 39-40.

.

In the latter part of 1982 and the first part of 1983, Tandon was
receiving substantial orders from its customers for its half-height,

.

.

*I

belt-driven drives. Tandon experienced substantial difficulty in. . .. .
manufacturing a troubla-free TM 50. Greater difficulty was being experienced
with respect to the TM 55.

Floppy I, FF 41.

Tandon also became aware of the

need Lor a half-height direct drive 5-1/4 inch disk drive around September or

.--

15/ The evidence that supports the findings in Floppy I is also evidence
of record in this investigation.

126

W t o S e r 1 9 3 2 , and found by December 1 9 8 2 t h a t most c u s t o m e r s i n s i s t e d on
d i r e c t d r i v e floppy d i s k d r i v e s .

FF 640C-40D.

I n t h e f a l l o f 1 9 8 2 , Tandon

a s s i g n e d one o f i t s e m p l o y e e s , P h i l i p T o m a s i , t o solve problems a s s o c i a t e d
w i t h t h e TM 50 and TM 55.

Mr. Tomasi commenced work t o modify or r e d e s i g n t h e

TM 55 t o accommodate a d i r e c t d r i v e motor.

F l o p p y 1 , FF 4 2 .

Tandon e x p e c t e d

t o have a new d i r e c t d r i v e f l o p p y d i s k d r i v e a v a i l a b l e for p r o d u c t i o n i n
F e b r u a r y or Narch 1 9 8 3 (FF 64OE), but b e c a u s e of an a l l e g e d t h e f t o f t r a d e

secrets ( F l o p p y I , Opn. a t 2 2 - 2 6 ) , Tandon l o s t important l e a d time i n i t s

-

-;e&:

of Mitsubishlrs
. costs of production.
. .*,
. and
- - _ Tandon's
. _ _ _ -relative

Unit .cost-

2

information by different models for Mitsubishi double-sided disk drives is not

-

available in the record.

IBM estimated that it could profitably produce 1.2
..-

142

c

megabyte floppy disk drives for

c

production quantities of

to

$

per unit for annual

$

FF 542N.

units.

Based on the I B t 4 ' s

assessment of the trade press, Japanese disk drive producers are at least as
sophisticated as IBM.
I

Fenstermaker, Tr. 3573.

, .

Therefore, the IB?l cost can be

used as a reasonable proxy for costs of production in Japan.
Tandon's costs are a function of negotiating a price from Tandon
Associates, which is separate from Tandon and acts on behalf of Eastern
Huenemeicr, CX 835, at 29.

Peripherals.

c

For small production quantities,

Tandon Associates currently sells TN 65-2s to Tandon for

$

.

Tandon

negotiates price with Tandon Associates based on projections of its
requirements over the next three or four months.

Huenemeier, Tr. 3674. . I f

Tandon purchases more than its projected requirements, it would renegotiate
the price with Tandon Associates.

Huenemeier, Tr. 3675.

Tandon has not

estimated what price it would be able to negotiate from Tandon Associates for

c

quantities of

units, although the price would be lower based

to

'

on lower production costs for higher-volume production.

-

Tr. 3673-74: see, Huenemeier,

CX

Huenemcier,

835, at 3 0 ; Ftnstermaker, Tr, 3570, 3583.

Because of Tandon's low production volumes to date for half-height drives,
it i s difficult to determine what Tandon's cost would Se at higher production
quantities.
C

However, it is apparent that Tandon's costs would decrease

because of lower unit overhead costs.

Mr.

Huenemeier believes that

.'

C

Huenemeier,

CX 835,

at 30.

Mr.

Fenstermaker of IBM estimated that unit

C

production costs would increase by g

C

decreases of roughly

to

$

for production volume

units when operating in the

143

to

anit range.
greater.

!Jhen operating at lower volumes, unit cost changes would

FT 5424; Fenstermaker, Tr. 3583-85.

be ev+n

Basad on the indaterminancy of

Tandon's potential costs at higher production volumes, and the evidencz that
Tandon's units costs could decrease substantially at higher production
volumes, it is difficult to determine whether Mitsubishi will be able to
undersell Tandon because of a relative cost'advantaqe.
Currently, a number of potential customers will not consider Tandon disk
Complainant also lost a number of

drives because of past quality problems.

prospective business opportunities because potential customers evaluated and
qualified competitors' drives when Tandon drives were not available.
640K-40Lt 64OQ-4OR; MRX 49, at 40991, 41104; Opn. at 126-38.
however, have recently evaluated Tandon's TM 65.
849-49A, 85OA-SOB, 8 5 3 , 855, 8558, 856-56A.

FF 6403,

Other customers,

- FF 640P, 64OS-640UI
Sea

These facts demonstrate that if

Tandon is successful in improvinq the quality of its product, it may be able

to gain market share.
The constant competitive demands on OEMs to upgrade their systems have
increased the pressure to reevaluate different diameter disk drives m d
different suppliers, thereby increasing the possibility o f substitution in the
post-design stage period for computers.

Tandon's future success or failure

will depend on its ability to offer high-quality disk drives technically
comparable with competitive market drives.

Although price is always an

important variable for a potential purchaser, it has not-been the critical
,-

L.

variable with respect to competition between the domestic industFy and the
Mitsubishi respondents.

Tandon thus can price higher than the market price

levels set by its licensees and nonrespondents, and remain price-competitive
with xitsubishi.

14 4

2.

The 3-112 Inch Double-Sided Floppy Disk Drive Market.

The Nitsubishi respondents have demonstrated the capacity, ability, and
willingness to compete in the 3-1/2 inch market.
883M.

FF 883A, 883G-83H, 8 8 3 5 ,

And while the marketing window for primary suppliers of half-height

5-114 inch double-sided floppy disk drive market has substantially closed, the

marketing window for primary suppliers of 3-112 inch double-sided drives is at
This market has not grown at the rate

the early stages of development.

expected, but IBN's recent decision to purchase a large number of 3-112 inch
disk drives from Mitsubishi beginning the spring of 1 9 8 6 demonstrates this
market's future growth potential.
To date, sales of 3-112 inch double-sided floppy disk drives have

.

accounted for only a small portion of the Mitsubishi respondents sales of disk
0

drives in the United States.

FF 8 8 3 8 .

For example, NELA's largest new

C

account for 1 9 8 5 is with

C

3-112 inch disk drives at the proposed July-December 1985 price of $

FF 883G-83H.

for

to

double-sided

.

For the period July-December 1 9 8 5 , MELA forecasted Sales

double-sided 3-112 inch disk drives in the United States, though

c

of

C

approximately

, and

of these sales are to

may be

considered part of the injury analysis only with respect to respondents'
perceived production capacity.

-

FF 883G: see FF 883F.

Respondents also

forecast substantial sales of 3-112 inch disk drives for the period
January-June 1986.
C

from S

to 0

FF 883M.

.

MELA'S estinatcd prices for these sales range

FF 883G.

Mitsubishi recently won a contract to

supply IBM with 2 5 0 , 0 0 0 units of a new modal 3-1/2

inch disk drive (MF 355,

2 . 0 megabyte) shown during the July 1985 National Computer Confgrence show.

FF 883K.

145

-

Tandon has developed 3-112 i n c h double-sided disk drives (1.0 megabyte) a t

i t s Microtek f a c i l i t y , and has shipped evaluation u n i t s t o p o t e n t i a l

c

customers, i n c l u d i n g

FF 4 7 6 - 8 1 ,

488A, 488C-88DI 8 4 8 , 8 5 0 , 8 5 6 , 856A, 858C-58D; sea Opn. a t 7 7 - 7 8 .
7

487-87A,

Tandon does

not currently have a f u l l - s c a l e production l i n e i n place for these products,
b u t can proceed t o a production capacity of 1 0 , 0 0 0 drives per month i n 90 t o

1 2 0 days.

FF 482-86,

4 8 8 , 488B.- 20'

The narket's perception concerning the

i n c h d i s k drives may be an impediment t o Tandon's

poor q u a l i t y of Tandon 5-1/4

p o t e n t i a l success w i t h the 3-1/2

i n c h drive market.

However, because t h i s

market i s i n the evaluation s t a g e , OEMs w i l l be more w i l l i n g t o evaluate and
qualify various suppliers.

C f . FF 858C-58DI
-

There have Seen few s a l e s
domestic market.

of 3-112 i n c h

T h u s , it is d i f E i c u l t

s t r a t e g y regarding t h i s product.-

211

.911.
d i s k drives by M i t s u b i s h i i n the

t o determine respondents' p r i c i n g

Respondent$' assessment of the tradeoff

between h i g h e r short term p r o f i t '(higher p r i c e ) and market share w i l l a f f e c t

C

C

-

201

Microtek i s currently working on development o f

.

a

Tandon's l a c k o f
f u l l - s c a l e production f a c i l i t i e s i n place may d e t r a c t Erom its a b i l i t y to s e l l
the 3-112 i n c h drive.

of

FF 475A-7.5B.

Cost of production is also d i f f i c u l t t o estimate i n the early stagesi n c h drive.

tz 3-1/2
21/

14 6

its decision with respect to pricing strategy.

FF 833L., The +vidi?ncc?

suggcsts that Hitsubishi may be willing to taka a short-term loss for sales of
3-1/2

inch floppy disk drives in order to gain a foothold in the narket, then

offset this loss with 5-1/4

inch disk drive profits.

FF

897A.

Sony, a settled respondent and licensee of complainant, is expected to
a major factor in the supply of 3-1/2

inch drives.

FT 858E, 898-99.

be

Like

Mitsubishi, Sony nay be expected to price in a manner which would ensure a
foothold in this burgeoning segment of the industry.- 22/

TEAC, also a

settled respondent and licensee of complainant, is expected to
supplier of 3-1/2

inch drives.

FF 858E, 8 6 3 , 868.

be

a major

TEAC has generally

followed an aggressive price policy with respect to its double-sided disk
drives.
a

FF 6 9 9 , 7 0 0 , 772, 789-90, 860-62,

Mitsubishi's most recent sale of 3-1/2
high prices.

PF 883G-83H.

-

8 7 5 ; see Opn. a t 117-18.

inch drives have been at relatively

There i s no evidence of the price levels in the

sales to IBM, or of Tandon's offering prices of this product.

22/

3-1/2

Sony's presence in the U.S. market has been primarily with respect to
inch disk drives. FF 898-901.

147

-

It is too early t o tell which firms w i l l establish the market price
levels, but it is expected that complainant's foreign licensees will play a
major role in this process.

The evidence does not justify a tinding that

.hiitsubishi's pricing practices regarding this product will be any different
than with regard to the 5-1/4

inch product.

There is thus no sufficient

evidence to establish that Mitsubishi will underprice the domestic industry
for the 3-1/2 inch product.

The intervening factors discussed in substantial injury play the same role
in tendency toward substantial injury.

In light of these factors and those

discussed above, competition by the Mitsubishi respondents is not likely to be
.

d

a substantial factor in any future loss of sales to the domestic industry.
For the foregoing reasons, the alleged unfair methods of competi'tion and
unfair acts of respondents in the importation of double-sided floppy disk
drives into'the United States, or in their sale, do not have a tendency to
substantially injure the domestic industry.

148

-.

FINDINGS OF

I

--

.

FACT

JURISDICTION

1. 'The-United States International Trade Commission, pursuant t o

section 337 of the T a r i f f A c t of 1930, as amended, has j u r i s d i c t i o n over the
subject matter o f t h i s investigation, because the alleged unfair a c t s and

unfair methods of competition involve importation and s a l e of a r t i c l e s alleged
t o infringe complainant's U.S.
patent)

.

Letters Patent No. 4,151,573

Notice of Investigation, 50 fed. Reg. 4 , 2 7 6 (Jan. 3 0 , 1 9 8 5 ) .

If.
A.

(the ' 5 7 3

THE PARTIES

Comdainant and Interested Persons
Tandon Corporation is a California Corporation having its

2.

principal place of business a t 20320 P r a i r i e S t r e e t , Chatsworth, California
91311.

Founded i n 1975, it is the world's largest manufacturer of random

access d i s k drives for microcomputer systems and the world's largest producer

i n the market of floppy d i s k drives.

These systems'include word processors,

personal computers, and small business computers.

Complaint, 11 3, 4 ;

SRX 1 7 2 , Tandon's Response t o Sony's Request for Admission, NOS.

3.

located a t

Shugart Associates, a subsidiary of Xerox Corporation, is

---I?e-&kmead

. ..&:,.:
>,=.:
-*,;.<-

.-:--

Parkway, Sunnyvale, California 94086.

licensee o f Tandon's U.S. Letters Patent No. 4,151,573
J u l y 1 , 1980.

8 6 , 87

Shugart is a

(the '573,patent) as of

--,

Complaint, 1 59; CX 616.
..-

149

Oontrol Data Corporation (CDC) i s h e a d a u a r t e r e d a t

4.

8 1 0 0 9 3 4 t h Avenue, South Minneapolis, Minnesota 5 5 4 2 0 .

license on September 30, 1 9 8 4 , t o

manUfaCtUX@

a

CDC was gra'nteh

and s e l l d i s k d r i v e s under the

c o m p l a i n t , 1 6 4 ; CX 6 2 0 ; O u s l e y , R. 6 2 9 .

'573 p a t e n t .

M a g n e t i c P e r i p h e r a l s , Inc.

5.

(MPI),

is a p a t t i a l l y - o w n e d

s u b s i d i a r y o f mntrol Data Cotparation, and h e a d a u a r t e r e d
S o u t h Minneapalis, Minnesota 55420.

a t 8100-34th'Avenue,

MPI was g r a n t e d a license on September

3 0 , 1 9 8 4 , t o manufacture and s e l l d i s k d r i v e s under the ' 5 7 3 patent.

CDC is a

6 7 p e r c e n t m a j o r i t y owner o f MPI: p a r t owners o f MPI i n c l u d e Honeywell,

6.

- -

T e x a s P e r i p h e r a l s , Inc.

(TP), l o c a t e d a t 3 1 3 1

W.

Bolt Street,

Fort W o r t h , T e x a s 7 6 1 1 0 , is a j o i n t venture o f Tandon and Tandy E l e c t r o n i c s .
Under t h e j o i n t venture a g r e e m e n t , TP has

a non-exclusive license under t h e

'573 patent t o manufacture and s e l l TP'S p r o d u c t s .

complaint, 9 63:

cx

722,

at 7.
6A.

Internatfonal B u s i n e s s Machines (IBM), a New Yotk corporation

l o c a t e d i n Armonk, New Y o r k , is

a licensee o f Tandon's

No. 4 , 1 5 1 , 5 7 3 as of January 1 , 1984.
7.

Letters P a t e n t

Complaint, 1 6 5 .

M i t s u b i s h i E l e c t r i c Corporation (MELCO) i s

o r g a n i z e d and e x i s t i n g under the laws o € Japan.
business

U.S.

a Japanese company

MELCO's p r i n c i p a l p l a c e of

is l o c a t e d a t 2-3 Marunouchi 2-chome, Chiyoda-ku, Tokyo 100.

d e s i g n s , manufactures, and s e l l s d o u b l e - s i d e d

importation into t h e U n i t e d S t a t e s .

floppy d i s k d r i v e s for-

C o m p l a i n t , 1 1 4 ( a ) : C x 401.

150

MELCO

8.

Mitsubishi Elcctronics America, Inc. (MELAIr with officcs at

911 Knox Street, Torrancep California 9 0 5 0 2 , is a domestic company and a
subsidiary of MELCO.

MELA imports, sells, and distributes within'tha United

States double-sided floppy disk drives manufactured by MELCO.
,

will be referred to collectively as Mitsubishi.

!=LA and .TLCO

Complaint, 1 L4(bl; CX 401,

404.

,
9.

. .

TEAC Corporation (TEAC Japan), a settled respondent, is a

Japanese company organized and existing under the laws of Japan.

TEAC Japan's
t

principal place of business is located at 3-7-3 Naka-cho, Musashino, Tokyo
180.

TEAC Japan designsr manufactures, and sells double-sided floppy disk

drives f o r importation into the United States.

Complaint, 1 14(c); CX 1;

Order No. 2 5 (Oct. 2, 1985).
,

10.

TEAC Corporation of America (TCA), a settled resaondent with

offices at 7 7 3 3 Telegraph Road, Montebello, California 90640, is a domestic
company and a subsidiary of TEAC Japan.

TCA imports, sells, and distributes

within the United States double-sided floppy disk drives.
will be collectively referred to as TEAC.
NO. 2 5

TEAC Japan and

TCA

Complaint, 1 14(d); CX 1; Order

(OCt. 2 , 1985).

11. Sony Corporation (Sony), a settled respondent, is a Japanase
company organized and existing under the laws of Japan.

Sony's principal

place of business is located at 6-7-35, Kita-shinaqawa, Shinaqawa-ku, Tokyo
141.

Sony designs, manufacturers, and s e l l s double-sided floppy disk drives

for importatlo? into t h e United States.

151

Complaint, 1 14(e); CX 2 0 3 , 2 0 4 ;

~

Sony Corporation o f ' America (SONAM),

12.

I

settled respondent with

offices at Sony Drive, Park Ridge, New Jersey 0 1 6 5 6 , is a domestic company and
a subsidiary of Sony.

SONAM imports, sells, and distributes within 'the United

States double-sided floppy disk drives.
referred to an Sony.

Sony and SONAM will be collectively

Complaint, 1 14(f)t Mergentfme Dep.,

cx 203, 204; Order No. 20 (July 19, 1995).

CX

252, T t . 40;

. .

..

: .- ...

..

.... ..

.

.i.

152

1

111.

A.

Background of the I n v e n t i o n .

drive.

.

I n 1 9 6 4 , the state-of-the-art

13.
~

UNFAIR METHODS OF COMPETITION

Sollman, Tr.

d r i v e was r e e l - t o - r e e l

tape

10-11.

I n 1 9 6 4 or 1 9 6 5 , the i n d u s t r y pursued an information s t o r a g e

14.

p r o d u c t c a l l e d a m a g n e t i c c a r d random access memory d e v i c e .

Sollman, Tr.

12.

IBM also was working on a new s t o r a g e d e v i c e c a l l e d a d i s k d r i v e , u s i n g a
r i g i d d i s k 30 inches i n d i a m e t e r .

Sollman, Tr.

13-15.

14A. T h e development of t h e f l o p p y d i s k d r i v e began i n 1 9 6 8 a t IBM.
The f i r s t f l o p p y d i s k d r i v e , t h e

IBM Model 2 3 FD, was a r e a d - o n l y ,

s i n g l e - s i d e d machine used for program l o a d i n g and i n c l u d e d a s p h e r i c a l ,

stainless steel t r a n s d u c e r or head on one s i d e of t h e d i s k , a spring-loaded-'
p r e s s u r e pad on t h e o t h e r s i d e o f t h e d i s k o p p o s i t e t h e h e a d , a c a r r i a g e for
s u p p o r t i n g these p a r t s , and

a c a r r i a g e d r i v e mechanism for moving t h e head

a l o n g a r a d i u s of t h e d i s k to access t h e concentric d a t a tracks.
CX 8 2 2 , 1 4 ; CX 6 0 1 , col. 1 , lines 1 5 - 3 6 ;

CX 643.

1 4 s . The IBM Model 2 3 FD i s shown and d e s c r i b e d i n U.S.
P a t e n t No. 3 , 6 7 8 , 4 8 1 (Dalziel e t a l . )

Dalziel,

f i l e d March 1 3 , 1970.

Letters

Dalziel, CX 8 2 2 ,

1 4: CX 643.
14C.

,..

In conjuction w i t h t h e 2 3 F D d i s k d r i v e , IBM d e v e l o p e d t h e

f i r s t f l o p p y d i r k ' d r i v t i n which a Mylar r e c o r d i n g d i s k was e n c l o s e d i n a
s q u a r e j a c k e t or e n v e l o p e w i t h head and p r e s s u r e pad

access s l o t s and central

o p e n i n g s for r e c e i v i n g the d r i v e hub and p o s i t i o n i n g cone.
"diskette"

and t h e s i n g l e - s i d e d

Both t h i s

f l o p p y d r i v e became worldwide. s t a n d a r d s .

D a l z i e l , CX 8 2 2 , 1 4 ; CX 643.

153

.

A b o u t i n 1 9 7 2 a f h p p y d i s k drr‘ve was b e i n g d e v e l o p e d by 1 5 t o

15.
20 d i f f e r e n t

companies i n t h e U n i t e d S t a t e s .

-- - -.---16.

--

S o l l m a n , Tr. 3 1 ; s e e ’ i d . ,

23.

Patent No. 4 , 1 5 1 , 5 7 3 ( t h e ‘ 5 7 3 patent) i s s u e d on

U.S’;-‘Letters

A p r i l 2 4 , 1 9 7 9 , from A p p l i c a t i o n s e r i a l

No. 8 0 5 , 7 3 1 ( t h e ‘ 7 3 1 a p p l i c a t i o n )

f i l e d June 1 3 , 1 9 7 7 , and names S i r j a n g L. Tandon, A l f r e d C. Hackney, and
Roy A. A p p l e m i s t as the j o i n t inventors.

Tire p a t e n t is e n t i t l e d , ‘Magnetic

R e c o r d i n g Device for Double-Sided

CX 6 0 1 ;

Media.‘

ECx

611.

S i n g l e - s i d e d f l o p p y d i s k d r i v e systems wete i n u s e p r i o r to t h e

17.

advent of double-sided

The s i n g l e - s i d e d d r i v e s employ a s i n g l e

floppy d r i v e s .

t r a n s d u c e r for c o n t a c t i n g t h e d i s k .

On t h e o p p o s i t e s i d e

and also i n contact w i t h t h e d i s k , was
a g a i n s t t h e transducer.

CX 6 0 1 ,

from t h e t r a n s d u c e f ,

a f e l t pressure pad to p r e s s t h e d i s k

cole 1 , lines 20-36:

CX 643.

-.

The d o u b l e - a i d e d f l o p p y d i s k d r i v e d e s c r i b e d i n t h e ‘ 5 7 3 patent

18.

a d u a l r e a d h t i t e head or t r a n s d u c e r a s s e m b l y for

i n c l u d e s i n part

t r a n s f e r t i n g d a t a t o and

from t h e f l o p p y d i s k , a central hub and s p i n d l e for

g r i p p i n g and r o t a t i n g t h e d i s k ,

a front cover which may be p i v o t e d open t o

permit insertion and removal of t h e d i s k , and a mechanism for p o s i t i o n i n g t h e
t t a n s d u c e r a s s e m b l y to

a

s e l e c t e d t a d i a l track position.

enclosed within a protective
the transducers
CX 6 0 1 ,

The f l o p p y d i s k i s

cover j a c k e t h a v i n g access slots through which

can come into contact w i t h t h e opposed surfaces of t h e d i s k .
, . -.-

cole I’fi’ffM8
- 49-63.
.-Y --.
. * :..
1 9 . . ’ W i t h reference t o t h e specification and d r a w i n g s of. t h e ‘ 5 7 3
.

1

c

.

.

p a t e n t which d c S C t i b e and show an e x e m p l a r y

-

form of t h e patent, t h e r e is -

i n c l u d e d a read/wt i t e ttanSdUCeK a s s e m b l y compr i s i n g g e n e t a l l y a . c a t r i a q e , a

..-

lower or f i r s t t r a n s d u c e r (also c a l l e d t h e s i d e 0 t r a n a d u c e r ) for

.
154

-

transferring data t o and from one side of the disk, and an upper or second
transducer ( a l s o c a l l e d the side 1 transducer) w h i c h opposes the lower
transducer and transfers data t o and from the other side of the d i s k .
20.

CX 601.

The lower side 0 transducer is mounted on the carriage while

the upper s i d e 1 transducer is mounted on a support arm that i s coupled to the
carriage by a flexure spring w h i c h serves as a pivot for the support arm.
. * C X 601.

. -

21.

A torsional spring loads the support arm towards t h e carriage
F

thereby urging the upper side 1 transducer towards the d i s k and the opposed
lower s i d e fl transducer.
22.

CX

601.

The upper head is mounted a t the end of a short length gimbal

spring that permits the upper transducer t o p i t c h and roll i n response to t h e
tendencies of the d i s k to d e f l e c t .
23.

on b o t h sides.

f i r s t double-sided

Sollman, Tr. 60-61.

The diskettes for the IBM double-sided d i s k d r i v e were coated
The d i s k drive placed two heads, one on each side of the

d i s k e t t e , i n contact or near-contact w i t h t h e diskette.
cantilevered and the diskette would flow between them.
25.

-

I n November 1976, IBM introduced the world's

floppy d i s k drive.
24.

CX 601.

T h e heads were both

Sollman, Tr. 61-62.

Mr. James T. E n q h , director of t h e double-sided floppy d i s k

drive program a t IBM, summarized t h e double-sided floppy development work a t

IBN i n an a r t i c l e entitled 'The ISM Diskette and Diskette Drive" published i n
the September 1981, IBM Journal o f Research and Development.
916; CX 664.

15 5

E n g h , Tr. 901,

26.

The IBM double-sided head assembly is described i n t h e '573

p a t m t under 'the 'Bsckground

of the Invention..

That description, i n

pertinent p a r t , s t a t e s :
4 ' .

Recently, however, t h e floppy disc i n d u s t r y has started to
use both sides of the floppy d i s c for data transfer operations,
the purpose primarily being t o increase capacity. Thus only a
single r e l a t i v e l y low speed accessing mechanism continues to be
employed, and the transducers on opposite sides of the element
are i n a generally opposed r e l a t i o n , w i t h only a s l i g h t o f f s e t
i n the head gaps to avoid flux interaction. Because it is
.
. thought necessary to account for perturbations i n movement o f
the f l e x i b l e d i s c from its principal plane, recording heads and
mounts are utilized that are e s s e n t i a l l y derived from the € l y i n g
head technology. S p e c i f i c a l l y , a pair of small identical slider
heads are used, each mounted adjacent the end of a long
r e s i l i e n t cantilevered head s u p p o r t , and mechanically urged
together w i t h a t o t a l force of approximately 8 grams. The
concept is that as the f l e x i b l e d i s c deviates from its principal. .
plane, both of the heads tend t o follow the actual position of
.
the d i s c passinq between them and permit contact recording
w i t h o u t excessive wear or signal degradation.
CX 6 0 1 , col.

27.

I, lines

37-57.

A t the time

of the invention of the '573 patent, the IBM

approach was considered by those i n the industry t o be the only p r a c t i c a l .
approach to achieving double-sided floppy d i s k recording and reproduction.
Cosnstock, Tr.
28.

1510-11.

, I n the Tandon patent, the IBM double-sided head assembly was

described as having significant deficiencies:
There a r e , however, s i g n i f i c a n t problems and limitations
arising from the use of t h i s double, symmetrical and very
compliant head mechanism. The r e s i l i e n t mounts are relatively
cocapltx and must be precisely manufactured, an3 therefore a r e
costly t o manufacture and maintain. Furthermore, they require:
redesign, by each floppy d i s c nanufacturer, of the carriage,
head support mechanisms and associated structure, becauie [ s i c ]
they have volumetric configurations incompatible w i t h current
stfuctures.
I n addition, the head loading fqrce and the
mechanical configuration require that special provision be made

156

t o insure that the head does not constantly land a t the same
.
point and thereby cause undue wear. I n addition, the long
f l e x i b l e columns used in the existing type o f structure tend t o
bend i n a s l i g h t S shape or s h i f t d i f f e r e n t i a l l y i n response to
perturbations i n the disc surface position. T h i s introduces
b o t h a degree of o f f s e t r e l a t i v e t o the track c e n t e r , reducing
reproduced signal amplitude and tending t o limit the positional
accuracy w h i c h can be obtained, w h i c h i n turn limits the track
density w h i c h can be achieved. Furthermore, the two r e s i l i e n t l y
mounted heads do not s e t t l e q u i c k l y into operative r e l a t i o n ,
once landed on the d i s c , and t h i s delay n u s t be taken into
account before data transfer operations can begin. O f g r e a t importance from the standpoint of the floppy d i s c systems .
manufacturer i s the f a c t that h e not only cannot use a portion
of h i s existing inventory for heads and c a r r i a g e s , b u t must
redesign a portion of h i s system for the new double-sided
configuration.
CX 6 0 1 ,

~

c o l . 1 , l i n e 62 t o c o l . 2 , l i n e 24.
The IBM approach was also the subject of the dec1arations.of

29.

two engineers f i l e d i n support of the '573 patent.
I

.

According t o these

declarations, t h e IBM product was, among other t h i n g s , subject to positioning
errors and "column b u c k l i n g , '

and was coshplex and d i f f i c u l t t o manufacture.

Muelners Decl., CX 611 (Feb. 2 8 , 1 9 7 8 ) ; S m i t h Decl., CX 6 1 1 (Fcb. 28, 1 9 7 8 ) .
The d i f f i c u l t i e s encountered by IBH i n the manufHcture of the

30.

IBM double-sided transducer assembly are described i n IBM

U.S.

Letters Patent

T h i s patent indicates that special fabrication techniques had

No. 4 ,263,'630.

t o be adopted by IBM t o assure that the transducer suspensions were precisely
symmetrical and that they would bear against the disk w i t h uniform forces.
CX 651.

3l;;IBM
.,

-. - -

',

U.S.

Letters Patent No. 4,202,020

r e l a t e s -to a control

~

system for randomizing t h e loading and unloading of the IBM double-sided
floppy d i s k drive transducer assembly to overcome the media wear problems
caused by the IBM transducer assembly.

CX 649.

.
157

1

T h e d e v i c e ' embodied i n the Tandon p a t e n t s o l v e d the problems

32.

e n c o u n t & r e d by t h e 'IBM d o u b l e - s i d e d d i s k d r i v e by p r o v i d i n g an a s y m m e t r i c a l
t r a n s d u c e r a s s e m b l y i n w h i c h one o f t h e t r a n s d u c e r s is used as a ' f i x e d
p o s i t i o n a l reference for t h e f l o p p y d i s k .

lines 44-52.
-

..

33.

.

. I _ .

Comstock, T r . 3 9 4 ; C x 6 0 1 , c o l . 2 ,

The. essence of, t h e - I 5 7 3 p a t e n t is t h a t t h e lower or s i d e j l

head is i n a f i x e d position w i t h r e s p e c t - t o t h e nominal p l a n of t h e d i s k so

that i t p r o v i d e s a reference surface for t h e p l i a n t d i s k .
34.

Comstock, T r . 1 4 9 4 .

The i n v e n t i o n d e s c r i b e d by the ' 5 7 3 p a t e n t i s s u b s t a n t i a l l y

s i m p l e r , less c o s t l y , easier to maintain, and more s t a b l e and r e l i a b l e i n
t r a n s d u c e r structure and s o l v e d t h e

o p e r a t i o n t h a n t h e IBM-type

two-sided

"column b u c k l i n g " problem.

S m i t h , Tr. 2 3 1 6 ; Muelner Decl., CX 6 1 1 , 1 6

(Peb.

2 8 , 1 9 7 8 ) ; Smith Decl., CX 611, 1 6 (Peb.

2 8 , 1978).
-.

35.

The d i s k i s v e r y p l i a n t and l i m p , and acts almost l i k e a t a p e .

The e n v e l o p ' g i v e s the d i s k s u p p o r t .
36.

Comstock, T r . 1583.

T h e f o l l o w i n g e x c e r p t from E l e c t r o n i c News, J u l y 1 0 , 1 9 7 9 ,

states :
Soma Firms Drop IBM 2 - s i d e d F l o p p y Head D e s i g n
N a g n e t i c head problems t h a t have s e v e r e l y impacted sales o f
double-sided floppy d i s c d r i v e s
have f o r c e d several OEM
v e n d o r s t o turn t o a head d e s i g n d i f f e r e n t from IBM's,
l o n g - c o n s i d e r e d the d e f a c t o i n d u s t r y s t a n d a r d .

...

CalComp, P e r t e c and Siemens are among the firms t h a t have
.:-.*stopped
u s i n g t h e IBM head d e s i g n and have begun u s i n g t h e

. adcsiqn d e v e l o p e d j o i n t l y by Tandon H a g n e t i c s and CalComp.
- : : T h e s e firms c l a i m e d t h e IBM d e s i g n , which uses two f l o a t i n g
heads [ t o ] r e a d and r e c o r d d a t a is less efficient and more
e x p e n s i v e t o make.

* * *

.
158

lndustry observers have said the media wear problem has
been the main reason double-sided sales have not been
anywhere near w h a t experts had expected. Suppliers
admitted being a t l e a s t nine months behind schedule for
double-sided.
.The.Tandon design incorporates a fixed head
recording on the bottom of the diskette and
a t the top of the diskette. I t s supporters
i f the problems i n the IBlY have been solved
is s t i l l the more a t t r a c t i v e a l t e r n a t i v e .

for reading and
a floating head
claim that even
the Tandon head

Terry J. Hardie, Product Sales Manager a t CDC, said the
primary problems w i t h the IBM design have been during the
loading and unloading of the heads. He said because of the
design the heads continuously loaded and unloaded a t the
same spot on the d i s k e t t e , causing q u i c k media wear.

Mr. Hardie said CDC has attempted t o solve the problem by
softening the force w h i c h is required t o load and unload.
CX 640.

37.

The following excerpt from an a r t i c l e appearing i n Systems

International, April 1980, and e n t i t l e d 'Mini-Floppy

D i s k Drives,'

states:

The double-sided r/w head for floppy d i s c drives was f i r s t
introduced by IBM and soon taken up by other companies. I t was
a dual flexure head by w h i c h is meant that both sides of the r/w
head moved when it was loaded on the floppy disc
The
idea b e h i n d u s i n g a dual flexure head was its apparent a b i l i t y
t o allow each head to follow closely the contours of the media
on both sid-e-s of the floppy d i s c . Tests indicated that early
designs d i d not meet the ' t a p t a p ' t e s t , wherein the head is
repeatedly loaded on the same spot on the rotating d i s c . The
h i g h l y dual flexure head had the tendency not t o land f l a t :
sharp edges of the head would cut into the mylar o f the disc.
I n addition, when the head made contact w i t h the media it would
rebound several times before s e t t l i n g . Tap-tap t e s t s were
showih# media damage after a short period of operation. A more
succersful design was l a t e r introduced by Tandon Nagnetics.
Thib caapany designed a single flexure head
which after
romi f i n a l refinements worked well and eliminated the severe
media wear of the dual flexure head. Many double sided disc
vendors today u t i l i z e Tandon.

. ..

...

CX 633,

a t 44.

c-

159

0.

IndeDendent Claims 1 , 5 , and 1 2 o f the '573 P a t e n t
38.

'Claims I , 5 , and 1 2 , which comprise the independent claims of

the ' 5 7 3 patent, read as follows:
1. A'device for' maintaining a pair of magnetic transducers
i n operative relation w i t h both sides of a non-rigid planar
magnetic recording media compr i s i n q :
~

a

a
a
means

.

f i r s t transducer mounted r e l a t i v e t o a f i r s t side of the
media and having a fixed position i n a direction norrnal.to
the plane of the media despite movement to different
positions along the plane of the media, the f i r s t
transducer being disposed i n data transfer position
r e l a t i v e to the media;
support mechanism adjacent to the second side of the media
i n a region opposite the f i r s t transducer:
second transducer coupled by gimbal support means to t h e
support mechanism i n opposition to the f i r s t transducer and
movable toward and away fran the plane of the media; and .
coupled to said support mechanism for urging said second
transducer toward said f i r s t transducer and said media to
maintain both transducer i n Operative relation u i t h the
intervening media w i t h the f i r s t transducer serving as a
fixed positional reference despite tendencies of the media
t o deviate i n position from its nominal plane and the
second transducer matingly accommodating said tendencies by
virtue of its gimbal support.

5. A device for maintaining a pair of magnetic transducers
i n operative relation w i t h opposite sides of a non-rigid
magnetic recording media compr i s i n g :

f i r s t non-gimbaled transducer mounted on a f i r s t side o f
the media and having a r e l a t i v e l y fixed position r e l a t i v e
to the plane of the media i n w h i c h t h e f i r s t transducer is
i n operative relationship w i t h the f i r s t side of the media;
a pivotable support arm having a pivot a x i s i n fixed s p a t i a l
relationship t o the f i r s t transducer, and extending along
the second aide of the media t o a region opposite the f i r s t
transducer ;
&:"-a second transducer coupled by gimbal means to the support
;;arm i n opposition to the f i r s t transducer and being movable
r e l a t i v e t o the plane of the media and t o the f i r s t
transducer; and

a

_.-

160

-

means
~

coupled
to said support arm for urging said second
.
-transducer'and the media toward said f i r s t transducer w i t h
a force s u c h that close operative relationship i s
maintained between each transducer and the associated side
of the intervening media, w i t h tendencies of the media t o
deviate from i t s nominal p l a n b e i n g compensated by the
second transducer.

12.
I n a magnetic recording system i n w h i c h a carriage
supporting two magnetic heads i s shifted r a d i a l l y r e l a t i v e t o a
center-dr iven pliant magnetic d i s c t o provide data transfer w i t h
s e l e c t a b l e record tracks on either side of the s e l e c t a b l e record
tracks on either side o f the d i s c , [the1 improvement comprising:

a

and

,

,

CX

f i r s t transducer fixedly coupled t o the carriage for
bearing against a f i r s t side of the d i s c i n an invariant
position i n a direction normal t o the plane of the d i s c :
means i n c l u d i n g a second gimbal mounted transducer movably
coupled t o the carriage for bearing against t h e second side
of the d i s c i n opposed r e l a t i o n t o the f i r s t transducer,
the second transducer being movable toward and away from .
the plane of the d i s c and the f i r s t transducer, said means *
i n c l u d i n g r e s i l i e n t means urging said second transducer
toward said f i r s t transducer w i t h s u f f i c i e n t force t o
maintain c l o s e operative relationship between both said
-.
transducers and the d i s c despite deviation of portions of
the d i s c during movement thereof, w i t h the second gimbal
mounted transducer compensating tendencies o f the pliant
d i s c to deflect.

601, c o l s . 6-8.
39.

The '573 patent r e f e r s t o a head assembly t o be used i n a

floppy d i s k drive .system.'

Column 3 of the s p e c i f i c a t i o n , starting on l i n e

4 9 , for s i m p l i c i t y , r e f e r s t o another patent for further d e t a i l s about the
d i s k drive system s u c h as t h e h u b and the spindle.
40.

C o m s t o c k , Tr. , 1 5 0 3 .

Intentionally L e f t Blank.

41. -,Claim 5 provides that t h e f i r s t or side

"non-gimbaled.*

A

0 head s h a l l be

gimbal is a spring w h i c h permits various angu+ar

deviations, t h a t i s , p i t c h and r o l l type motions.

161

Cornstock, Tr. 1514-15.

-

41A. The flexure on w h i c h the upper head i s mounted i n the

H i t s u b i s h i Mark I d r i v e i s a gimbal s p r i n g .

elements are identical.

T h e upper and lower flexure

.

Causal v i s u a l observation of the lower head mounting

indicates t h a t t h e lower flexure i s a g i m b a l s p r i n g .

I n operation, the upper

head e x h i b i t s behavior i n p i t c h and r o l l closely conforming to t h a t of the

lower head.
.

Comstock, Tr. 1781-82.
- .
-.
42. Claim 12 r e l a t e s to a magnetic recording 'system"

improvement comprises a f i r s t transducer (side

B)

in w h i c h the

t h a t is f i x e d l y coupled

t o t h e carriage and bears against the f i r s t side of the d i s k i n an i n v a r i a n t

position i n a direction normal to the plane of the d i s k , and a second
transducer (side 1) w h i c h is gimbal-mounted and moveably coupled to t h e ,

carriage.

the U.S.

-

Cornstock, Tr. 1500-02.
43.

Intentionally Left B l a n k .

44.

During the prosecution of the ' 5 7 3 patent application before

-.

-.

Patent and Trademark O f f i c e , t h e examiner rejected claims 1 , 5 , and

1 2 as o r i g i n a l l y presented, p r i n c i p a l l y because of an IBM Technical Disclosure
B u l l e t i n (Reference R) (CX 6 0 9 ) w h i c h generally d e p i c t s the transducer
assembly of the IBM double-sided d i s k d r i v e ,

C o m s t o c k , Tr. 1510-11; CX 611;

CX 609.

45.

Column I, lines 37 ett, of the ' 5 7 3 patent, describes t h e

type of d e s i g n generally described i n CX 609 i n w h i c h b o t h heads are floating
e

r e l a t i v e l y free.
*-

.

..-%

... Cornstock,
.

Tr. 1513.

..-

.
162

T h e p a t e n t examiner c o n s i d e r e d t h e IBM d o u b l e - s i d e d

46.

floppy d i s k

d r i v e and its t r a n s d u c e r a s s e m b l y , as r e p r e s e n t e d by the d e s c r i p t i o n thereof

i n t h e a p p l i c a t i o n t h a t i s s u e d as t h e ' 5 7 3 p a t e n t and i n t h e c i t e d IBM
T e c h n i c a l D i s c l o s u r e B u l l e t i n , as the most r e l e v a n t p r i o r a r t .

Comstock,

Tr. 1 5 0 7 - 1 1 , 1 5 1 3 , 1 5 2 6 ; CX 611.
Reference R (CX 6 0 9 ) shows an approach to a c h i e v i n g

47.

.

d o u b l e - s i d e d o p e r a t i o n i n which b o t h of t h e r e c o r d i n g h e a d s were p e r m i t t e d t o

f l o a t quite f r e e l y and t o follow t h e u n d u l a t i o n s of t h e d i s k .

T h i s approach

contrasts w i t h t h e approach e x e m p l i f i e d by t h e ' 5 7 3 p a t e n t where one of t h e
heads i s f i x e d and serves as a positional reference for t h e d i s k .
Tr.

1512.

*

d e s i g n r e f l e c t e d i n Reference R and t h e s u b j e c t

Comstock, Tr.

-

T h e r e is a d r a m a t i c d i f f e r e n c e i n t h e b a s i c p h i l o s o p h y of t h e

48.
I

Comstock,

matter of t h e Tandon p a t e n t .

1512.

49.

T h e IBM d o u b l e - s i d e d

f l o p p y d i s k d r i v e is also t h e s u b j e c t of:

(1) IBM P a t e n t No. 4 , 0 8 9 , 0 2 9 i s s u e d t o C a s t r o d a l e e t a l . ;
e n t i t l e d .The

IBM Diskette and Diskette

September 1 9 8 1 i n t h e IBM Journal

( 2 ) an a r t i c l e

Drive," by James T. Engh, p u b l i s h e d

of R e s e a r c h and Development; and ( 3 ) a

manual e n t i t l e d "IBM 5114 Diskette Maintenance I n f O t m a t i O n Manual..

CX 6 2 5 ;

CX 646; CX 664.

SO.,'The.cxaninar
i s s u e d t h e '573 p a t e n t after amendments to claims
.a;*-.,
-ii;.?&--.
.
1 , 5 , and 12::pre f i l e d w h i l e the t h e ' 5 7 3 p a t e n t a p p l i c a t i o n was under f i n a l

-

I

rejection.

.*

&..*..
- .,- .>...

.

CX 611.

163

C.

Development of Double-Sided Floppy Disk Drives b,y IBM

51.

I n 1 9 7 1 , IBM was developing a single-sided floppy d i s k d r i v e

for use w i t h 8 i n c h diameter s i n g l e - s i d e d f l e x i b l e d i s k s .
known as the 33 FD.

T h i s project was

IBM announced the product w h i c h incorporated the 33 FD i n

the f a l l of 1972, and the product was f i r s t delivered i n spring 1973.

d r i v e of the 33-FD was a s i n g l e read/write head.
52.

The

Engh, T r . 904-05.

I n the 33 FD d i s k d r i v e , t h e head carriage assembly was mounted

on a lead screw.

The lead

screw was d r i v e n by a motor so that as the screw

rotated, the head could move across the d i s k w i t h i n a c e r t a i n l i n i t .

The

pressure arm opposite the head was operated by a solenoid mechanism.

When t h e

d i s k was dropped into the u n i t , the pressure arm would g o forward and exert
. -

s l i g h t pressure against the d i s k so that the r e a d h r i t e head would be i n

intimate contact w i t h the d i s k .

The head was fixed i n relation t o the nominal

..

plane i n w h i c h the d i s k wouldarotate.
53.

SRPX 20.

913-15; SRPX 17, 20.

is a head carriage assembly used i n the IBM 33 FD

SRPX 20

flexible d i s k drive.

Engh, Tr.

SRPX 21 i s

The sensitive

a head button o f the k i n d contained i n

element i n the head button is t h e narrow b l a c k s t r i p e

down the center of the head button t h a t is surrounded by the white material.
E n g h , Tr.

907-08.
54.

pad.

Engh, Tr.

55.
d i s k , and when

Opposite t h e head button on SRPX 20 i s a small red pressure
909.
The head button on the 33 FD is i n intimate

contact w i t h the

electric s i g n a l s are sent t o the head button through an

assembly of wires, reading and w r i t i n g take place on the d i s k .

164

Enqh, Tr.

913.

_ -.

56.

.

I n the 33 FD, the read/write head was fixed i n relation t o ' t h e

nominal plane of the d i s k and would not have any gimbalinq, r o l l , p i t c h or
Z-axis movement.

E n g h , Tr. 914-15.

a r e s u l t of the favorable response t o the 33 FD, XBM

As

57.

* _

c

customers suggested that IBM improve the performance and capacity of the disk
drive and the diskette.

Accordingly, IBM began a project t o develop a

successor t o the 33 FD, w h i c h was known as the 43 PD.

Preliminary plannjnq

and discussions for t h i s project began i n 1972, and i n the l a t t e r half o f 1973
hardware analysis and studies were begun on the 43 FD project.
TKO

915-16.
58.

During the development process for the 43 FD, IBM considered.

d i f f e r e n t types o f nead configurations.
,

Enqh,

The f i r s t type o f head design

(hereafter " t y p e one") consisted of two fixed heads.

I n t h i s embodiment, both

heads were r i g i d l y affixed and separated by a fixed space so that a diskette
could be dropped between t h e heads i n the fixed space.

The heads were mounted'

on an assembly t h a t pivoted so that one head could be brought into the plane
of the d i s k , into contact w i t h the d i s k , or rotated out and the other head
brought into contact w i t h the plane of the d i s k .
59.

Engh,

Tests were conducted a t IBM on a prototype o f the head assembly

of the type one d i s k drive.

Before proceeding t o production on t h i s design,

it would have t o s a t i s f a c t o r i l y pass the s t r e s s t e s t .
u t i l i z e d "non-nominal.
?>--

:

The s t r e s s t e s t

d i s k s , w h i c h is a d i s k that has been b-ent or crimped,

or whose envelope is flexed.
Engh, T t .

Tr. 916-18.

The s t r e s s t e s t was used as a qo/no-go t e s t .

932-34.

..-

165

1

60.

The s t r e s s t e s t s on the type one head assembly were

unacceptable because satisfactory head-to-disk compliance could not be
obtained.

Any i r r e g u l a r i t i e s i n the diskette caused excessive bounce and

unsatisfactory wear on the medium.

A s a result of t h i s unsatisfactory

outcome, the decision was made not to pursue t h i s particular head design.
Nevertheless, IBM d i d obtain a patent on the type one design.

Engh, Tr.

932,

CX 6 0 3 ; CX 664, a t 706.

934-36;

61.

.

A second Configuration considered by I B M for i t s 43 PD disk

drive consisted of a modification of the existing 33 FD drive (hereafter "type
two").

I n t h i s design, the pressure pad arm of the 33 FD drive was replaced

w i t h a second head w h i c h was mounted i n

a position where the pressure pad was

mounted so that the head would come into contact w i t h the other side of the
disk.

T h u s , one head was fixed and the other head was movable into the plane
-.

o f the disk.
pitch.

The construction of the movable head allowed it to roll and

The model of the type two head configuration was b u i l t i n l a t e 1 9 7 3 or

early 1974.
62.

E n q h , Tr. 918, 926-27.
A

model of the type two head assembly was made for purposes of

testing i n about November-December 1973.

T h i s head configuration was also

subjected to s t r e s s testing w i t h non-nominal d i s k s to determine whether the
concept showed enough promise t o proceed w i t h further testing of the entire
drive mechanism.

The results were not s a t i s f a c t o r y , and further work on t h i s

design ceased in January 1974.
about four weeks.

The t e s t s were conducted over a periqd of

I t was determined that the type two approach 3uffereb the

same head compliance problems as were encountered w i t h the type one design.
Engh, Tr

939-44;

Castrodale, T r

.

971, 974; CX 739.

,.-

.
166

I n the IBM report authored by

63.

1%.

Engh, e n t i t l e d "The IBM

'

Diskette and Diskette Drive," published i n 1 9 8 1 , the following description ..of
the t y p e two design was provided:
T h e next approach used one head r i g i d l y mounted and the

second head on a f l e x i b l e suspension. The second head
closed on the d i s k , and the suspension system provided a
pressure on the d i s k and a r e s i l i e n c e t o absorb d i s k
i r r e g u l a r i t i e s . Again, a s t 8 b l e compliance was not
achieved. The principal problem was the unpredictabili-ty
o f d i s k dynamic movements over a wide range of envirqnments
w i t h a variety of diskettes.

c

Cx. 664, a t 706.

The work done on the t y p e two approach was not disclosed

64.

outside IBM, and w i t h i n IBM only those w i t h a need t o know were aware of t h i s
approach.
,

*

There is no indication that any t e s t data was accumulated os

-

a

maintained about the type two d e s i g n , and no technical disclosure bulletin was
ever issued on t h i s design.

I n addition, IBM never commercially marketed g.

product w h i c h embodied t h e type two design.
Cas trodale , Tr

.

Engh, Tr. 939-40,

942-45,

9481

974-77.

The type two head assembly model was a l s o tested w i t h normal

65.

d i s k s , that i s , d i s k s manufactured t o meet IBM s p e c i f i c a t i o n s and tolerances.

The t e s t r e s u l t s w i t h the normal d i s k s on t h e type two design were
acceptable.

Castrodale, T t . 956.
IBM d i d not f i l e a patent application on the type two design

66.

configuration.
61.

-..
- .-

Castrodale, Tr. 976.

.In about 1975 or 1 9 7 6 , a f t e r the 43 FD

production, IBM needed t o create s t r e s s d i s k s .
these d i s k s w i t h enhanced precision.

d i s k drive went into

I t was necessary'to write

To accomplish t h i s , IBM engineers

immobilized one o'f the heads of the type three d i s k drive (see.'FF 69-71,

167

infra)
-

so as t o minimize the offtrack c o n t r i b u t i o n allowed by gimb’aling.

This

in-house d i s k writer thus utilized the type two head d e s i g n conceat.

.

Castrodale, Tr. 978-80.

- 1

The t e s t disk writer was used exclusively in-house a t IBM, and

68.

none of the t e s t disks were commercially sold or used i n p u b l i c .

Castrodale,

Tr. 9 7 8 , 981-82.
A t about the’same time t h a t IBM engineers were working on the

69.

type one and type two head configurations, they were a l s o developing a
prototype and doing experimental work on the type three design.

A s a result

of the early successes shown w i t h t h i s third a l t e r n a t i v e , it was decided t o
d i r e c t the most e f f o r t to developing t h i s design.

The type three design’wA

ultimately used i n the 43 FD disk drive which was commercially introduced i n
1976.

Engh, Tr. 929-30,

_.

944.

69A. The IBM engineers turned t o rigid d i r k technology i n search

of

a solution t o the problems encountered w i t h t h e type one and type two
approaches.

CX 6 6 4 ,

a t 706.

Development work on t h e type three design began i n about

.70.

Although IBM’s existing Winchester technology was used as a

January 1974.

primary reference point for the type three head configuration, t h i s project
required a s i g n i f i c a n t amount of further development over the next two years
before it reached
the point of commercialization.
,,
*,-

..t-:<-

.

.f

The type three design was

embodied ie.IBM’s 43 FD and was f i r s t commercially available i n January 1976.
7.:

Engh, Tr.

.:.*a .

946-47.

168

.

- -

71.

A patent was obtained on the type three disk drive, U.S.

Letters Patent No. 4 , 0 8 9 , 0 2 9

(Castrodale), e n t i t l e d 'Data Storage Apparatus

U s i n g a F l e x i b l e Magnetic D i s k . "

The abstract of the patent describes the

t y w three configuration as follows:
A data storage apparatus having a t h i n f l e x i b l e d i s k w i t h
magnetic recording surfaces on both faces and a carriage
embracing the disk and carrying a pair of transducers i n contact
w i t h o p p s i t e faces of the d i s k .
Each of the transducers i s
mounted on a r e l a t i v e l y weak gimbal spring. Relative r i g i d load
arms bear on dimples located a t the centers of the transducers
t o form universal j o i n t connections w i t h the transducers. The
gimbal springs and universal j o i n t connections allow the
transducers t o p i t c h and r o l l w i t h wobbling movements of the
f l e x i b l e d i s k without movement of the load arms. The load arms
a r e mounted on r e l a t i v e l y s t i f f gimbal spring portions for
applying d predetermined force t o the transducers holding them
i n engagement w i t h the d i s k while allowing yielding movement of
the transducers i n directions normal to the d i s k engaging faces
of the transducers.

,

Castrodale, Tr. 980: CX 646.
72.

IBM's

f i r s t double-sided floppy d i s k drive, 8 i n c h , model

43 FD, was introduced i n Xarch or April of 1 9 7 6 and was f i r s t shipped i n June
1976.

I t used a t y p e three modification, v i z . ,

f l e x i b l e suspension.

each head mounted i n a

Engh, Tr. 919, 9 3 0 , 946.

72A. The nature of the floppy d i s k drive industry c i r c a 1976 and

today is that the industry follows IBM.

T h u s , the industry reaction t o IBM's

introduction o f the Model 43 FD was that the next generation o f d i s k drives
was to be double-sided.

Sollman, Tr. 62-63;

S t o d d a r d , Tr. 4538.

728. The d i f f i c u l t i e s encountered by IBM i n the manufacture of the
IBN double-sided
No. 4,263,630.

transducer assembly are described i n IBM U.S. Letters Patent
T h i s patent indicates t h a t special fabrication techniques had

169

-

t o be adopted by IBM t o assure t h a t the t r a n s d u c e r s u s p e n s i o n s were p r e c i s e l y
s y m m e t r i c a l and t h a t t h e y would b e a r a g a i n s t the d i s k w i t h uniform forces.
CX 651.

..
72C. IBM U.S.

L e t t e r s Patent No. 4,202,020

,.

r e l a t e s to a c o n t r o l

s y s t e m for randomizing the l o a d i n g and u n l o a d i n g of t h e IBM d o u b l e - s i d e d
f l o p p y d i s k d r i v e t r a n s d u c e r a s s e m b l y to ov-ercome t h e media wear problems
c a u s e d by t h e IBM t r a n s d u c e r assembly.

CX 649.

72D. IBM also s o u g h t t o p r e v e n t damage t o t h e r e a d / w r i t e h e a d s ,
t h e i r suspensions and t h e r e c o r d i n g media i n t h e IBM d o u b l e - s i d e d d r i v e by
e l e c t r o n i c a l l y c o n t r o l l i n g t h e l o a d i n g and u n l o a d i n g movements o f the h e a d s ,

as d e s c r i b e d i n t h e IBM T e c h n i c a l Disclosure B u l l e t i n (Vol. 1 8 , No. 77,
4

Dec. 1975, a t 2246-47).

D.

.

CX 609.

Shugart

73.

Shuqart sold a single-sided

8 i n c h floppy d i s k d r i v e w i t h a

f i x e d r e a d / w r i t e head cemented into t h e c a r r i a g e

from September 1973 u n t i l

a f t e r t h e announcement of t h e f i r s t d o u b l e - s i d e d f l o p p y d i s k d r i v e by IBM i n
1976.

S o l l m a n , T r . 37-38,

202-03.

73A. T h e d e s i g n e r s of t h e IBH s i n g l e - s i d e d
d i s k e t t e worked t o g e t h e r

a t S h u g a r t Associates, which p i o n e e r e d t h e

development of t h e . m i n i - f l o p p y , "
disk drive.

f l o p p y d i s k d r i v e and

t h a t i s , t h e 5-1/4

inch single-sided

floppy

T h e ' b t s t s e l l i n g s i n q l e - s i d e d 8 i n c h f l o p p y - d i s k d r i v e i n 1975

- - .--....
.t

was S h u g a r t ' s Model SA-800.

74.

I n July-August

Dalziel, T r . 4285; Dalziel, CX 8 2 2 , . 1 6.
1976, S h u q a r t endeavored to take a l e a d e r s h i p

p o s i t i o n i n t h e f l o p p y d i s k d r i v e i n d u s t r y and d e c i d e d t o a t t e m p t d o u b l i n g the
..c a p a c i t y of its p r o d u c t s .
T h r e e d i f f e r e n t a p p r o a c h e s were c o n s i d e r e d :
,

.
170

( 2 ) write narrower t r a c k s t o put more

( 1 ) write more b i t s around each t r a c k ;

tracks around t h e d i s k : and (3) u t i l i z e b o t h s i d e s of the d i s k ( d o u b l e - s i d e d
recording)

.

Sollman, Tr

d e n s i t y approach.

.

Shugart decided t o pursue the double-track

58-59.

Sollman, Tr.

60.

z

I n November 1 9 7 6 , IBM i n t r o d u c e d the f i r s t d o u b l e - s i d e d f l o p p y

75.
disk drive.

The d i s k d r i v e was p a r t of a W e 1 3 6 0 - 1 bank terminal

controller.

Sollman,

-

Tr. 6 0 ; see FF 7 2 . .

T h e d i s k e t t e s for t h e IBM d o u b l e - s i d e d d i s k d r i v e was c o a t e d on

76.

The d i s k d r i v e p l a c e d two h e a d s , one on e a c h s i d e of t h e

both s i d e s .

d i s k e t t e , i n contact oz near-contact w i t h t h e d i s k e t t e s .
c a n t i l e v e r e d and t h e d i s k e t t e s would flow between them.

The h e a d s were
Sollman, Tr.

double-sided d i s k drive.

S h u g a r t o v e r n i g h t g a v e up t h e d o u b l e - t r a c k

approach and i n f o r m e d its major OEM customers o f i t 8 d e c i s i o n .

density

Sollman,

64.
78.

A program

was i n i t i a t e d a t S h u g a r t to d e s i g n a d o u b l e - s i d e d

f l o p p y d i s k d r i v e to be d e s i g n a t e d t h e SA-850.
Tr.

61-62,

S h u g a r t , l i k e o t h e r s i n t h e i n d u s t r y , d e c i d e d t o d e s i g n its own

77.

Tr.

.

Sollman, Tr.

63-64;

Dalziel,

4286.
T h e d o u b l e - s i d e d d e s i g n program r e c e i v e d h i g h e s t p r i o r i t y w i t h

79.

a l l S h u g a r t resources d e v o t e d to t h e p r o j e c t .

Fifteen t o 20 e n g i n e e r s were

o r i g i n a l l y a s s i g n e d to t h e p r o j e c t , and t h i s number i n c r e a s e d t o 80 e n g i n e e r s
..
a t one p o i n t . -* S o l l m a n , Tr. 65-66.
r

~

.

.

;
,

80.

Considerable Shugart r e s e a r c h f a c i l i t i e s

a t Sunnyyale,

C a l i f o r n i a , were also d e v o t e d t o t h e d e s i g n e f f o r t , as well as those o f Xerox'
P a l 0 Alto f a c i l i t y , s u b s e q u e n t t o December 1 6 , 1 9 7 7 , when X e r o x . C o r p o r a t i o n
purchased Shugart.

Sollman, Tr.

66-67.

171

*-

8 0 A . Shugat.t followed the IBM approach b e c a u s e . i n i t i a 1 evaluations

appeared t o indicate that it was a good solution to the problem o f recording

on b o t h sides of a f l o p p y d i s k .

S h u g a r t i n i t i a l l y had a l o t o f confidence i n

D a l z i e l , Tr. 4395-86,

IBM's approach.

4294.

S h u g a r t o f f i c i a l l y .introduced a double-sided d i s k d r i v e

81.

product, the SA-850,

i n A p r i l 1977 and star-ted shipments i n June 1977.

In t h e

f a l l of 1977, customers began to return the product because the magnetic head

structures used were beginning t o s t r i p the oxides off the d i s k e t t e s r w h i c h
destroyed t h e customer's information.
Shugart engaged

82.

Sollman, Tr. 6 7 , 68.

in a h i g h l y intensive crash e f f o r t t o solve the

d e s i g n problems associated w i t h its double-sided product.

different d e s i g n s were tried over a number of years.
1.

Sollman, Tr.

67-68.

t o $5.0 million vas expended by Shugart on t h e design.

Approximately $4.0
S o l h a n , Tr.

Approximately. 10:

68.
Shugart's competitors

83.

were experiencing similar results i n

their p u r s u i t of both IBM-type and non-IBM- type head desi.gns--media
problems and unsatirfactory product.

wear

Sollman, Tr. 69.

Despite these efforts, Shugart never t o t a l l y solved the

8%.

problems encountered w i t h the IBM approach.

Daltielr Tr. 4286.

Mr. Dalziel studied the deficiencies of the IBM approach as

838.

they were observed i n t h e SA-850 and summarized h i s f i n d i n g s and analysis i n

.

*

.

_..
an interoffic'h'hemo dated August 4 , 1976, and e n t i t l e d "SA850 Head/Media
.Interfacer Observations 6 Experimental Results" (CX 8 2 2 , Ex. C ) . . One of the
.,

.

problems was p i t c h resonancer a self-excited vibration inherent i n the

design.

Another was r a d i a l spacing offset of the read/write cores of the
r
.

172

heads w h i c h is affected by .the r o l l angle of the sliders,.

Yet another problem

was the manufacturing cost resulting p r i n c i p a l l y from the need t o have
balanced head l o a d i n g provided by the flexures.

low.

T h u s , production y i e l d s were

Mr. D a l t i e l concluded t h a t even s e t t i n g aside m a n u f a c t u c a b i l i t y or c o s t

problems, the IBM-type d e s i g n was o n l y marginally acceptable for 4 8 tracks per

i n c h and unacceptable for h i g h - t r a c k densities.

Another conclusion t h a t he

drew was t h a t the low mass of the head sliders and the very low a x i a l , p i t c h
and r o l l s t i f f n e s s e s of the flexures w h i c h allowed good compliance and very

l i t t l e wear i n r i g i d d i s k , Winchester-type drives? was technology m i s t a k e n l y
a p p l i e d to f l e x i b l e d i s k , load/unload, contact recording.

Since f r i c t i o n i s

unavoidable i n contact recording? the low stiffness flexure supporting the

s l i d e r head resulted i n a dynamically unstable assembly.

CX 822, a t 12.

One competitor, CalComp, advertised t h a t it had a successful.

84.

I

double-sided floppy d i s k d r i v e product.

Sollman, Tr.

69.

Shugart purchased three CalComp d i s k d r i v e s

85.

for t e s t i n g by i t s

The engineers discovered that t h e CalComp d i s k drives employed

engineers.

-

head assembly manufactured by Tandon Magnetics

of C h a t s w o r t h , C a l i f o r n i a , and

t h a t t h e d r i v e s worked well w i t h a wide range of media.
85A. Engineers

a

Sollman, T r . 70-71.

a t Shugart were s k e p t i c a l of t h e Tandon d e s i g n and

d i d not believe it would perform adequately.

D a l z i e l , CX 822, 1 14.

86. ~.
..The Shugart engineering department considered the CalComp d r i v e

.. ?: *.Q
t o be a very . i n t & s t i n g
-+b,

~

,%

.... .

product, b u t because t h e y believed they were c l o s e t o

~

a breakthrough*on.
-.
their own d e s i g n , the engineering department preferred t o continue t h e i r efforts.

Sollman, T r .

71-72.

173

86A. Because of S h u g a r t ' s experience w i t h single-sided

floppy disk

d r i v e technology, i t s engineers d i d not believe that i t was possible t o g e t
adequate compliance between t h e heads and the d i s k and s t i l l g e t acceptable

wear characteristics on.both sides w i t h the Tandon approach, w h i c h used a
fixed head i n combination w i t h a flexure mounted head.

87.

DalZiel, CX 8 2 2 , 1 14.

After further Shugart d e s i g n - e f f o r t s f a i l e d , S h u g a r t ' s

President prevailed on S h u g a r t management to begin patent licensing

discussions with.Tandon Corporation.

Sollman, Tr. 73.

The licensing

negotiations were successEu1, and a license agreement was s i g n e d between
Tandon and S h u g a r t w h i c h embodied the Tandon patented technology.
Tr.

74.

88.

A

license agreement for the technology incorporated i n t h e '573

patent was signed by Tandon and Shugart on July 1 ; 1980.
CX

Sollman,

Sollman, Tr. 74:

616.
89.

Shugatt placed the Tandon patented technology i n its d i s k drive

products and t h e SA-850 became a successful and h i g h l y profitable product.

The technology was also added t o t h e 5-1/4
Sollman, Tr.

90.

74-75.

Shugart does not know why it could not solve the double-sided

floppy d i s k d r i v e problem.

.I t h i n k today that is probably one of the l a r g e s t

corporate enigma8 that remains.
we

i n c h d i s k d r i v e , the SA-450.

We threw e v e r y t h i n g a t that design.

I n fact,

even had designs identical t o Tandon's t h a t were there e a r l i e r i n our

attempts,

and we couldn't make those work either."

Sollman, Tr..7S.

..

174

e

E.

CalComp.

Prior t o 1976, C a l i f o r n i a Computer Products, Inc. (CalComp) was

91.

manufacturing single-sided floppy d i s k drives.

These were 8 i n c h drives t h a t

were similar to th.e IBM 23 FD and 33 FD s i n g l e - s i d e d drives.

CalComp's

single-sided d i s k d r i v e had a s i n g l e read/write head t h a t was f i x e d i n

relation t o the nominal plane of the d i s k , a n d d i d not have any provision for
p i t c h or r o l l

or Z-axis movement.

head pressure pad
head on side

8.

On the other side of the d i s k there was a

arm t h a t was mounted so as to move toward and away from the
Smith, T r . 2282-84;

Meyer, Tr. 2061-63;

SRPX 20.

92. -When IBM announced its 8 i n c h double-sided floppy d i s k drive i n
1 9 7 6 , CalComp d e c i d e d to develop i t s own double-sided

remain competitive i n the market.

floppy d i s k d r i v e . t o

CalComp's original plan was to enter the

market w i t h a reverse engineered IBM-type double-sided d r i v e .
Tr.

Smith,

Meyer, Tr. 2066-68.

2284-85;

I n 1 9 7 6 , CalComp d i d not have the technical c a p a b i l i t y to

93.

design a double-sided floppy d i s k d r i v e in-house, and t h u s entered into an

agreement w i t h Tandon Magnetics t o d e s i g n the heads.

Meyer, Tr. 2068: S m i t h ,

T r . 2 2 8 5 , 2313.
94.

A group

was formed a t CalComp in September-October 1976 t o

develop t h i s double-sided floppy d i s k d r i v e which was known as the Sinal1 D i s k

Operation.

Mr. Sienry Meyer was the director of t h i s program.

.*---.

Mr. Malcolm

Smith was r t 8 m n s i b l e for t h e mechanical engineering aspects of the programr
...+;-7.-.. .. .* .
and served - - a iiaison w i t h Tandon Magnetics.
I n h i s capacity FS l i a i s o n w i t h Tandon,

Mr. Smith made frequent v i s i t s t o Tandon's f a c i l i t i e s , r a n g i n g

from about once per week i n the early phases of the program to d a i l y a t l a t e r
stages of development.

Mr. S m i t h ' s function was, i n p a r t , t o evaluate the

t e s t data developed by Tandon.

Meyer, T r . 2068-69;

175

Smith, Tr.

2286, 2 2 8 8 - 8 9 .

95- When the Tandon/CalComp double-sided disk drive development
program began in about October 1976, Tandon was proceeding with a
reverse-engineered IBM approach.

At this point, it was felt by CalComp that

market acceptance for their double-sided drives depended on following the
design.

Smith, Tr. 2285, 2291-92, 2314-15; Heyer, Tr. 2076-78;

IBM

SRX 29.

After CalComp received preliyinary sketches and a sample

96.

carriage of the IBM-type double-sided drive.from Tandon, it was determined
that this drive would not fit the existing carriage o f CalComp's single-sided
drive.

CalComp preferred to adapt the new double-sided drive to its

single-sided carriage so as to avoid having to change the configuration of the
chassis and be able to use the existing head load solenoid, stepper motqr, and

-.

lead screw arrangement.

CalComp felt it war in its best interest to adapt

their single-sided drive because its largest customer, DEC, had a license with
CalComp that it intended to exercise.

It would have been necessary for

CalComp to engage in a long approval cycle before being allowed to change the
design.

Smith, T r . 2286-87; Meyer, T r . 2079-80.
97.

To adapt the single-sided drive to a double-sided head

configuration, CalComp's engineers proposed investigation of a design wherein
it would not be necessary to alter the bottom head.

This involved redesigning

the load arm of the singlc-rided drive which had the pressure pad.

The

movable upper arm would be replaced by a different arm which would have a

.

*:

gimbaled flexure and a head.

. .,.- .
.: ..

Smith, T r . 2287: Meyet- Tr. 2081.

...L

.--

,s

.

c

176

-

When CalComp e v a l u a t e d t h e p r o s and cons of the IBM approach

98.

and m o d i f i c a t i o n of t h e i r e x i s t i n g d r i v e , t h e y f e l t t h a t i t would b e b e s t t o
proceed with both d e s i g n s i n p a r a l l e l .

I n about O c t o b e r 1 9 7 6 , CalComp

r e q u e s t e d Tandon t o work on b o t h d e s i g n c o n c e p t s c o n c u r r e n t l y .
,

-

Meyer,

T r . 2081-82.
Tandon r e p o r t e d t h a t m o d i f i c a t i o n of the CalComp s i n g l e - s i d e d

99.

d r i v e was - d e l a y e d .

-To speed t h e . d e v e l o p m e n t of the m o d i f i e d CalComp d e s i g n ,

Mr. Smith i n l a t e November 1 9 7 6 made a v e r y c r u d e model o f the m o d i f i e d d e s i g n
a t CalComp and d i s c u s s e d the d e s i g n w i t h Mr. Tandon.
t e s t i n g o f t h i s model showed
t h e medium.

Smith,.Tr.

some a b i l i t y to r e a d and write, b u t it d e s t r o y e d

2292-94.

,

-

i

I n F e b r u a r y 1 9 7 7 , CalComp r e c e i v e d 'from Tandon a model of t h e

100.
I

Mr. S m i t h ' s p r e l i m i n a r y

s i n g l e - s i d e d CalComp d r i v e m o d i f i e d t o be d o u b l e - s i d e d .
t h i s model a t CalComp g a v e v e r y good results.

-

T e s t s c o n d u c t e d on

A t a meeting o f CalComp and

Tandon p e r s o n n e l h e l d i n March 1 9 7 7 , CalComp e x p r e s s e d its s t r o n g p r e f e r e n c e

t o p r o c e e d w i t h t h e m o d i f i e d CalComp s i n g l e - s i d e d d e s i g n .

Although Xr. Tandon

e x p r e s s e d his view t h a t t h i s was not a wise d e c i s i o n , Tandon d i d p r o c e e d t o
modify CalComp's s i n g l e - s i d e d d r i v e t o make it d o u b l e - s i d e d .

Smith,

T r . 2296-98.
The double-sided

101.

f l o p p y d i s k d r i v e t h a t CalComp u l t i m a t e l y

T h i s model performed
marketed was a modification of i t s s i n g l e - s i d e d d r i v e .
*. .
b e t t e r t h a n &e IBM d o u b l e - s i d e d d r i v e b e c a u s e it d i d not d e s t r o y t h e medium

--

~

..

as r a p i d l y as t h e IBM d e s i g n and was not s u b j e c t t o column b u c k l i n g , as was
the IBM d e s i g n .

I n a d d i t i o n , t h e CalComp d o u b l e - s i d e d d r i v e was less

e x p e n s i v e t h a n IBM's

drive.

S m i t h , T r . 2298-300;

17 7

SRPX 10.

.-

-

I n order t o manufacture the CalComp double-sided drive, it'was

102.

necessary t o prepare design drawings.

The drawings for the button head, the

upper head, the gimbal flexure, and the c r i t i c a l locating dimensions for t h e
upper and lower heads were prepared by Tandon.
and the upper arm were provided by CalComp.

.*

The drawings for the carriage

The method of attaching the head

assembly t o the carriage was i n i t i a l l y propbsed by CalComp, b u t was l a t e r
modified by Tandon.

Smith,

1

Tr. 2300-02.

.

Under the terms of Tandon's proposal t o CalComp for development

103.

of the double-sided floppy d i s k drive, Tandon stated that the head and flexure
design were proprietary to Tandon.

The design and development of the carriage

and associated hardware was stated t o be proprietary t o Calcomp.

SRX 29.

In the Attachment t o the CalComp ' l e t t e r of authorization'

104.

from

Meyer t o Tandon, dated November 1 5 , 1976, the three phases o f the double-sided
floppy d i s k drive development project were defined.

I n addition, CalComp

agreed to t r e a t as proprietary t o Tandon the tool design for Tandon's head
fabrication techniques.

A t the end

of Phase

I1

of the p r o j e c t , CalComp would

own the carriage and drive design, i n c l u d i n g the tooling, and s p e c i f i c a l l y the

carriage arm and the carriage-arm-to-carriage interface.
slider and the suspension flexure.

SRX 43.

Figure 1 of the '573 patent depicts t h e embodiment as it was

105.

exhibited i n the CalComp carriage.

--

5

Tandon would own the

i*

:j.

.

The CalComp carriage is different from

I

others i n t h e_.h=a t k c t i n that the boss, w h i c h was used to- mount the guide shaft
. ,.
.

.

I

~

- p

.-.
3.".

into the d r i v e , is f a i r l y massive i n the head area, while the b o y a t the rear
of the carriage is relatively narrow.

S m i t h , Tr. 2305-07;

CX 601.

106.

I n about September 1977, ML. Meyer l e a r n e d t h a t Tandon had

f i l e d a patent application
design.

Initially,

.

on the CalComp d o u b l e - s i d e d f l o p p y d i s k ' d r i v e

Mr. Meyer was annoyed t o hear t h a t t h e a p p l i c a t i o n had

been f i l e d , and a p p a r e n t l y

f e l t t h a t Mt. S m i t h s h o u l d be named as one of t h e

inventors, and t h a t Calcomp's name s h o u l d b e . a s s o c i a t e d w i t h t h e patent.

Mr. Meyer'r concern a b o u t t h e p r o p r i e t y o f Tandon's patent a p p l i c a t i o n was
a p p a r e n t l y a l l a y e d by Mr. Tandon's r e p r e s e r k a t i o n t h a t t h e patent would cover

only t h e head and t h e suspension flexure r a t h e r t h a n t h e entire a s s e m b l y .
Meyer, h.2 2 2 5 - 2 8 :
107.

1.

SRx 79.

I n about March 1 9 7 7 , CalComp c o n s i d e r e d whether i t was

,

-

intererted

i n o b t a i n i n g a patent on t h e new d o u b l e - s i d e d d r i v e c o n f i g u r a t i o n .

The d e s i g n

was s u b m i t t e d t o CalComp'a patent committee.

t h e patent committee t h a t t h e 'design p r o b a b l y
T X 0

It was t h e o p i n i o n of

was not p a t e n t a b l e .

Meyer,

2139-41..
108.

I n F e b r u a r y 1 9 7 8 , Mr. S m i t h f i l e d a d e c l a r a t i o n i n t h e PTO i n

r u p p o r t o f Tandon's

patent application.

Smith Decl.,

S m i t h , Tx. 2 3 2 6 - 2 7 ;

CX 6 1 1 , (Mal. 6 , 1 9 7 8 ) .
109.

The d e v i c e embodied i n t h e Tandon patent s o l v e d t h e problems

e n c o u n t e r e d by t h e IBM d o u b l e - s i d e d d i s k d r i v e by p r o v i d i n g
transducer arsembly

an asymmetrical

in which one of t h e t r a n s d u c e r s is used as a fixed

positional reference for t h e f l o p p y d i s k .

Cornstock,

n.

394;

cx

6 0 1 , col. 2 ,

lines 44-52.
109A. I n t h e IBM d o u b l e - s i d e d d i s k d r i v e , t h e head s u p p o r t i n g f l e x u r e s

wexe v e r y l o n g and f l i m s y so t h a t head a l i g n m e n t was v e r y d i f f i c u l t ; it was
c-

s i g n i f i c a n t l y more d i f f i c u l t t o a l i g n for h i g h e r track d e n s i t i e s .

One o f the

problem& addressed by the inventors was ttllat i n the IBM d e s i g n any deformation

i n the a i s k caused the heads t o go o f f t r a c k , t h a t i s , o f f the c e n t e r l i n e of
the track, because of the f l i m s y nature of the head mounting Elexures.

Thfs .,

prqblem was resolved by the Tandon invention and provided the c a p a b i l i t y

g o i n g to h i g h e r track densities.

110.

o€

Tandon, CPX 3 1 , a t 390-91.

The essence of the '573 patent

'is t h a t the lower or s i d e 0

head is i n a f i x e d position w i t h respect to the nominal plan of the'.disk.so
, t h a t it provides a reference surface for the p l i a n t d i s k t h r o u g h penetration
by the lower head into the plane of t h e media.

Dep.,

C o m s t o c k , Tr. 1 4 9 4 ; Tandon

a t 3 5 6 , 413-14, MRPX 34C.
U O A . The

claimed data transfer relationship i s not synonymous w i t h .

penetration of the side 0 head into the nominal p l a n e of the d i s k .
Penetration is not the only factor involved i n t h e read/write relationship.
The loading force of the transducers on the d i s k

is probably amre s i g n i f i c a n t

t h a n penetration i n t h a t these forces deal w i t h the large scale waviness of
the d i s k .

C o m s t o c k , Tr. 5246-47;

UOB. Mt.

Hayashi, T r . 4282.

Stoddard, one of M i t s u b i s h i ' s

'

technical experts, t e s t i f i e d

that i n t h e prior a r t IBM Model 43 FD double-sided f l o p p y . d i s k d r i v e ,
described i n U.S.

Letters' Patent No. 4,089,029 (Castrodale), one of the heads

penetrates t h e nominal plane of the d i s k .

Stoddard,

Tr. 4525, 4528-29.

'029 patent, however, states i n part:

..-....

...

180

The

Advantageously, the mountings for the transducers 150 and
152 allow the f l a t bearing surfaces 150a and 152a o f the
transducers to run i n contact w i t h the magnetic disk 20 w i t h
no penetration o f either o f the transducers 150 and i 5 2 in
the d i s k 2 0 and w i t h the compliance o f the transducers 150
and 1 5 2 to the d i s k 2 0 being constant. T h i s r e s u l t i s
attained particularly since the transducer surfaces P50a and
152a, w h i c h are of the same s i z e and shape, are located
exactly opposite each other and i n r e g i s t e r w i t h each other
except for the thickness of the-disk 20 between them. Since
the d i s k 2 0 i s t h i n and f l e x i b l e , it may be expected t o
wobble i n directions X , Y and 2 (see FIG. 1 4 ) ; and the two
transducers 150 and 152 together move i n these directions
w i t h the spacing between the transducers 150 and 1 5 2
remaining the same and equal t o the thickness of the d i s k
20.
I n t h i s connection, the r e l a t i v e l y r i g i d load arms 1 8 2
and 1 8 6 acting under the spring influence of the s p r i n g
portions 176b and 1 8 4 b maintain t h e desired loading of the
transducers 150 and 1 5 2 on the d i s k 20 and against each other
while yielding i n a direction 2 w i t h the warping of the d i s k
20 i n t h i s direction e, The s p r i n g s 1 7 6 and 184 and
p a r t i c u l a r l y the s p r i n g portions 176d, 176e, and 1 7 6 f for the
transducer 150 and the s p r i n g portions 1 8 4 d , 184e and 184f
for the transducer 1 5 2 function t o allow an easy pivoting of
the transducers 150 and 152 i n the direction X and Y t o
..
maintain the transducer surfaces 150a and 152a i n firm
contact w i t h the surfaces o f the d i s k 20 a s the d i s k 20
wobbles either r a d i a l l y of the d i s k or circumferentially of
the d i s k , No resistance t o the p i t c h i n g and r o l l i n g of the
transducers is provided by the r e l a t i v e l y r i g i d load arms 1 8 2
and 186, since the transducers pivot about the dimples 1 7 6 h
and 184h acting as pivot points and acting as universal
j o i n t s w i t h the load arm portions 1829 and 1869. W i t h the
disclosed construction, because of the intimate, regular
compliance of the transducers t o the d i s k , the potential for
Also, due t o the r e l a t i v e l y low
h i g h b i t density is present.
spring r a t e taf the s p r i n g s 176 and 184 functioning as gimbal
s p r i n g s as above mentioned and a l s o due t o t h e face that
there is no d i s k penetration by the transducers 150 and 1 5 2 ,
and load fotces applied onto the transducers 150 and 1 5 2 by
the load arms 182-and 1 8 6 by reason o f the deflected spring
pottions 176b and 184b may be kept t o a minimum; and good
transducer and d i s k wear l i f e are t h u s c h a r a c t e r i s t i c s of the
disclosed apparatus.
CX 6 4 6 , c o l s . 1 2 , 1 1 , 7-53

(emphasis added).

181

111.

The i n v e n t i o n d e s c r i b e d by t h e ' 5 7 3 p a t e n t i s s u b s t a n t i a l l y

s i m p l e r , less c o s t l y , e a s i e r t o maintain, and more s t a b l e and r e l i a b l e i n

operation t h a n t h e ISM--type two-sided t r a n s d u c e r s t r u c t u r e . S m i t h , T r . 2 3 1 6 ;
- -. -- -- .
Nuelner D e c l . , ' ' C X ~ ~ 6 1 1 ,(I 6 ( F e b . 2 8 , 1 9 7 8 ) ; S m i t h Decl., CX 6 1 1 , 1 6 ( F e b . - 2 8 ,
1978).
A t the time the Tandon d e s i g n o f the ' 5 7 3 p a t e n t (CX 6 0 1 )

112.

..-

became known t o the f l o p p y d i s k d r i v e i n d u s t r y , there was i n i t i a l resistance
toward u t i l i z i n g the Tandon d e s i g n .

Stoddard, Tr.

4547.

112A. Many d i s k d r i v e manufacturers e v e n t u a l l y s t o p p e d u s i n g t h e IBM
a p p r o a c h and adopted t h e Tandon approach.

CX 6 3 3 ; CX 6 4 0 .

T h e r e came a time when t h e Tandon d e s i g n of t h e ' 5 7 3 p a t e n t was

113.

accepted i n t h e floppy disk d r i v e industry.
113A. IBM became

Stoddard, Tr.

4550.

a major p u r c h a s e r of p a t e n t e d d r i v e s from Tandon, and

continues t o buy s u c h p r o d u c t s from Tandon.

Huenemeier, CX 8 3 5 , a t 21.

113B. I n 1 9 8 4 , Tandon a n d ' i t s licensee, CDC, alone s o l d more t h a n
worth of d o u b l e - s i d e d

$

patent.

f l o p p y d i s k d r i v e c o v e r e d by the ' 5 7 3

S e r g e , C x 7 1 7 , CX 7 3 0 .
114.

T h e claims of the ' 5 7 3 p a t e n t are d i r e c t e d t o the normal,

r e a d / w r i t e o p e r a t i o n of t h e c l a i m e d s y s t e m i n which b o t h t r a n s d u c e r s are i n

contact and i n d a t a t r a n s f e r r e l a t i o n s h i p w i t h t h e d i s k .
- .- - - - _ --.. ...-.- ...._ " _ . _ _ . . - .

Tr.

cx

1948-49;

115.

601.

Comstock,
. _.

Claim 1 2 o f t h e ' 5 7 3 p a t e n t i s a J e p s o n - t y p e

claim.

Thus, it

would r e a d on a m a g n e t i c r e c o r d i n g s y s t e m improved i n the manner t h a t is:
s p e c i f i e d i n t h e elements f o l l o w i n g the p h a s e " t h e improvement c o m p r i s i n g . "
thisum, Tr.

4308, 4311; Jessup, Tr.

4 4 3 8 , 4442.

182

,

lL6.

The meaning of the phrase "magnetic recording system" in clain

12 is to be equated with a'floppy disk drive in view of the specification of
Chisum, T r . 4311, 4314.

thz '573 patent,

'

The '573 patent includes a comprehensive description of a

317.

floppy disk drive "system" in column 3 of the specification, starting on line
4 9 , and for simplicity, that portion of the. patent refers to another patent

for further details such as the hub, the spindle and so forth.

Cornstock,

Tr. 1 5 0 3 ; CX 601.
An important aspect of the '573'patent (CX 601) is that the

118.

lower head must be "€ixed" so that the media tends to conform to the head
rather than the head following any pitching and rolling of the media, as was
the case with the IBM prior art device (CX 609, CPX 161,

Chisum, T r . 4361.

The word "girnbal",as used in the patent Specification relates

119.

-.

to the ability of, the device to tilt to some extent about a load point to
compensate for.major radial oc circumferential deflections of the disk from
its nominal plane, othcowise known as pitch and r o l l .

Chisum, Tr. 4331.

Patent examiners conceive it as their obligation to give a

120.

claim the broadest interpretation conceivable during the pendency of a patent
Jessup, Tr. 4404.

application.
121.

It was the examiner's view in his first Office Action that the

language of claim 1 was very,broad and would-reid on the principal prior a r t -

.

'

:$.:&

refer ence, t&'
i B M Technical Di'sclosui'e Bulletin (CX 649)
+y*.
.
;&.-.

I.

.:

.

Jessup,-

.

..'

183

122,

On page 5

of the second anendnent, the attorney was emphasizing

that i n the device as claimed, unlike the principal prior a r t device of the
IBM Technical Disclosure Bulletin ( C X 6 0 9 1 , one of the heads serves as a

.

.

I

positional reference while i n the IBM device neither of the heads serves as a
C h i s u m , Tr. 4328.

positional reference.
123.-129.

G.

Intentionally L e f t Blank.

Coverage of the Tandon Double-Sided Floppy D i s k Drives by the ' 5 7 3 Patent.
130.

The Tandon Model Nos. TM 5 0 , TM 5 5 , TY 6 5 , TM 1 0 0 , TM 1 0 1 ,

TM 3 0 6 , and TM 840 a r e covered by a t l e a s t claims 1 , 5 , and 12 o f the ' 5 7 3

patent. ..Cornstock, Tr. 1534-36.

131.

The C!X Model Nos. 9409, 9428, and 9429 a r e coveted by a t l e a s t

claims 1 , 5, and 1 2 of t h e ' 5 7 3 patent.
132.

C o m s t o c k ; Tr. 1536; CPX 21-25.

The Tandon Model Nos. TM 65 and TM 100 sold by TP are covered

by a t l e a s t claims

I, 5 , and 12 of t h e

132A. The 5-1/4

' 5 7 3 patent.

i n c h double-sided floppy d i s k drive manufactured by

IBM i n Boulder, Colorado, since August 1984,

of the '573 patent.

C o l a s t o c k , Tr. 1534-36.

is covered by claims 1 , 5 , and 1 2

Fenstetmaker, CX 059, a t 1 ; Comstock, T r . 4145.

H I The Accused Products.
133.-134.
135.

Intentionally L e f t Blank.

The various M i t s u b i s h i (MELCO) double-sided-disk drive

transducer assemblies are described i n Exhibit MEW 27, the writtgn witnessstatement o f Toshikazu Hayashi, and are shown i n a s e r i e s of sketches attached
t o that statement.

Hayashi, MRX 27.

.
18 4

136.

There

are s e v e r a l models o f d o u b l e - s i d e d ' f l e x i b l e

d i s k drives

manufactured by MELCO.
The d o u b l e - s i d e d d i s k d r i v e s manufactured by XELCO and
.
. e x p o r t e d to t h e U n i t e d S t a t e s i n c l u d e four 8 i n c h d i s k d r i v e models (M2893,
Mi894-4/5,

M2894-6,

and M2896-6)

, three

5-1/4

i n c h series of d r i v e s d e s i g n a t e d

Mark I , Mark XI, and M3 series and c o m p r i s i n g 1 3 models (Mark I Models:
M4851, M4852, M4853, M4854, and M4855; Mark 11 Models:

M4853-1

M485l~-31, and one

or - 3 , M4854-1 or - 3 , and M4855-1; and M3 Models:
3-1/?

M4851-1 or - 3 ,

i n c h d i s k d r i v e , Model Mp 3 5 3 . ' - H a y a s h i , MRX 2 7 , 1 5 ; MRX 92.
137.

The M i t s u b i s h i double-sided

f l o p p y d i s k d r i v e s i n c l u d e the Mark

I S e r i e s , t h e Mark If S e r i e s , t h e M3 S e r i e s ,

all c o m p r i s i n g 5-1/4

inch d r i v e s ,

i n c h d r i v e , and f o u r 8 i n c h d o u b l e - s i d e d d i s k d r i v e models.

t h e MF 353 3-1/2
H a y a s h i , MRX 27.

A l l 1 2 models of t h e Mark I and Mark

138.

XI Series ( w h i c h i n c l u d e s

t h e Model M4851 which was t e s t e d by Tandon) have i d e n t i c a l g i m b a l s on w h i c h
t h e upper and lower t r a n s d u c e r s are mounted.

Comstack, Tr.

CX 6 1 5 , 1 6:

5 , 6, 8-10.

H a y a s h i , MRX 27, 11 2 3 - 2 5 ,

Figs.

1572, 1574;

T h e flexure on which t h e upper head is mounted i n t h e

139.

M i t s u b i s h i Mark I d r i v e is a g i m b a l s p r i n g .

elements are i d e n t i c a l .
140.

The upper and lower f l e x u r e

Comstock, Tr. 1 7 8 1 , 1 7 8 2 .

The H i t s u b i s h i Mark I and Mark If S e r i e s , as e x e m p l i f i e d by t h e

M4851 t e s t e d by Tandon, i n c l u d e s a lower t r a n s d u c e r mounted on a circular

:.->.,.

,

s l o t t e d s h e e t metal s u p p o r t element backed up by a l o a d f i n g e r formed
integrally witb'the p l a s t i c carriage.

A r u b b e r pad

is d i s p o s e d between the

l o a d f i n g e r .and the lower surface of t h e s h e e t metal s u p p o r t .
1 9 , 2 0 , 2 1 ; Hayashi MRX 2 7 , 11 1 5 - 2 1 ,
1568-69, 1592-93,

23-25, Fig.

1 7 8 2 , 1790.

105

CX 6 9 3 , p h o t o s

8; C o m s t o c k , . T r .

1564-65,

The upper head of the Mitsubishi Mark I and Mark I1 Series is

141.

mounted on a gimbal spring which i n t u r n is carried by a support arm pivotally
coupled to the carriage.

CX 6 9 3 ,

photos 19, 2 2 ; Hayashi, MRX 2 7 , 1 17;

Comstock, T r . 1781.
The disk drive Models M4852, M4853, M4854 and N4855 of the Mark

142.

I s e r i e s d i f f e r i n some respects from the Ma851 model i n their overall disk

drive structures and c i r c u i t board configurations, and there are some
differences i n s l i d e r and core dimensions; however, the basic construction o f
the carriage and magnetic head assemblies of these other models are the same
as the above-described Model M4851,

Hayashi, MRX 2 7 , 1 2 1 ,

The M i t s u b i s h i M3 Series has a transducer assembly i d e n t i c a l - t o

143.

that of the Mark I/Mark X I S e r i e s , except that the pad between the load finger
and the lower transducer support has been omitted, leaving a gap of 20-80

-

micrometers between those two elements, and the lower head support is a
"single ring" construction t o provide a greater spring constant about the roll
axis.

Hayashi, MRX 2 7 , 1 2 7 , F i g . 15.
I n the M i t s u b i s h i Model Mp 3 5 3 , the lower transducer i s mounted

144.

on a sheet metal spring element having a thickness 60 percent greater than the
spring element mounting the upper head (0.16 mm
a r e employed i n t h i s design.

VS.

0.10 mm).

Hayashi, MRX 27 11 31, 3 2 , Figs. 16-19.

I n the M i t s u b i s h i Models M2893 and M2894-4/5

145.

No load fingers

8 i n c h drives, the

a...:

lower transducer i s mounted on two, p a r a l l e l flexure elements w i t h a load

_.,.
I.

p o i n t i n between.

The upper transducer is mounted on a single flexure

element: no load p o i n t is used behind t h i s element.
Id-lf,

2 c r 2d.

Hayashi, M R X 2 7 , Figs.

_..

186

I

.

Infringement
1.

Tandon Tests.
Tests were conducted a t Tandon on certain of the respondent's,

146.

Complainant's, and IBM's double-sided floppy disk drives.

The t e s t s were

conducted under the supervision of Mr. Marshall xathanson, Tandon's Senior
S t a f f Engineer.
CX 7 1 6 , 11

.

Nathanson, Tr. 1309, 1476,- 4023-25, 4027-28; Nathanson,

1-3; Nathanson, CX 817, 1 78;'Nathanson, CRX 8 , 1 106.

147.

Mr. Nathanson formulated the t e s t s , decided what data would be

required, and established t e s t procedure protocols t o assure the r e l i a b i l i t y
and accuracy of the t e s t s , the data, and the results.

Nathanson, Tr. 14138

1476

i
e

148.
I

A

preliminary survey was made t o determine the t e s t and

calibration procedures, instrumentation ranges, how t o mount the t e s t probes,
-.
and so forth.
149.

Nathanson, Tr. 1473-141 Nathanson, CX 7 1 6 , 1 4.
A l l of the data obtained

from the preliminary survey were

recorded i n Exhibit TRX 1 3 , a f i r s t data notebook.

Nathanson, Tr. 1473-74;

TRX 1 3 ; Nathanson, CX 716, 1 4.
150.

Various measurements were made of the displacement of the

transducers along the Z-axis and about the p i t c h and r o l l axes due t o the
forces imposed on the transducers by the rotating d i s k .

Nathanson, CX 716,

11 14, 16, 18, 2 1 , 22.
..-.. .?

. '.
151.. r,G,entrally, the Tandon t e s t s directed by .W. Nathanson measured
.. -

...

the motions or displacements of the transducers and a sample floppy disk, as
well as the s t i f f n e s s e s or spring rates of those components.

cx 716,

11 1 3 , 1 5 , 1 7 8 1 9 , 2 0 8 22.

Nathanson,

.--

187

An

152.

attempt was made to measure the degree to which n*ads

move

due to the inflw?:*:-eof disks, and t h e deqree to which heads restrain disk
movement.

To do % h i s

"re

disk motion that exists in the absence of heads was

measured and compared to movement in the p e s e n c e o f heads.

Nathanson,

Tr. 1470.
The motion and spring rate measurements were used in formulae

153.

devised by Nr. Nathanson.

Nathanson, Tr. 1413, 1470;

CX

716, 11 14, 16, 18,

21, 22, 43, 50, 56, 63.
154.

the

The Tandon tests, and their relationship to the c l a i m of

'573 patent, consisted of the following:
(a) Disk and transducer motions and spring rates along the
Z-axis, that is, in a direction normal or perpendicular to'
the plane of the disk. CX 716, 11 13, 15, 38-50;

.-

(b) Disk and transducer motions and spring rates about the
pitch axis. CX 716, 11 17, 52, 54-63; and

,

(c) Transducer motion about the roll axis (because of
instrumentation limitations, disk motion about the roll
axis could not be measured) and disk and transducer spring
rates about the roll axis.
'

CX 716, 11 19, 22, 53-73,

The first series of tests was conducted at Tandon during the

155.

periods of September 4-25, 1984, and September 29 to November 2, 1984.

The

data from these tests were recorded in three data notebooks (Nos. 2-4)
(CX

622-24).

The methodology used and the results of these tests were

. .. ..
-

*

reported in.-,.s
g..-

:
i

T h i s piatform

(2) t h e media; and- ( 3 ) the gimbaling upper

action of the media-head contact is forced and becomes

the c h i e f p r i n c i p l e by w h i c h the Tandon design r a d i c a l l y d i f f e r s from the IBM

design.

CX 611,

a t 37-38, 41; Meulners Decl., Cx 6 1 i , S m i t h Decl., C x 611;
r-

Jessup, TT. 4412-14.

221

T h e i n t e n t i o n in the Tandon d e s i g n is t h a t the lower head not

230.

move, t h a t it not p i t c h and roll.

a t 311

Hackney Dep.,

MRPX 36C.

The Tandon p a t e n t d o e s not i n c l u d e a d o u b l e - s i d e d d i s k d r i v e i n

231.

-

(1) the lower head is g i m b a l e d ; ( 2 ) the upper head is f i x e d : or

which:

(3) b o t h t h e upper and lower heads a r e gimbaled.

Hackney Dep.8

a t 44-45,

MRPX 36C.

The d e g r e e of f i x e d n e s s o f t h e f i r s t t r a n s d u c e r r e q u i t e d by

232.

claims 1 , 5 , and 1 2 is t h a t t h e head had t o b e d e s i g n e d t o not move i n
r e s p o n s e t o forces it would l i k e l y encounter i n a f l o p p y d i s k d r i v e .
TI.

2 9 1 9 : TEB I D

a t 39: Tandon Dep.,

head s h o u l d be s e c u r e d as f i r m l y

a t 1 8 0 , 4 1 3 - 1 5 , 4 1 7 - 1 8 , 440.

as the a r t r e a s o n a b l y p e r m i t s .

Lewis,

The lower
Jessup,

.

-

T r . 4 4 2 5 , 4464.

I n t h e d i s k d r i v e i n d u s t r y , t h e term ' f i x e d , '

233.

I

as a p p l i e d to t h e

mounting of r e c o r d e d h e a d s , means t h a t the r e c o r d i n g head i s d e s i g n e d to b e

not a b l e to'move under t h e forces of t h e d i s k .

Tr. 2 6 4 0 ; TEO I D a t

3 9 ; Hackney Dep.,

L e w i s , Tr.

2 8 7 0 ; Brown,

a t 4 2 , 1 2 2 , MRPX 36C.

I t is v e r y important t h a t a f l e x i b l e d i s k d r i v e e s t a b l i s h good

234.

head c o m p l i a n c e , t h a t is, good contact between t h e h e a d s and t h e media o r # t o

state t h e converse, t h a t t h e s p a c i n g between t h e r e a d / w r i t e g a p of the head
and t h e media be k e p t to

zero

OK

a minimum value.

H a y a s h i , T r . 2844.

As t h a t

incteares, t h e r e a d b a c k s i g n a l a m p l i t u d e r a t i o d e c r e a s e s . When t h a t
. .ratio d r o p s o f f t o 80 percent of its maxilnum value, t h e o p e r a t - i o n of the d r - i v e

$pacing

.-*. -,

,.c

is

no

longer~srtfrfactory.

I n t h e M i t s u b i s h i d r i v e , t h e 80 p e r c e n t f i g u r e is

r e a c h e d when t h e s p a c i n g between t h e gap and t h e media is about 0.32

-

micrometers or 1 2 microinches.

Hayashi, Tr.

212

2847.

Thus, while t h e spacings

*

involved in the operation of a flexible disk drive are very m a l l in

dn

.

absolute sense, they are of critical importance to its proper operation.

.

.

Hayashi, Tr. 2848; Comstock, Tr. 1 5 4 8 .
.

.
-

4

I

234A.' The lower' heads in- the Mitsubishi dr ives all move a signif icant
Z-axis direction, both during the loading and unloading p h a s a ,

amount in :he

as well as during the read/write operation.- Hayashi, Tr. 2855, 2857-59,

. .

2862-63; MRX 5, 10.

3.

Interpretations and Scope of Tandon Patent Claims.
The Tandon '573 patent is directed to an improvement in a head

235.

carriage assembly for use in connection with a double-sided flexible disk
drive.
=-

The patent represents a mixture o f two magnetic storage technologies

a penetrating head type system from tape drives and single-sided flexible

disk drive systems and the air bearing head of the hard or rigid disk drive.
Brown, Tr..2522.

Penetration is utilized in order to obtain control over ?ha

media, to ensure good contact between the head and the flexible media, and t o
iron out the large scale fluctuations in the media.
Decl.,'CX

CX 611, at 37; Meulnzrs

611, 1 6a; Chisum, Tr. 4343, 4367-68; Lewis, Tr. 4571-72.

Control

Over the flexible media is accomplished by panetrating the plane of the disk
in greater magnitude than was done in the prior art systems, thus providing
stable repeatable head media platform analogous to rigid disk technology.
.

c &'

3

The

J

lower fixed-he& .irons out the fluctuations of the media, thereby providing

. .-&.

*.

.

I

~

'

essentially & . f l a t surface similar to a rigid disk for the upper.head to rids
-..-,
on. CX 611; at 37; Meulners Decl., 1 6a; Tandon Dap., at 473.
*

.

.
213

235A. One o f the perceived d e f i c i e n c i e s

or problems w i t h the prior a r t

IB.51 double-sided d i s k drive was t h a t the r e s i l i e n t mounts were r e l a t i v e l y

'

complex and had t o be precisely manufactured a n d , t h e r e f o r e , were.Fostly to

..

manufacture and maintain.

CX 5 0 1 , c o l .

IBM system, the Tandon system

fewer parts.

CX

I , l i n e s 62-67.

I n contrast t o the

.>
2

is one t h a t i s simpler t o f a b r i c a t e and has

611, a t 29, Amendment of H a t c h I, 1970, a t 4.

This

not gimbaled, i s not spring-loaded, and is securely attached t o the carriage.
Jessup, Tr. 4410.
- - ._
. - ._
- - ._ ... ~.
235B. One of the perceived d e f i c i e n c i e s w i t h t h e prior art IBM

approach t o double-sided recording i n a f l e x i b l e d i s k drive was t h a t the
f l e x i b l e media was unstable i n the p i t c h and

roll directions.

One of t h e

" s i g n i f i c a n t d e f i c i e n c i e s " w i t h t h e IBM approach was t h a t t h e f l e x i b l e media
is not s t a b l e r e l a t i v e to the p i t c h and r o l l a t t i t u d e o f the heads. CX 611,

a t 41; Smith Decl., 1 5b. 'Additionally, variations e s p e c i a l l y i n r o l l cause
the recording gaps of the head structures to move away from each other

r a d i a l l y , c a u s i n g significant loss o f r a d i a l positioning accuracy.

-

Of r a d i a l p o s i t i o n i n g

T h i s loss

accuracy can cause, e s p e c i a l l y for d i s k interchange, the

heads t o tespond to recorded data on tracks adjacent to t h e track of i n t e r e s t ,

a major source o f data transfer error.

CX 6 1 1 ,

a t 36: Meulners Decl., a t 3.

235C. T h e Tandon design requires t h a t the lower invariant head provide
1

.

a reference plane, as opposed to a reference p o i n t , for the-media. T h i s
- .+;=.-..- .
invariantly positioned lower head provides a s t a b l e , repeatable p l a n e over
w h i c h t h e f l e x i b l e media

.

c

s i m p l i c i t y o f fabrication derives from the f a c t t h a t the f i r s t transducer is

.

.

is drawn.

-

T h i s reference plane irons out the large

s c a l e fluctuations i n the media, thereby presenting a' surface t o the upper

214

.,

g i m b a l e d head e s s e n t i a l l y a n a l o g o u s t o the media i n t h e r i g i d d i s k f i e l d .

4414;

cx

611; Comstock, T I . 4118-19: Tandon Dep., a t 4 1 3 - 1 4 ,

Jessup,

TI.

417-18,

4 3 6 , 4 6 3 , 4 7 6 , MRPX 34C: Hackney Dep.,

hr

235D.

The terms ' f i x e d , '

a t 1 1 4 - 1 5 , MRPX 36C.

"telatively fixed,'

and ' f i x e d l y

coupled"

used i n claims 1 , 5 , and 1 2 o f t h e Tandon p a t e n t a l l ternire t h e 6ame d e g r e e

o f f i x e d n e s s of t h e lower ot f i r s t t r a n s d u c e r .

Jessup,

R. 4 4 2 4 .

No argument

was made i n t h e p r o s e c u t i o n h i s t o r y which i n d i c a t e s t h a t any of t h e claims was
t o d i f f e r as t o t h e reuuisite d e g r e e of f i x e d n e s s .
235E. The term 'fixed'

Chisum, h.4 3 7 5 .

as it is used i n claim 1 d o e s not have a

d i f f e t e n t meaning t h a n t h e term " t e l a t i v e l y f i x e d position"
Tandon Dep.,

I.

a t 613, MRPX 36C: Hackney Dep.,

i n claim 5.

,

MRFX 36C.

235F. The d e g r e e of fixedness of t h e f i r s t t r a n s d u c e r r e d r e d b y
.
..
claims 1 , 5 , and 1 2 i s t h a t t h e head had to be d e s i g n e d to not move i n
response t o forces it would l i k e l y encounter i n a f l o p p y d i s k d t i v e .
R. 2 9 1 9 ; Tandon Dep.,
secured as firmly
235G.

a t 1 8 0 , 413-15, 417-18,

Jesiup, Tr. 4 4 2 5 , 4 4 6 4 .

as a p p l i e d to t h e

I n t h e d i s k d r i v e i n d u n t r y , t h e term

mounting of r e c o t d i n g h e a d s ,

aman6 t h a t t h e r e c o r d i n g head i n d e s i g n e d not t o

move undet t h e forces of t h e d i s k .
a t 3 9 ; Hackney Dep.,

Lewis,

The lowet head s h o u l d b e

440.

as t h e a r t r e a s o n a b l y permits.

-

Lewis, Tr. 2 8 7 0 ; Brown, h.2640: TEO I D

a t 42, 1 2 2 , MReX 36C.

235H. -The p h r a s e " r e l a t i w e l y fixed'

t

1

as used i n claim 5 of t h e '573

p a t e n t d o e s not auality t h e reuuisite d e g r e e of f i x e d n e s s of t h e f$rst
t r a n s d u c e r nor d o e s i t mean 'somewhat

fixed.'

The a p p r o p r i a t e term o f ' a r t i n

d r a f t i n q the p a t e n t claim t o i n d i c a t e a certain d e g r e e of f l e x i b i l i t y or a

21 5

Jessup, T r . 4 4 2 6 .

certain degree of tolerance is "substantially."

Additionally, since "rel.atively" was added to claim 5 while under final
Amendment, if 'relatively" meant "somewhat," that amendment would have
broadened the claim which was professed not to be the intention of the
Chisum, Tr. 4374;

applicant.

CX

611, at 53, Amendment of Aug. 3, 1978, at 4 .

There is no indication in the prosecution history that the applicant was
trying to broaden the meaning of the term 'fixed"

by the amendment.

Chisum,

T r . 4375.

2351. T h e term 'invariant" as used in claim 12 of the Tandon '573
patent means that the first transducer 'doesn't
direction normal to the plane of the disk.'
An 'invariant.
,

move, does not vary in the

Tandon Dcp.,

at 614, MRPX 34C.

.

transducer may move a little bit since nothing is one-hundred

percent fixed: however, for all practical purposes, it docs not move.
head also docs not move to any significant degree.
MRPX 34c.

-

Tandon Dep.,

The

at 750-51,

'

235J. 'Non-gimbaled'

as used in the context of the Tandon '573 patent

refers to a device which is not gimbaled; a gimbaled device i s one that is
free to move around various rotational axes.

Chisum, Tt. 4330-31.

means a head does not move in pitch and r o l l when subject to

'Non-gimbaled'

forces put on it.

Tandon Dcp.,

at 437, 610, HRPX 34C.

is intended to
. . be fixed and non-movable.
4..

Hackney Dep.,

A 'non-gimbaled"

head

at 169, MRPX 36C.

,.

Claim 5 expresi?ly
...- *-requires that the first transducer be "non-gimbaled." All
..5y+?
:.: ;." !. .
of the claims.of,thc Tandon '573 patent require that the first transducer be
~

5

"non-gimbaled,'
transducer.

:.

as it is an essential characteristics of an invariant

Jessup, Tr. 4468.

216

235K. The l i m i t a t i o n t h a t the f i r s t transducer be "non-ginbaled"
the important limitation i n claim 5.
235L. A 'non-gimbaled

is

C h i s u m , T r . 4330-31.

b u t t o n t y p e head" is a head t h a t , i n operation,

does not gimbal t o accommodate any motion of the media, but t h e media
,

establishes the button head as a reference.

a t 475,

Tandon De?.,

MRPX 34C.

235M. I n t h e d i s k d r i v e i n d u s t r y , the term "gimbaled," as a p p l i e d t o
the mounting of recording heads, means a suspension system for the recording
head t h a t allows the head to p i t c h and roll.
Tr. 2649; Hackney Dep.,

235N. A 'gimbal

Lewia, T r . 2871; Brown,

a t 22-23, MRPX 34C.
spring'

is an elastic structure w h i c h allows one, two

or three degrees of freedom of angular displacement.

I

term 'gimbal.

i n c l u d e s a single-axis gimbal.

Hackney Dep.,

a t 227, MRPX 36C.

S i e g e l , Tr. 4704. .The

Tandon Dep.,

a t 672,

MRPX

34C;

235P. Mr. Tandon t e s t i f i e d t h a t the presence of a load p o i n t i n the
Tandon d e s i g n does not prevent g i m b a l i n g , b u t rather

i6

to provide g i m b a l i n g .

The presence of a load point does not make the transducer f i x e d , b u t makes i t
gimbaled.

Tandon Dep.,

a t 669-70,

p o i n t promotes gimbaling.

MRPX

Tandon Dep.,

34C.

Indeed, the presence of a p i v o t

a t 429,

MRPX

34C.

2354. Invariance of the f i t s t transducer i n a direction normal t o t h e
plane of t h e media requires that the f i r s t transducer not move i n the p i t c h
and r o l l directions since the o f f s e t of the head gap from the load W i n t

results i n the conversion of p i t c h and r o l l motion into motion i n a djrection
nornal to t h e p l a n e of t h e d i s k .

Lewis, T r . 2886.

_.-

217

236.

A

"positional reference" within the meaning of the Tandon

patent refers to a plane, which the disk is to Sa referenced to.
reference establishes a plane for the disk.
613,

MRPX

A

psitional

Tandon Dep., at 436, 466, 552-53,

36C.

236A. A head carriage for a double-sided flexible disk drive in which
the upper head pitches and r o l l s in order to maintain contact or good

L

compliance with the media, and in which the lower head pitches and r o l l s to
essentially a similar degree as docs the upper head, clearly docs not infringil
any claims of the Tandon '573 patent.

Chisum, Tr. 4368.

2368. While under final rejection, claim 1 was amended to require that
the first transducer, which has a fixed position in a direction normal to tha
plane of the media, fucther serve the function of serving as a "fixed
4

positional reference."

Tr. 4420.

This was a further limitation on the claim.

Jessup,

In order to infringe claim I, both the required structure of a

fixed first 'transducer, as well as the required function, must be present.
Claims 5 and 12 do not refer to either a "positional reference' or a "fixed
positional reference.'

CX

611, at 50-51: Chisum, Tr. 4351.

236C. 'While under final rejection, all of the claims were amended to
expressly limit the claims to systems in which it was the second transducer
which accommodated, via its gimbal structure, the fluctuations and thickness
Variations of the media.

CX 611, at 51-52, Amendments of Aug. 3, 1978.

It i-s

this second ..transducer
which is "movable in the direction toward and away. from
..-

..
.I

the pliant d i r k and the fixed head."
1978, at 5.

CX 611, at 54, Amendment of Aug. 3,

I

It is this transducer which, in the Tandon design, is intended to

pitch, roll, and move in the Z-axis direction to accommodate media
fluctuations and thickness variations.

Jessup, Tr. 4422-23.

218

'

*

237.

A s used

*

in t h 8 claims of t h

ndon patent, the term "nominal

plane" is used to mean the average plane o c c u p i a d

by the

disk after it has

been sandwiched by the heads; that is, after the heads have been Loaded and
the drive is ready to read or write.

Lewis, Tr. 2874; Comstock, T r . 1791-93.
,'

237A.

the tendencies of the disk

In each of claims 1, 5, and

01:

media to deviate referred to are those deviations or deflections that take

. *
i

place after the disk is sandwiched between the heads and the drive is ready
for read/write operation.
238.

Lewis,

None of the claims

Tr. 2 8 7 7 , 2879, 2882: Comstock, Tr. 1791-94.
0.f the

Tandon patent cover a system in which

the first transducer employs a sprinq-loade

d.

A

spring-loaded head is
2 , .

one in*which, if the slider is in an opcrat
surface and then that disk surface were to be removed and the opposing head to
be removed aho, then that transducer would fall forward under the expansion
of a spring member, and no other members or mass moving along with that
device.

Jessup, Tr. 4434; Nathanson, Tr. 4063.
238A. A double-sided drive in which the first transducer employs

spring-loading is not within'thc scope of the claims of the Tandon '573
patent.

Jessup, Tr. 4434; CX 611, at 5 3 , Amendment of Aug. 3, 1978, at 3.
,
239. All of the claims require that the force which causes the heads
.

'-

to sandwich the fhedia be the force which urges the upper arm towards the
media. > F o r example, claim 1 requires "means coupled to said support mechanism

.-

for urging said second transducer toward said first transducer and said media
to maintain both transducers in operative relation with the intervening

media."

CX 611.

..e

219

239A. A l l of the claims as originally filed required that the first

ttansducer be in a " f i x e d psition relative to the plane of the media,'
"fixedly coupled to the Carriage.a

CX

611, at 14-18.

or

.

There was'a

"*isunderstanding* betweeh the Exaniner and the applicant a$ to the scope of
the claims as originally filed; the Examiner giving the claims a 'very, very
Chisum, Tr. 4325.

broad" scope which read on the prior art reference R.

Despite applicant's argument that "neither of the two transducers of reference
R can be stated to be fixed in any f a s h i m whatsoever, much

less in the stated

manner" tCX 611, at 2 8 1 , the Exaniner persisted in his rejection that claims
CX

1, 5, and 12 were clearly anticipated by reference R.

611, at 45.

While

under final rejection, the applicant narrowed all of the claims by both
amendment and argument.
I

Jessup, Tr. 3423-24,

,

4433G34; CX 611, at 50-54.

,

In

the remarks admittedly directed to "the definition of fixedness of the heads
rnd the significant relationships," applicant's distinguished reference R by

PtAting that "Iiln contrast, applicants' system utilizes one head that has an
invariant position bearing against one side of the media without spring
loading, and this head is non-gimbaled."

240.

611, at 53.

The measured value of "insensitivity'

where the disk is measured.
'insensitivity"

CX

varies depending upon

Yet the patent gives no guidance as to uhere the

should be measured.

In one case, the 'insensitivity" of one

disk drive varied from 21.6 percent to 66.7 percent depending upon where the
disk was measured.

'._...

.

Thir shows a swing of over 40 percent in "insensitivity"

Simply by moving the position where the disk is probed.

Comstoclc, Tr. 4191-92-.

240A. The measured value of "insensitivity" for a disk drive depends

upon the particular disk that is used and the method of measurement.

.Comstock, Tr. 4195.

220

241.

The F l i t s u b i s h i head carriage assemblies perform the d a t a

transfer function i n quite a different way than i s taught or suggested by the
Tandon patent or prosecution history.

The principal differences are:

the lower head i n a l l of the M i t s u b i s h i drives i s not fixed.
i s , by design and i n t e n t , a gimbaling device.

First,

The lower head

Second, the lower head of the

M i t s u b i s h i drives f a i l s t o provide a referehce plane for the media.

head pitches and r o l l s to a similar degree as does the upper head.

The lower
Lewis.

Tr. 4618-19.
24lA. The gimbaled lower head i n the accused M i t s u b i s h i devices i s not
the functional equivalent of the invariantly fixed and non-gimbaled lower head

o f t h e claimed Tandon design.

The movable lower head, i n conjunction w i t h the

upper gimbaled head, permits sympathetic motion w i t h respect t o the
e s s e n t i a l l y f r e e d i s k undulations that Mr. Nathanson measured.
thereby imposes less constraint on the media.

The lower head

I n c o n t r a s t , the f i r s t

transducer i n t h e claimed Tandon system is designed t o iron out these
undulations and provide a stable reference platform for the f l e x i b l e media.
The upper head i n t h e claimed Tandon system is presented w i t h a globally f l a t
media e s s e n t i a l l y l i k e that of a r i g i d d i s k .

Additionally, t h e f i r s t

transducer i n the M i t s u b i s h i system can deal on a l o c a l basis w i t h thickness
variations and anomalies of the lower surface of the d i s k , while the upper
head deals w i .t h t h e anomalies and thickness variations o f the upper head. I n
*
.- +c o n t r a s t , ixykhi ,mndon system the f i r s t transducer is designed not t-o respond
?
L:E
: <* *
../.
- .
t o even t h e &ai’
. ..
anomalies or thickness variations o f the 1ower.side of: the
....
disk.
I t is the second gimbaled transducer alone i n t h e claimed Tandon system

.... .
~

.I

I

w h i c h i s intended t o account for a l l thickness fluctuations and l o c a l
c-

anomalies.

Lewis, ~ r 4. 6 0 7 , 4609-10; Cx 6 2 2 , PH a t 50-54.

221

241B. The accused Nitsubishi devices do not accomplish substantially
the same thing in substantially the same way, t.o achieve substantially the
The Mitsubishi devices follow the small scale deviations in 'the'

S m e result.

media, whereas the Tandon system is designed to "iron out" or eliminate t h k e
Hayashi, Tr. 2849-50; Lewis, Tr. 2887.

variations.

The Mitsubishi 8 inch flexible disk drives denominated M2849

242.

and M2896-6 do not infringe any of the c l a i m of the patent in suit'.
Comstock, Tr. 1837-39.

Mr. Hackney concruded that the M2896 drive appears not

to be within the scope of his invention.

Hackney Dep.,

179, MRPX 36C.

The Nitsubishi Mark I, Mark 11, and M3 5-1/4 inch and MF 353

243.

3-1/2 inch disk drives do not have a lower head having a fixed position in

-i

direction normal to the plane of the media, nor do the lower heads serve as a
fixed positional reference for the media.

On the contrary, the lower heads

are mounted.on gimbal springs which allows them to pitch and roll and move in
the Z-axis direction.

Lewis, Tr. 2886, 4594; Siegel, Tr. 4707-08; Hayashi,

MRX 27, 1 1 15-22; MRX 43.
244.

The gimbaling action and operation of the lower head in the

Mitsubishi devices is significant in relationship to the critical aspect of
maintaining intimate contact between the head and the medium.

Tr. 4604.

Lewis,

All of the tests that were performed by Mitsubishi and Mr. Lewis

measuring t h e amount of lower head pitch and roll movement in the Mark I drive
.
I

showed movements in excess of one minute and up to 19.15 minutes of arc.
MRX 43, at 18.

Two out of the three measurements conducted by Tindon were

consistent with this conclusion; one measurement on an M4853 drive showing

-

p i t c h o f 3.2 minutes o f arc and one showing 1 . 0 5 minutes o f a t c .
Bates

No. 028239; Nathanson N o t e h k

No. 2 ,

a t 35.

HRX 71,

T h e measutement t e p o r t e d
*

r

:

i n t h e Witness S t a t e m e n t of Matshall Nathanson oi p i t c h movement o f less t h a n
0.15 minutes o f arc is -erroneots"or

an aberration.

Lewis, TI. 4606-07.

244A. The lower head i n t h e M i t s u b i s h i d e s i g n g i m b a l s i n o p e t a t i o n

more t h a n t h e uppet gimbaled head i n the Tandon d e s i g n .

For example, i n the

Camparison between a F l i t s u b i s h i M4851 Mark 'I d r i v e and a Tandon TM 101-2
d r i v e , t h e following

results were o b t a i n e d u s i n g i d e n t i c a l f l e x i b l e d i s k s :

Maxell

0.61'

3 , 7 5'

3M

0.73'

Wtalife

1.87'

i

Tandon Upper

MELCO

Lower

0.86'

2.98'

7.18'

0.71'

1.93'

19.15'

1.46'

9.80'

,

*

a

'

tests c o n d u c t e d 1nd.ependently by Hattyn Lewis corroborate the

The laser be?

fact that t h e M i t s u b i s h i lower head g i m b a l s
MRX 4 3 ,

Roll Angle

P i t c h Angle
Tandon Upper
UELCO Luwcr

Media

mOLe

t h a n t h e Tandon upper head.

a t 1 8 : Lewisr Tr. 4603.
244B. I n t h e M i t s u b i s h i Mark I 5 4 / 4 i n c h d i s k d t i v e s , t h e t e n d e n c i e s

of t h e media t o d e v i a t e I n p o s i t i o n from i t a nominal p l a n e are accommodated by
t h e g i m b a l mounted upper and

lower heads a c .t i n* g i n concert.

Lewis, Tr. 2887.

244C. The lower heads of t h e Mark I r Mark* If, M3 and MF 353 d t i v e s

move s i g n i f i c a n t l y . They do not functfon to p r o v i d e a f f x e d p o s i t i o n a l
>,'., reference for the msdla. L e w i s , Tr. 2887.
. .

244D. I n t h e Mark I, Mark If, M3 and MP 353 d r i v e s , t h e mebia conttols
the heads d u r i n g the t e a d b r i t e operation.
TZ. 2849, 2850.

Lewis, T r . 2888; Hayashi,

The lower heads i n the M i t s u b i s h i M4651, Mark 1, Hark 1 1 1 M3

245.

Nathanson, T r . 4064.

and ,yF 353 drives are spring-loaded.

245A. T h e upper and lower heads i n the M i t s u b i s h i f44851, Mark I , Mark
1 1 ; M3 and.MF 353 d r i v e s p i t c h and

4234; Comstmk, T r .

Hayashi, T r .

r o l l together e s s e n t i a l l y synchronously.

1815.

None of the accused H i t s u b i s h i devices have

246.

mount.ed r e l a t i v e t o a f i r s t side

a f i r s t transducer

of the media and having a f i x e d position i n a

direction normal to t h e plane of khe media as required i n claim 1 of t h e
p a t e n t i n suit.

L e v i s , Tr. 2886-88;

Hayashi, T r . 2858-60,
247.

.

NRX 3; MRX 5: M R X 7: HRx 9:

10:

2861, 2864; Hayashi, MU 27, 11 6-33.

I n none oL the accused N i t s u b i s h i d r i v e s does the f i r s t

,

I

transducer serve as a f i x e d positional reference a s that term is used i n t h e
I

patent i n s u i t e and required i n claim 1.
MRx 7 ; .3RX 9; MRX 1 0 ; Hayashi, Tr.

Lewis, Tr. 2886, 2888; MRX 3; MRX 5:

2858-60,

2 8 6 1 , 2864; Hayashi, MRX 27,

11 6-33.

When t h e upper head is loaded onto t h e lower head i n the

248.

accused M i t s u b i s h i d r i v e , the lower head moves down Under the force of the
When t h e upper head is removed, t h e lower head moves up into the

upper head.

position it occupied before t h e upper head and d i s k were loaded.
Of downward

The amount

movement of t h e various M i t s u b i s h i heads is as follows:

.,Drive
._
.

x485l';.'Mark I
Mark 11

'

-

M

3

MF 353

Tandon

Measurement

Mitsubishi
Measuremsnt

1,400

664

---

792

1,750

1,700

5,4CD

22 4

(All

Accordingly, all of the lower

distances are reported in nicroinches.)

heads of the Hitsubishi drive .as reported here are spring-loaded.
r*
I”

,W S r

Nathanson Notebook 8, at 30, 31, 57.
None of the accused Nitsubishi devices have a pivotable support

249.

arm having a pivot axis in fixed spatial relationship to the first transducer
as required by claim 5 of the patent in suit.

Tr. 2886;

MRX 3: MRX 5 ;

Brown, Tr. 2530; Lewis,

MRX 7; MRX 9; MRX 10; Hayashi, Tr. 2858-60, 2861,

2864; Hayashi, MRX 27, 11 6-33.
250.

None of the Mitsubishi drives contain a first transducer

fixedly coupled to the carriage for bearing against a first side of the disk
in an invariant position in a direction normal to the plane of the disk as
required by claim 1

the patent in suit.

Lewis., Tr. 2886-88; MRX 3; W R X 5;

MRX 7: MRX 9; MRX 10; Hayashi, Tr. 2858-60, 2861, 2864; Hayashi,. MRX 27,
’

‘

4

-.

11 6-33.

The IBM 43 FD double-sided floppy disk drive was first s o l d in

251.

1976 and constitutes a prioreart reference for the purposes of determining the
validity of the Tandon ‘573 patent under 35 U.S.C.

S S 102 and 103.

In 1976, a person of ordinary skill in the art of floppy disk

252.

drive design would be one who was an engineer having a lot of experience in
magnetic recording, including experience in flexible disk drive design.
Stoddard, T r . 4539.
a double-sided floppy disk drive, if the lower head is
253..”_;“In
*.. .

-:. .

;

fixed, the upper head has to be gimbaled.
-4.

.

Cornstock, T r . 4179.

..-

.
225

I n October 1976, a f t e r h i s a r r i v a l a t Tandon Corporation,

254.

Mr. Hackney met Mr. Applequist, a second named co-inventor, for the f i r s t
time.

very f i r s t meeting, t h e y agreed that the IBM-type d e s i g n was

A t their

the wrong approach for double-sided f l o p p y d i s k d r i v e .
a t t h i s meeting.

Mr. Tandon was present

a

They decided to use existing s i n g l e - s i d e d

hardware to develop a double-sided floppy d i s k d r i v e .
s i n g l e - s i d e d device made by General Computer Systems.
button head r i g i d l y mounted to the

l o a d arm w i t h a pressure pad.

carriage by epoxy.

floppy d i s k d r i v e

They chose t o use a
T h i s device had a

This device also used a

Messrs. Hackney and Applequist recognized that

using the basic configuration of an e x i s t i n g single-sided d r i v e would allow

*

manufacturers to convert t.0 double-sided d r i v e s q u i c k l y a d easily.

A t ethii,

f i r s t meeting, Mr. Applequist suggested p u t t i n g a ginbaled head on the upper

arm i n place of the pressure pad.

I t was agreed by a l l three co-invent.ots

that a f l a t bottom head should be used.

Hackney Dep., at 11-17, 35-30,

& k P X 36C.

255.

Mr. Hackney t e s t i f i e d that t h e 'invention.

patent is the adoption

of a single-sided carriage and configurat.ion to a

double-sided r e c o r d i n g technique, u t i l i z i n g
upper head.

of the Tandon '573

Hackney Dep.,

a t 13-44,

a fixed lover head and a qimbaled

HRPX 36C.

..-

r
.

256.-267.
268.

Intentionally Left Blank.

Mitsubishi Electric Corporation (XELCO) is a Japanese

c

Corporation which designs and manufactures double-sided floppy disk drives for
importation into the United States.
269.

CX 4 4 7 1 at 45; CX 401;

Mitsubishi Electronics America, Inc. (MELA), is a subsidiary of

MELCO, which imports sells and distributes double-sided floppy disk drives

manufactured by .XELCO.
C

270.

CX 447, at 45; CX 401.

From October 1982 to September 1983, Mitsubishi shipped

C

double-sided disk drives to the United States, of which about

C

5-1/4 inch disk drives.

of these disk drives were 8 inch drives

About

not alleged to have infringed the ‘573 patent.

I.

271.

C

percent. were

C x 690, Interrogatory No. 7.

From October 1983 to September 19841

double-sided,

floppy disk drives were shipped by Hitsubishi to the United States.
C

total, about

C

5-1/4

were double-sided 3-1/2 inch disk drives, about

inch disk drives, and about

were 8 inch disk drives.

drives did not infringe the ‘573 patent.
C

272.

Of this

CX

double-sided,

floppy disk drives were shipped by Mitsubishi to the United States.
were double-sided 3-1/2 inch disk drives,

total, about

C

inch disk drives, and

were 8 inch disk drives.

not infringe the ‘573 patent.

CX 690,

Of this
were 5-114

The 8 inch drives did

Interrogatory No. 7.

227

The 8 inch

690, Interrogatory No. 7.

From October 1984 to December 1984,

C

were

273.

Yitsubishr nanufactures, imports into, and sells in

States the followk-cz r?slde?s o f &>able-sided f l o p p y disk drives:
M4851, M4851-1,

M4853-3,

M4854-1, M4854-3,

tb.9 U n i t e d

.W 3 5 3 ,

M485l.A-3, H4852, H4853, M4853-1, M4853-3, Y 4 8 5 4 ,

M4855n M4855-1,

M2893, M2894-6, M2896-6,

M2894-4/§.

CX

687,

Interrogatory No. 1 (Feb. 15, 1985); CX 6 8 9 , Interrogatory No. 1 (Feb. 2 2 ,
1985)
274.

Mitsubishi Model MF 353 is a 3-1/2
CX 4 0 5 ; CX 6 8 9 , Interrogatory No. 1.

disk drive.
275.

Mitsubishi Models M 4 8 5 1 , M4951-1, M4851-3, Y 4 8 5 2 , M4853,

M4853-1, M4853-3,

M4854-1, M4854-3, M4855, and M4855-1 are 5-1/4

double-sided floppy disk drives.
276.
I

inch double-sided flogpy

inch

CX 4 0 4 ; CX 6 8 9 , Interrogatory No. 1.

,

Mitsubishi Models M2893, M2894-6, M2896-6, and M2894-4/5 are

8 inch double-sided disk drives.

277.

CX 4 0 3 ; CX 6 8 9 , Interrogatory No. 1.

Mitsubishi Model M4851-A is known as a 'M3"

represents a third generation of the original M4851.

drive and

Foster Dep.,

CX 447, at

9 7 ; CX 6 8 9 , Interrogatory No. 1.
278.

MELA sells double-sided floppy disk drives through its own

direct sales force and a network of regional distributors.

CX 6 8 8 ,

Interrogatory No. 12.
279.

MELA has warehousing facilities in Torrance and Compton,
Foster Dep., CX 4 4 7 , at 6 7 , 69.

California.
280.

HELA performs quality assurance procedures on disk drives
..'A

received frc& MELCO for sale in the United States.

MRX 4 1 ( C )

, 1.4;

Foster,-

Tr. 2926.

281.

Mitsubishi America performs service and repair in the United

States on drives i t distributes.

MRX 4 1 ( C ) , 1 4 ; CX 4 4 7 , at 31, 7 8 .

228

282.

C

On a new Mitsubishi product,

percent o f the product may

undergo quality assurance testing by MELA in the united States.

c

product lines, the testing may be reduced to
283.
I

CX 447, at 75-76.

Usually,,Mitsubishi disk drive repairs are effected by HELA in

the United States.
284.

percent.

On mature

CX 447, at 77-79.

MELA performs application engineering support in the United

States with respect to floppy disk drives manufactured by MELCO.

CX 447, at

40

285.-298.

Intentionally Left Blank.

229

.

v.

A.

INDUSTRY

DOMESTIC

Stlugaft and General M a r k e t p l a c e Background
S h u q a r t Associates was fOP'mQd

299..

i n t h e mid-1970S by A l l e n Shugart

and several key employees who had worked t o g e t h e r
d r i v e designs.

75

Sollman, Tr.

36-40.

a t IBM

Mcmorex on

disk

I n 1 9 7 6 , S h u g a r t had 50 t o 60 employees,

of whom were e n g i n e e r s f o r m e r l y from IBM
' and Memarex.

aalee

and

S o l h a n , T t . 39.

was l o c a t e d i n S u n n y v a l e , California.

300.

Shuqart

301.

By January 1 9 7 6 , Shugart

S o l l m a n , Tr.

39.

was a s i n g l e - p r o d u c t company w i t h

of $1.5 million to $3.0 m i l l i o n i n 1 9 7 5 and p r o j e c t e d sales of $6.0

million for 1 9 7 6 .

Actual 1 9 7 6 sales were $9.0 million.

The s i n g l e product:

was an 8 i n c h s i n g l c s i d e d f l o p p y d i s k d r i v e S e l l i n g for $ 4 0 0 to $ 5 0 0 .
Sollman, Tr.

37-30,

42.

--.

The Shuqart 8 i n c h f l o p p y d i s k d r i v e

302.

floppy d i s k e t t e d r i v e s i n the m a t k e t p l a c e .

.But

was c o m p e t i t i v e with O t h e r

the one t h i n g that t h e y a l l

t r i e d to maintain was IBM c o m p a t i b i l i t y , so any OEM

customer

c o u l d be secure

i n h i s b e l i e f t h a t IBM written d i s k e t t e s c o u l d be r e a d and updated on t h a t
product..

S o l l m a n , TK. 38-39.
S h u q a r t ' s t o t a l annual revenues I n s u c c e e d i n g years was $ 1 8

302A.

million i n 1 9 7 7 , $34 million i n 1 9 7 8 , $70 million i n 1 9 7 9 , $ 1 3 4 million i n
1 9 8 0 , and $198 million I n 1981.
I

.

303:'

.

S o l l m a n , Tr.

57, 75.

S h u g a r t , t o g e t h e r w i t h Dyson Corporation and- Information

T Q t m i n a l S Coiporation, developed the f i r s t 5-1/4
T r . 47-50.

-The dimensions

WQKC

inch disk drive;

Sollman,-

the result of efforts t o d e s i g n a d i s k d r i v e

230

,*
<
a t the request o f Dr. Wang, Chairman of ''/Jan9 Laboratories, whb desired a

'

K

,,:>w

smaller d i s k d r i v e for a desk-top system which-wa; t o be a precursor t o the
personal computer. Sollman, Tr. 4 2 - 4 4 , 48-49.
- ..304
I n 1976, Wanq Labor ator i i s was a -1200 'million-aiyear

.

-

.

corporation making a word p t o c e s i i n g unit & s t i n g $ 3 0 , 0 0 0 .
tape d r i v e storage system.

-,

c

The system used a

, .

Dr. Wang's v i s i m was to use a tape diskette unit
t

7 .

. .

4 ,

i n a ddsk-top product that would ;ell for ~'approxirnately''$lO,OOO. SOllman,
ti

Tr.

L

%

I

44-45.
305.

A prototype of the

.

$ 8

I

.+

. I

S=l/4 i n c h d i s k d r i v e was shown u n o f f i c i a l l y

to certain companies about A p r i l 1976, t h e n l a t e r * a t a trade show i n Ha{
1976.

*

Sollman, Tr. 47-52.

306.

.

The f i r s t shipment o f the 5-1/4

Wang Laboratories occurred i n August 1976.

*"

i n c h single-sided d i s k d r i v e to

Sollman, Tr. 53-54.

-_

9

307.

At: f i r s t , sales o f t i e 5-1/4 i n c h s i n q l b - s i d e d d i s k drive'were

slow due to an industry reaction o f d i s b e l i e f since IBM was u s i n g 8 i n c h d i s k
d r i v e s and the product was not IBM compatible.

Sollman, Tr. 53-54.

However,

w i t h the growth of the pcr'sonal cdmputer marke't i n ig77-1978, the 5-1/4
d i s k d r i v e began to sell.

308.

i-v

sc.

n Y (

Sollman,'

inch

By 1977, at the time of thQ'developmcnt of the 5-1/4
?

inch
9,

floppy d i s k d r i v e , the state of thQ:'art i n technology o f floppy d i s k drives
+

.

4,

800, a s i n g l e - s i d e d 'floppy d i s k d r i v b wit'h 8000 kilobyte
Tr. 55-56.

..

,,

.

uly-August

1976, Shugart endeavored t o take a , leadership
*

"

position i n the floppy d i s k d r i v e i n d u s t r y and decided t o attempt d o u b l i n g the
capacity of its products.

Three d i f f e r e n t approaches' were considered:
/*

(1) write more b i t s around each t r a c k ; ( 2 ) write narrower tracks t o p u t more

231

tracks around the d i s k ; and 13) u t i l i t e h b6fh sides o € thP disk (double-Sided
recording).

Sollman,

d e n s i t y approach.
310.
,

In

Trr

Shug*art decided t o pursue t h e doublesfrack

58-S9.

S o l l m p n , Tr.

60.

MDvengbar 3976, X B M SnmodudPd thg first dou&le*Sidet? tlbppy

d i s k drive.

The disk d r i v e was

Controller.

Sollman, Tr. 6 0 ;

part of a Model 366-1

-

bank tetminal

-

see FF 72.

311. . The diskettes for the tBM double-sided disk d r i v e was &ated on
b o t h sides.

The d i s k d r i v e placed

two heads, onem each

d i s k e t t e , i n contact or near-contact w i t h tSIP i3XrRcWrus.

cantilevered and the diaRettes would fLW & W Q @ them.
~
The i n d u s t r y reaction

Tho heads were

tollman, 'Per 6B-62.

vas t h r t tBM had jost t n ~ o r WQhe industry t h a t the

next generation of d i s k drives vas t o

&R

dm1Prefr)ed.

Sollman,

.

I t . 63.

Shugart, l i k e othere i n t h ? industry, decided to d e s i g n its own

312.

rr

S i d Q ad t h e

double-sided d i s k

drive.

Shugart Overnight gave up the double-track

approach and infOtmQd its major OEM c'uSlmcrB at its dec?lsion.

density

bollman,

T K O 640

313.
disk drive.

A

program was i n i t i a t d at Shuqatt )a dertgn a double-sided

"tW1e [ S h ~ g a r t Jbelieved that we were a leading supplier of OEN

products and t o allow our customers to compete effectively w i t h IBM we would

have to allow their s y s t e m to interchange inforjration w i t h the IBM systems.

To do anything other than that would take
m a t k Q t p l Q C ~ . * - Sollman, TI.

... .

314.

OUKSQ~VQS

r i g h t out of t h e

64.

The d o u b l e s i d e d d e s i g n program received h i g h e s t p r i o r i t y with

all Shugart resources devoted to t h e project.

Fifteen t o twenty engineers

were o r i g i n a l l y assigned to the p r o j e c t , and t h i s nU!nbQr increased to 80
engineers at one p o i n t .

Sollman, Tr. 65-66.

232

315.

Considerable Shugart research facilities at Sunnyvale,

California, were also devoted to the design effort, as well as those of Xerox'
Palo Alto facility, subsequent to DQCQmbQt 16, 1977, when Xerox COr~OratiOn
purchased Shuqart.
316.

Sollman, T r . 66-67.

c

Shugart officially introduced a double-sided disk drive

product, the SA-850, in April 1977 and started shipments in June 1977.

In the

fall of 1977, customers began to return the product because the magnetic head
structures used were beginning to strip the oxides off the diskettes, which
Sollman, Tr. 67, 68.

destroyed the Customer's information.
317.

Shuqart engaged in a highly intensive crash effort to solve the

design problems associated with its double-sided product.
different designs were tried over a number of years.
4

Approximately. 10

Sollman, Tr. 67-68.

Approximately $4 to $5 million was expended by Shugart on the design.
Sollman, Tr. 68.
318.

Shugart's competitors were experiencing similar results in

their pursuits of both IBM-type and non-IBM-type head designs--media wear
problems and unsatisfactory product.
319.

Sollman, T r . 68-69.

One competitor, CalComp, advertised that, it had a successful

double-sided floppy disk drive product.

Shuqart purchased three CalComp disk drives for testing by its

320.

engineers.

Sollman, T r . 69.

The engineers discovered that the CalComp disk drives employed a
:2-

..

head assembly n&ufactured by Tandon Magnetics o f Chatswqrth, California, and
. -...
.
.+ ..

.

that the drives worked well with a wide range of media.

233

Sollman, Tr. 70-71.

321.

The Shugart engineering department considered the CalComp d r i v e

to be a very interesting product, but because they believed they Were close to
a breakthrough on their own design, the engineering department preferred to
put all their efforts in this design.
322.

Sollman, Tr. 71-72.

After further Shugart design efforts failed, Shugart's

President prevailed on Shugart management tb begin patent licensing
discussions with Tandon Corporation.

Sollman, Tr. 73.

The licensing

negotiations were SUCCeSSful, and a license agreement was 8ignQd between
Tandon and Shuqart which embodied the Tandon patented technology.

Sollman,

Tr. 74; CX 616.
323.

Shugart placed the Tandon patented technology in its disk,drive
c

products and the SA-850 became a successful and highly profitable product.
,

The technology was also added to the 5-1/4 inch disk drive, the SA-450.

-

Sollman, Tr. 74-75.
324.

By the end of 1981, Shugart employed 2,700 individuals and had

annual sales of approximately $198 million.

The company was located in

Sunnyvale and Roseville, California, and Nogales, Mexico ( 3 0 0 employees).
Sollman, Tr. 75-76.
325.

In 19818 Shugart announced a full-height 5-1/4

inch

double-track density version and double-sided version of its own design.
After Shugart began to 8ell these products, it began to notice pricing
. .*..

.+

Shugart was
competition'from
.... Tandon', Control Data, and Japanese companies.
.;s.: .:'-- "
principally 'concerning about the competition from Control Data aod
secondarily, from Tandon.

Sollman, Tr. 76-77.

234

326.

Somitine in 1981 or 1982, Shugara~became concerned about

competition from Japanese companies.
Nippon Telephone

81

Sollaan, Tr. 77. .That*is, in mid-1981,

Telegraph (NTTI had annolrnced that it would award a major

contract for 100,000 to 500,000 floppy disk dfiVQS, which woula have been the
largest order in the world outside of IBM.

Sollman, Tr. 78.

NTT invited 15

to 20 Japanese companies to bid on a "half-height" double-sided mini-floppy
disk drive having a 1.6 megabyte capacity.
to bid.

No American companies were invited

Sollman, Tr. 79, 80.
327.

One condition for bidding on the N T T contract was that a*' '

company demonstrate production capability.

At the time of the request fot

bid, only two or three Japanese companieg (TEAC, Matsushifa,+and perhaps..'

-

Mitsubishi) had production facilities, and the remainder were neucomers to the
I .

industry.

Sollman, Tr. 79-80.
328.

-&

Shugart was forewarned in aid-1981 of the consequences of the

NTT bid by its Japanese llcensee Matsushita Communications, Inc.

Matsushita

told Shugart that the Japanese market would not be large enough to sustain the
productionkf these 15-20 ,companies and that these companies could be expected
to begin selling their products in the United States.

- Tr.
id.,

-

Solban, Tr. 80-811 see

77-78, 84-85.
329.

The ShugarttMatsushita license agreement dated back.to 1975

when trade barriers in Japan were 22-1/2 pegcent.

Shugart judged that it

. .would be impossibie to break the trade barrier and licensed Matsashita to
*

manufacture a&- sell Shugart's technobgy in Japan.
permitted to sell its products in the United States.

235

Xatsushita yas not
Solhark, Tr.. a.

'

330.

After the Yatsushita warning about future competition from

Japan, Shugart immediately started d e v e l o p i n g two new products, N O d Q l A and
Model B ( h a l f - h e i g h t ) .

for

marketplace
,

$250

up with a half-height

t o $160.

This type of product was currently s e l l i n g i n the

i n moderate OEN volumes.

Shugart s e t as a goal to come

d i s k drive that could be sold profitably at about $140

Sollman, Tr. 8 2 , 8 3 - 8 4 , 86.
A t the s p r i n g 1982 National Computer Conference, Shugart was

331.

t h e o n l y company t h a t d i s p l a y e d a half-height product.

At the f a l l 1982

Comdcx show. S h u g a r t , Tandon, and Control Data showed half-height double-sided
floppy d i s k drives.

Twelve t o f i f t e e n Japanese s u p p l i e r s also showed their

h a l f - h e i g h t products.
As

332.

,

Sollman. Tr. 87.

a result of t h e

.

-

1982 Comdex show. Shugart increased t h e

on t h e Model A and Model B groups t o meet cost targets and t o g e t the

pressure

..

for high-volume manufacturing.

products s e t

The goal was t o run a product a t

t h e 1-10 million a year level and to be extremely competitive i n the $140-$150

range.

Sollman, Tr. 92-93.
I n A p r i l 1983, Shuqart aSSQSSed the market conditions i n Europe

333.

and saw extreme price competition at key and v i t a l accounts from f i v e or s i x

Japanese manufacturers.
States

Shuqart

also saw lower p r i c e bidding i n the United

from Japanese h a l f o h e i g h t products.

A 8 1983 progressed, price erosion

334.
c

p r i c e s down
programs.

S o l h a n . Tr. 93-95.

.

*

.

r 2%

i n half-height drives brought

fnto-the $120 rangc, and Shugart dropped i t s Model

s o l h a n . TC. 93-95.

- . .

A and Model

B

Shugart turned to its Japanese l i c e n s e e ,

Xatsushita, and entercd into a purchase agtQQmQnt for half-height double-sided

.
236

floppy disk drives with prices ranging from $124 to under $100 depnding upon
the quantity ordered.

Sollnan, Tr. 97.

were known as the SA-455 and SA-465.
335.

The Natsushita manufactured products

Sollman, Tr. 96-97.

In 1983, Shugart found itself in head-to-head competition with

Japanese products at virtually every major United States and European
account.

Sollman, Tr. 97-98.

"The outcomowas that we had to adjust all of

our pricing substantially downward yet again with severe price erosiois and
then profit erosions that had to naturally follow."
336.0337.

338.

Sollman, Tr. 98.

Intentionally Left Blank.

In October 1983, Shugart experienced its first layoff.

Shugart

-

had grown to 3,600 employees, all but 550 of whom were located in the United
States.

The October layoff equaled 7-1/2 percent of the work force.

Sollman,

Tr. 99.

-.
339.

Shugart's annual sales for 1983 was $240 million dollars.

At

that time, Shugart was the world's second largest nanufacturer of floppy disk
drives behind Tandon.

340.

Sollman, Tr. 100-01,

Shugart first became profitable in July 1975.

The extreme

competitive environment at the end of 1983 caused Shugart's profitability to
erode substantially.

The first time Shugart saw a rapid erosion of its

profitability was in 1983 such that in January 1984, it Suffered an operating
loss.

Sollman, Tr. 101.

341.

Shugart had charted the price declines of 1983 and concluded -

that the decline had a very negative long-term impact.

Sollman,.Tr.

101.

Shugart considered several economic alternatives to recover from the erosion
in profits, including setting up an offshore production facility in either
..Singapore, Taiwan, or South Korea. Sollman, Tr. 101-02.

4

237

i

342.

S h u g a r t task f o r c e s i n mid t o l a t e 1 9 8 2 recommended the

l a t e establishment o f a production f a c i l i t y i n Singapore.
able t o receive management's approval.
Fuji-Xerox,

S h u g a r t was

S h u g a r t needed the approval of

a Japanese j o i n t venture owned by S h u g a r t ' s parent corporation

Xerox and Fuji-Foto Films, before any manufacturing c o u l d take place i n t h a t
S h u g a r t never received the approval o f Fuji-Xerox.

part of the world.

Sollman, Tr

.

343.

103-04

on

December 1 9 , 1 9 8 3 , a f t e r examining economic s t u d i e s as well

as w h a t would be required t o make the b u s i n e s s f u l l y p r o f i t a b l e , Xerox
concluded t h a t it could no longer support Shugart.

As

of January 1 , 1 9 8 4 ,

Shugart's a n n u a l reported sales for f i s c a l year 1983 was $240 million.

Xerox

concluded t h a t even given s u b s t a n t i a l investments, S h u g a r t could not be made
I

p r o f i t a b l e w i t h i n t h e next 1 2 t o 1 8 months.
344.

Sollman, Tr.

104-06, 107.

On January 15, 1 9 8 4 , S h u g a r t employed 2,600 people i n t h e

U n i t e d S t a t e s and 600 i n Mexico and occupied about 490,000 square! f e e t o f
space a t Roseville and Sunnyvale, California.

By December 6 , 1984, S h u g a r t

had experienced several more l a y o f f s , and its employment force had been
reduced

t o 1,600 t o 1,700 employees, 400 of whom were i n Mexico.

Tr. 109, 111-12.

Sollman,.

A s of December 6 , 1 9 8 4 , of the 1,200 United S t a t e s

employees, a t l e a s t two-thirds, about 8 0 0 , were devoted t o floppy d i s k drive
production, manufacture, engineering, design, s a l e s , service, and narketing.
A l l o f S h u g a r t ' s United S t a t e s

a j o i n t capacity o f

manufacturing f a c i l i t i e s were s t i l l intact w i t h

to

A t t h i s time, S h u g a r t was r u n n i n g

each o f t h e two f a c i l i t i e s .

floppy d i s k drive! products per month.

a reduced, one s h i f t per day operation i n

Neun, CX 821, a t 7.

238

344A. Shugart's Roseville facility had a production capacity for
C

disk drives per month and manufactured both 8 inch and

to
5-114

inch double-sided floppy disk drives.

Neun, CX 821, at 4.

As

of

December 6, 1984, there were 150 to 200 people located at the Roseville

..

facility for production and manufacturing of double-sided floppy disk drives.
Neun, Tr. 3396.
3440. Shugart's Sunnyvale facility had a production capacity for.
C

to

double-sided disk drives per month and manufactured

3-112 inch, 5-114 inch, and 8 inch double-sided floppy disk drives.

A l l

of

Shugart's United States-produced double-sided disk drives (Model Nos. SA-350,
450, 460, 850, 8 5 1 , and 860) utilized Tandon's '573 patent technology under
the Shugart-Tandon license agreement.

However, none of these model's were

half-heiqht, a product which Shuqart never produced.

As

of December 6, 1984,

there were 200 to 400 people located at the Sunnyvale facility for the
manufacture of double-sided floppy disk drives.

Another 200 people located at

the Sunnyvale production facility for produced printed circuit boards to be
used in double-sided floppy disk drives.

Neun, Tr. 3395-97; Sollman, Tr. 223,

264-6 5
344C.

In January 1984, all research and development, engineering

support, marketing and sales, testing, and servicing for Shuqart products
manufactured in the United States was performed at Shugart's United States
facilities.

Neun, CX 821, at 4.

239

344D.

C

I n j a n u a r y 1 9 8 4 , S h u g a r t employed some

d r i v e r e s e a r c h al.r,rae.

A t l e a s t two-thirds

people f o r f l o p p y d i s k

of t h i s r e s e a r c h and development

g r o u p were d e d i c a t e d t o t h e development of t h e " S a b r e " p r o d u c t , which was t o
b e a low cost d o u b l e - s i d e d d i s k d r i v e m a n u f a c t u r e d i n t h e U n i t e d S t a t e s u s i n g
robotics.

Neun, CX 821, a t 3.

344E.

I n fiscal year 1 9 8 3 , Shugart s o l d approximately

and had sales volume of $
a t t r i b u t a b l e to Shugart's
$

million.

A t least $

drives

m i l l i o n of t h i s was

to

t o t a l f l o p p y d i s k d r i v e p r o d u c t s , o f which $

million c o n s t i t u t e d d o u b l e - s i d e d f l o p p y d i s k d r i v e sales.

N e u n , CX 821,

a t 3.
344F.
company.

I n January 1 9 8 4 , S h u g a r t was a v i a b l e f l o p p y d i s k d r i v e

,

A t t h a t time, S h u g a r t was s e l l i n g e v e r y t h i n g i t c o u l d make i n i t s

f l o p p y d i s k d r i v e p r o d u c t i o n f a c i l i t i e s , and S h u g a r t ' s U n i t e d S t a t e s f a c t o r i e s

were running d o u b l e s h i f t s t o meet customer drnand.

N e u n , CX 8 2 1 , a t 3.

344G. Between 1 9 7 6 and January 1 9 8 4 1 S h u g a r t s o l d t h e f o l l o w i n g
double-sided d i s k d r i v e s :

SA-850

( 8 i n c h , f u l l l h e i g h t ) ; SA-450

(5-1/4

inch,

full-height,

4 8 T P I ) ; SA-460

(5-1/4

inch, full-height,

9 6 T P I ) ; SA860 ( 8 i n c h ,

half-height,

4 8 T P I ) ; SA-455

(5-114

inch, half-height,

4 8 T P I ) ; SA-465

(5-1/4

inch, half-height,

9 6 T P I ) ; SA-350

(3-112 i n c h ) .

T h e SA-450 and SA-460

were e v e n t u a l l y d i s c o n t i n u e d t o be r e p l a c e d by t h e SA-455 and SA-465 series.
Sollman, Tr.
3448.

264-65;

see Neun,
-

Tr.

3417-20.

I n t h e f i r s t q u a r t e r of 1 9 8 4 , S h u g a r t s o l d d o u b l e - s i d e d

floppy

d i s k d r i v e s a s s e m b l e d for i t under Tandon's p a t e n t license by M a t s u s h i t a of
Japan.

N e u n , Tr. 3 4 0 3 .

T h e s e d r i v e s ware h a l f - h e i g h t models and were

d e s i g n a t e d as t h e SA-455 and SA-465.

N e u n , T r . 3 3 9 1 - 9 3 ; Neun, CX 8 2 1 , a t 4.

240

.

3441.

Research and development for t h e SA-455 and SA-465 was done

j o i n t l y ' b y X a t s u s h i t a i n Japan and by S h u g a r t i n t h e U n i t e d S t a t e s
W i t h r e s p e c t t o these

(approximately 10 United S t a t e s Shugart personnel).
half-height

d r i v e s , a l l p r o d u c t s u p p o r t was performed i n the U n i t e d S t a t e s ,

i n c l u d i n g incoming l o t q u a l i t y i n s p e c t i o n , r e p a i r , s u p p o r t and s e r v i c i n g
C

e n g i n e e r i n g and m a r k e t i n g and sales.

annual b a s i s i n conjunction w i t h t h e s e a c t i v i t i e s .
3458-63;

on an

S h u g a r t expended a b o u t $

Neun, T r

.

3403-04,

N e u n , CX 8 2 1 , a t 4-5.
3445.

I n December 1 9 8 4 , a p p r o x i m a t e l y 30 employees a t S h u q a r t were

d e d i c a t e d t o o p e r a t i o n a l a s p e c t s of b r i n g i n g t h e Hatsushita d r i v e s into t h e
U n i t e d S t a t e s ; o t h e r employees lent s u p p o r t t o t h e imported p r o d u c t s i n . t h e

areas of s a l e s , m a r k e t i n g , transportation and s t o r a g e , and a d n i n i s t r a t i v e and
,

t e c h n i c a l support.

Neun, T r . 3458-60.

A p p r o x i m a t e l y 1 7 S h u g a r t employees

were engaged i n technical a s p e c t s of importation s u c h as q u a l i t y c o n t r o l ,
s u s t a i n i n g e n g i n e e r i n g , and r e s e a r c h .
345.
C

to

C

r ecci v i ng

Neun, T r . 3460-61.

I n December 1 9 8 4 , S h u g a r t was m a n u f a c t u r i n g a p p r o x i m a t a l y
d o u b l e - s i d e d f l o p p y d i s k d r i v e s i n t h e U n i t e d S t a t e s , and was

to

to

u n i t s and s e l l i n g

f l o p p y d i s k d r i v e s produced i n Japan

by ,Hatsushita for S h u g a r t .

d i s k d r i v e s employed t h e l i c e n s e d Tandon t e c h n o l o g y .

Neun, Tr. 3391-92:

Sollman, Tr.

doublc-sided
A l l of t h e s e

-

Neun, CX 8 2 1 , a t 8 ; see

113.

345A. By December 1 9 8 4 , S h u q a r t ' s b a c k l o g o r d e r summary ( C X - 8 6 3 )
C

i n d i c a t e d sales of

C

of approximately
t h e United S t a t e s .

SA-350s

,

double-sided

SA-450s.

and

SA-850s

forla total

f l o p p y d i s k d r i v e s to be manufactured i n

The same document i n d i c a t e s o r d e r s

241

for d e l i v e r y i n

.

C

December 1984 for

to

Shugart disk drive Models SA-455 and SA-465

assembled for Shugart in Japan by Matsushita.

c

These drives were also

manufactured by Shugart under Tandon's license.

Shugart sold over 8

million worth of double-sided disk drives in December 1984.

Neun,

Tr. 3402-04; CX 863.
345B. In December 1984, all research and development and other support
activities for United States-produced products were being performed in the
United States.

Additionally, United States support activities for the disk

drives purchased from Matsushita were perforaed in the United States.

Printed

circuit boards were manufactured in the United States for all of
Shugart-produced double-sided floppy disk drivesl and lot testing was being
performed in the United States for those drives received from Japan.
I

As

of

December 1984, Shugart's reserach and development program equaled
approximately seven percent of Shugart's gross sales.

Neun, Tr. 3399-401,

3403-04; Neun, CX 821, at 8, 11.
345C. In the December 1984 time frame, the assembly of 8 inch
double-sided disk drives was in the process of being transferred to Mexicol
although all other functions, including printed circuit board production and
some head assembly production remained in the United States.
support activity also continued in the United States.

Additional

These included all

continuing, maintenance, and manufacturing engineering, research and
development, and lot testing of the drives.

Finally, all planning, inventory

control, and material services were fully controlled at the Sunnyvale
facility.

The SA-850 parts were "kittcd- at Sunnyvale and sent to Mexico for

assembly.

After assembly, the SA-850 drive was quality inspected at

Sunnyvale.

Neun, Tr. 3397-98, 3413-14; Neun, CX 821, at 9; FF 3448.

242

Y

3450. As of December 6, 1984, approximately 40 people were l y f t in the
3

""

-..w

-

"

"

.

7 -

Shugart's quality organization for double-sided floppy disk drives.

Xem,

Tr. 3399.

,

-,

3453. Shortly after December 1984, Shugart Closed the Roseville p l a n t ,
Shugatt

leaving only the Sunnyvale plant in operation in the United States.

remains in the double-sided floppy disk drive business to the extent it
continues to manufacture its 8 inch doubie-sided product., th
z

SA-850

SA-850..
,
-

The

i s being assembled in Nogales, Mexico, but. all technical support and

quality assurance work is performed in Sunnyvale.
CX

">"

I

.I

Nfun, Tr. 3413: Neun,

821, at 8-9.

.

*'

>

.

.

.

345F. Models SA-455 and S A 4 6 5 were not manufactured by Shugart'
(Sollman, Tr. 266); that i s , Shugart never manufactured a 5-1/4 inch
half-height double-sided floppy disk drive.

Rather, Shugart made a strategic

dQCiSiOn to resell 5-1/4 inch half-height drives made in Japan
. , by Matsushita.
Under the terms of Shugart's license with Tandon, Shugart was per mitt ed t o
sell drives covered by the '573 patent that were nanufactured by other
companies for Shuqart.

Sollman, Tr. 237-38;CX 616, at 5-6.
'

346.

L

. ""

Intentionally Left Blank.
^&

Shugart manufactured a 3-1/2 inch double-sided floppy disk

347.

drive at Sunnyvale, California, in 1982.

Sollman, Tr. 113714, 116-17.

Following a meeting in May 1982 with Dysan Corporation's

348.

. ..

prQSident, Shugart formed a venture group to pursue the design and development
i'

of the 3-1/2 inch drive.

Sollman, T r . 116-18, 119.

A small company
2

%

I

environment was CreatQd, and the best engineers from Shugart were picked for

24 3

the engineering organization.

The project was located at Sunnyvale,

California, and used for production, high-volusc automated lines.

Sollman,

Tr. 119-20.
349.

Single-sided 3-112 inch drives were introduced into the

fnarketplace in April 1983.

Sollman, Tr. 120-21.

In October 1983, a double-sided version of the 3-112 inch drive

350.
was introduced.

Sollman, Tr. 121.

Tandon's patented technology.
351.

The double-sided 3-1/2 inch drive employed

Sollman, Tr. 120, 121.

Evaluation sales were made of the 3-112 inch double-sided disk

drives to 15-20 accounts, including Apple Computer, Wang, Convergent
Technologies, Nixdorf, and Honeywell-Sull.
352.

Sollman, Tr. 123-24.

Approximately 2000-3000 double-sided Shugart 3-112 inch drives

were sold in 1983.

Sollman, Tr. 125.

I

353.

On December 6, 1984, Shugart had plant capacity for 100,000

3-112 inch double-sided floppy disk drives par year located in Sunnyvale,
California.

Sollman, Tr. 126-27.

353A. Production of the 3-1/2 inch double-sided floppy disk drive
ceased in approximately February 1985, except for the fulfillment of the
C

existing commitments to IBM for production of approximately
double-sided units.

mor e

Neun, CX 821, at 9.

353B. In January 1985, Xerox formally announced the closing of
Shugart's 5-1/4 inch and 3-112 inch floppy disk drive operation.

Shugart's

5-114 inch business was sold to Natsushita in February 1985, including the
extensive inventory that had built up over the previous quarters.
CX

821, at 8-9; Sollman, Tr. 111.

241

Neun,

354.

A t the t i n e of the f a l l 1982 Coindex show, there were nine

United 'States manufacturers of double-sided floppy disk drives:

Qume,

Shugart, Control Data, Remex, MFE Corporation, Siemens, Micropolis, Micro
Peripherals, and Tandon.
355.

Sollman, Tr. 88-90; C x 678, a t DT 11-11, DT 13-13.

Qume is not profitable.

Qume went offshore t o Taiwan i n

November 1982 although some modest United S t a t e s production remains.
IBM's

With

termination o f the IBM PCjr c o n t r a c t , Qume may not be able t o continue

i n t h e marketplace.

Qume is not a Tandon licensee.

Sollman, T r . 131-32;

CX 616-21, 696.

356.

Shuqart has e s s e n t i a l l y closed i t s doors.

357.

Control Data Corporation recently l a i d off 950 employees and,is

planning t o move production offshore.
358.
licensee.

SolLnan, Tr. 132.

Sollman, Tr-. 132.

Remex went out of business i n 1983.

Remex is not a Tandon

-

Sollman, Tr. 132; CX 616-21, 696.

. 359.

MFE Corporation went out of business i n 1983.

i s not a Tandon licensee.
360.

Corporation

Sollman, Tr. 132; CX 616-21, 696.

Siemens went out of business i n l a t e 1983 or early 1984.

Siemens i s not a Tandon licensee.
361.

MFE

Sollman, Tr. 132-33; CX 616-21, 696.

Micropolis i s still i n b u s i n e s s as a corporation but withdrew

from t h e floppy d i s k b u s i n e s s i n 1984.

Micropolis i s not a Tandon licensee.

SolLnan, Tr. 133-34; CX 616-21, 696.

_.- .

Tr. 134.

362. .Micro Peripherals w e n t out the business i n mid-1984.
.-

-

363.

Sollman,

Tandon is currently the remaining strong domestic participant

i n the double-sided floppy d i s k drive market.

Sollman, Tr. 134..

_.

.
24 5

364.

A t o t a l of 2 5 floppy d i s k drive manufactur,ers were

headquartered i n the United States as of December 1982 and December 1983.

By

December 1984, there were only 20 f l o p p y d i s k drive manufacturers i n the
United States.

During 1 9 8 4 , seven rnanufacturers of floppy d i s k drives i n the

United S t a t e s ceased production, went into bankruptcy, or were sold to foreign
corporations, i n c l u d i n g Amlyn, Hi-Tech Peripherals, Micropolis Corp.,

Tabor, and World Storage Technology.

A d d i t i o n a l l y , i n February 1 9 8 4 , Xerox

Corporation, w h i c h owned S h u g a r t , sold i t s 5-1/4
t o Matsushita.

8.

Tandon

--

365.

,

CX 677-79;

i n c h floppy d i s k drive l i n e

H a l d i , CX 711, a t 40.

Head Assemblies

. -

I n 1975, Tandon f i r s t s o l d floppy d i s k drive heads and head

assemblies t o d i s k drive manufacturers.

366.

Remex,

TRX 48,

a t 040634.

-.

Tandon was incorporated i n California i n February 1976.

During

its f i r s t year of operations, the company established i t s e l f as a leading
CX 666, a t

manufacturer of f l e x i b l e d i s k drive recording head assemblies.

367.

I n 1 9 7 6 , Tandon captured about 8 0 perCPnt of the t o t a l floppy

d i s k drive head assembly market.

368.
head assembly.

for

I.

TI?% 48.

I n 1977, Tandon developed and patented i t s f i r s t double-sided
CX 665,

a t 018632.

369.
Prom 1977 t o 1981 Tandon s o l d head assemblies and components
. e*.Jf ;=. :
head a S S + i_b. l, h
. S . . Eluenemeier Tr 426-28.

,

$.?<.’: .::..

370f--Tandon continued t o s e l l recording heads d i r e c t l y . t o customers

i n f i s c a l year 1984.

CX 666,

a t 22.

.-

246

371.
C

In fiscal year 1984, Tandon's net unit sales of head assemblies

, while

totaled

.

its net unit sales of disk drives totaled

CX 709.
371A. Tandon purchased doublc-sided head assemblies for use in 5-114
C

of California in 1982,

inch disk drives from
1983, and 1984.

MRX 104C, at 019152-54, 019170, 019207-14.

3718. On March 29, 1984, the shipment schedule for double-sided head
C

assemblies for the TM 65 from

called for

shipped between then and the end of 1984.
372.

units to be

MRX 104C, at 0191152.

Since its formation, Tandon has utilized offshore manufacturing

in India on a contract basis for high volume production of labor intensive
components and various completed products.
373.

Cx 666, at 2.

In 1979, some Tandon head assemblies were assembled in India.

MRX 31, at 24378-79.
374.

The manufacture of head assemblies was the first component

moved by Tandon overseas because of the relatively large amount of nonskilled
labor involved in manufacture of this component.

S. Tandon Dep.,

TRX 268, at

221.
375.

Beginning about June 1978, Tandon had contracted with Tandon

Magnetics (India) Pvt., Ltd. (TMI), for the assembly and testing of certain
ferrite recording head and disk drive products at TMI's facilities in the
Santa Cruz Export Processing Zone, Bombay, India.
C

376.

I

TRX 47.

Tandon contracted with TXI concerning

conditions governing THI's assembly and testing in Bombay, India, of certain
ferrite recording heads and disk drives for Tandon.
C

is due to terminate on

The Tandon/TMI contract

TRX 47, at 022892-94, 022900.

247

377.

T h e specific services t o be performed by TMI under the

Tandon/TMI c o n t r a c t , and t h e dates o f s u c h performance, i s determined pursuant
t o purchase orders i s s u e d by Tandon during the term of the contract.
According t o the terms o f the c o n t r a c t , i n each purchase order the date

-

desired by Tandon for completed assembly and shipment t o Tandon i s s p e c i f i e d ,
as is the price information.
378.
C

T U 4 7 , a t 022893.

According t o the Tandon/TMI Contract, for each purchase order

issued by Tandon t o T M I , Tandon

C

C
C

.

C
C

379.

TRX 4 7 , a t 022895.

According t o t h e Tandon/TMI c o n t r a c t ,

d.

C
C

TRX 4 7 , a t 022899.

C

380.

According t o t h e Tandon/TMI c o n t r a c t , Tandon provides TMI w i t h

a l l equipment, material, and know-how, and TMI provides reasonably s u f f i c i e n t
s t r u c t u r a l f a c i l i t i e s and a s k i l l e d labor force ( w i t h regard t o the
performance of t h e specified s e r v i c e s ) .
C
'

381.

.

C

C

382.

a t 022896.

According t o the TandoniTNI c o n t r a c t ,

C

C

TRX 47,

TRX 47, a t 022896.

According t o the TandoniTYI c o n t r a c t ,

.

TRX 47, a t 022898.

248

.

383.

Mr. Huentmeier was unaware whether Tandon had any suppliers of

double-sided floppy disk drive head assemblies other than TMI from December
1984 to the present.
384.

Huenemeier, Tr. 4 6 4 .

In 1 9 8 4 , Tandon listed the Indian facility as the only Tandon

facility producing head assemblies.

TRX 4 8 , at 040636-37.

Head assemblies for the following double-sided floppy disk

385.

drives of Tandon are assembled offshore in India and subject to quality
Control in India:
TM 848.

TM 5 0 , TM 65-2, TIY 65-4,

Huenemeier, Tr. 437-39,

446-48,

TM 100-2, TM 100-4, TM 101-4, and

474-75,

4 9 1 , 5 0 9 , 5 2 2 , 3607-08;

Huenemeier, CX 8 3 6 , at 10-11; Elsner, TK. 2339-40.
386.

The head assemblies used in the Tandon TY 848-2 are bought from

TMI by Tandon Assocjatcs in India, and Tandon obtains them from Tandon
Associatcs.

Huenemeier, Tra 438, 441-42.

387.

Tandon Associates is a separate entity from Tandon Corporation

and provides the service of being the representative of all the contract
facilities in India.
C

388.

Huenemeier, Tr. 442.

The head assemblies for all

October-December 1984 were assembled in India.
388A.

through Tandon

TM 848s produced in
Huenemeier, Tr. 4 3 7 , 509.

In January 1 9 8 2 , Tandon commenced operations in Singapre
(SI

Pte. Ltd., a wholly-owned subsidiary.

Tandon subsequently

commenced and continued a geographic restructuring of its manufacturing
operations, emphasizing high-volume manufacturing of products offshor-e.
Tandon's Singapore operations, which include the manufacture of both flehible
and rigid disk drives, subsystems, printed circuit boards and chassis,
currently represents the major portion of Tandon's manufacturing Operations.

-

CX 6 6 6 , at 2 ; see MRX 31.

24 9

389.

Tandon does not currently assemble commercial quantities of

head assemblies double-sided flexible disk drives in the United States.
Huenemeier, Tr. 798-99,
390.

3607-08.

Any manufacture in the United States by Tandon of head

assemblies is liinited to engineering and development programs, and small
initial production runs of less than 100 units.
391.

C

came from

.

C

392.

The head assemblies for Texas Peripherals' TY 6 5 - 1 and TM.65-2

.

The head assemblies for Texas Peripherals' TN 100 came from

Hochman, T r . 1633.
Texas Peripherals procured all of its double-sided head

assemblies from TMI through Tandon.
393.
I~

Huenemeier, Tr. 474-75.

Lafe, a supplier of head assemblies located in Taiwan or Korea,

probably suppliers all head assemblies for MPI.
394.

Ousley, Tr. 697-98.

Through 1984, Shugart obtained 60 percent of its head

assemblies' from Mexico.
395.

Huenemeier, Tr. 799.

Sollman, 'Tr. 1 9 9 , 201.

The license agreement between Tandon and Matsush,ita specified

that, except for spare parts and repair purposes, Matsushita can sell only
patented head assemblies incorporated in a completed disk drive.

TFU 5 5 , at

027632.
395A. Marika Mitchell of Tandon calculated the domestic content of

Tandon's head assemblies produced offshore,

Xitchell, CX 8 3 6 , at I.

3958. Based on Ms. Mitchell's analysis, Tandon's expenditures for U.S.

rnanufactur ing activity and domestic content of materials for head assemblies.
for the TM 65, TM 100, TM 101, and TM 848 for the fourth quarter of fiscal
year 1984 (July-September 1 9 8 4 ) and the first three quarters of .fiscal year
1985 (October 1984-Juae 1985) are as follows:

2 50

Time Period
C

44 1984
1Q 1985
24 1985
34 1985

C
C
C

U.S. Mfg.

and

Domestic Content

Total Cost
$

$ .

Mitchell, CX 836, Head Schedule 5 ; Mitchell, Tr. 3235-37.
395C. Tandon's corporate expenses (corporate engineering, marketing,
and G L A ) were allocated t o head assemblies .by:

(I) m u l t i p l y i n g each Corporate

expense by the r a t i o of floppy d i s k drive products revenue over t o t a l
corporate revenue; (2) m u l t i p l y i n g the r e s u l t of the allocation i n #l by the
i

r a t i o of d i r e c t material head assembly c o s t t o d i r e c t material d i s k drive
c o s t ; and (3) d i v i d i n g the r e s u l t of t2 by head assembly u n i t s t o arrive. a k a
head assembly u n i t c o s t for each Corporate expense.

Mitchell, Tr. 3309-12,

3316-17; Mitchell, CX 836, a t 12, Head Schedules 1-4D.
395D. The divisional engineering expenses for head assemblies could be
segregated out, and the u n i t c o s t for t h i s expense was arrived a t by d i v i d i n g
t h e head assembly engineering c o s t by the number of head assemblies.

These

expenses are separate from the engineering expenses for t h e floppy d i s k drive
division.

Mitchell, Tr. 3314-16.

395E. Based on Ms. Mitchell's a n a l y s i s , u n i t c o s t s of production for
head assemblies for the TM 65 and TM 100, are broken out as follows for
Apr il-June

1985:

251

65
percent
T?l

$/unit

U.S.

C
C
C
C
C

c

C

C
C
C
C
C
C

C

Cd
C
C
C
C

Mfg.

cost:

-

TM 1 0 0
$/unit
percent

Engineer in9
Technical Support
Operational CCA
Labor
Material support
. Labor Support
Total Mfg.
Water ial Cost:
Foreign
Domestic
Total
U.S. Non-Mfg.:
Mat ke t ing

Narketinq-related GCA
Total

,

Foreign assembly

-

Other :
P:cig h t
Cur toms
Hater ial vat iance
Totr 1
TOTAL COST:
I

Mitchell, CX 836, at Head Schedules 4A-4%.

395P. Based on Ms. Mitchell's analysis, unit costs of production for
head assemblies for the TH 65 and TM loo, are broken out as follows for
April-June 1985:

\

252

C

U . S . Mfs'. cost:
Eng ineer ing
Technical Support
Operational G&A
Labor
Material Support
Labor Support
Total Mfg.

C
C
C

Material Cost:
Foreign
Domestic
Total

C
C
C

U . S . Non-Mfs.:
Marketing
Marketing-related G&A
Total

C

Foreign assembly

C
C
C
C
C

c ,

I .

C
C
C
C
C

Other :
Freight
Customs
Material variance
Total
TOTAL COST:
Mitchell, CX 836, at Head Schedules 4C-4D.

C.

Tandon

--

Disk Drives

396.
drives in 1979.

Tandon began manufacturing complete double-sided floppy disk
By 1982, Tandon had become the largest independent (not

including production for captive use) manufacturer of floppi disk drives sold
to OENs.

Complaint, 1 12(h);

CX

678, Table 5.

253

,

396A. After being initially funded by its founders and private
investors, Tandon received proceeds through public sales of securities
amounting to:
Data
-

Amount

2/81
11/81
11/82

C

C
C

8
$
$

Mitchell, C: 836, a- 13; C: 665, at 28.
397.

.

Tandon's net sales for fiscal years 1982, 1983, and 1984 were

$150,490,000; $303,369,000; and $400,792,000, respectively.

For the same

years, floppy disk drives accounted for 89 percent, 82 percent, and 80 percent
of its net sales.
398.

666, at 2 , 29.

Tandon currently produces the following models of double-sided

floppy disk drives:

I

CX

the TM 50, a 5-1/4 inch half-height belt-driven floppy

disk drive: the TM 65 and TM 75, 5-114 inch half-height, direct drive floppy
disk drives; the TM 848, an 8 inch, half-height direct drive floppy disk
drive; the TM 100, a 5-114 inch full-height floppy disk drive; and the TM 101,
a modification of the TM 100.

Huenemeier, CX 722, at 5.

398A. A total of approximately 3,353,200 5-114 inch double-sided disk
C

drives were sold in the United States in 1983.

C

double-sided drives, or

Tandon sold

percent of the 1983 market.

Virtually all of

Tandon's sales of 5-1/4 inch floppy disk drives consisted of full-height
units, and Tandon vas the leading 5-1/4 inch full-height manufacturer.
C

Tandon's market share in half-height drives in 1983 was
Huenemeier, CX 835, at 3.

254

.

C

399.

In fiscal year 1984, approximately

floppy disk drive business was double-sided.
C

400.

Serge, CX 717, at 2.

double-sided half-height 5-114 inch f lo?py

399A. Tandon sold
disk drives in 1984.

percent of Tandon's total

Huenemeier, CX 835, at 3.

Commencing in 1981 and through December 1984, Tandon performed

all steps necessary for the manufacture of double-sided head assemblies used
in the TM 848, including the installation of two coils inside both the button
and slider, the mounting of the upper arm to the carriage, the mechanical
flexure, the optical alignment of each resulting subassembly, the mounting of
the upper arm to the carriage, the mechanical alignment of the upper and lower
heads, the installation of the cables on the upper and lower heads, and the
final testing and alignment of the head assembly.
I

C

10-11.
Cx

Huenemeier, CX 835, at

In fiscal year 1984, Tandon's net sales of TM 848s was $

b

709; Serge, CX 717, at 3.
400A. In calendar year 1983, approximately 78.5 percent of all TM 848s

produced were double-sided.
400B.

c'

AS

CX 679, at DTll-9, DT12-11; Haldi, CX 711, at 33.

late as April 1985, all TM 848s are manufactured in the

United States at the Chatsworth, California facility where

square feet

were devoted to TM 848 production (which includes both one-sided and two-sided

c

versions).

c

rate of about 8

C

TM 848 units per month, accounting for approximately'$
revenue.

As late as April 1985,

full-time employees at an annual salary

supported the manufacture of from

to
per month

All quality control and quality assurance, all associated research

and development, product supaort, servicing, marketing, and sales is performed
in the United States.

Haldi, CX 711, at 33; Hucncmeibr, CX 722, at 7.

255

1oOc. During the period July 1984 to June 1985, Tandon

C

c

TM 848s, accounting for $

400D.

As

million in sales.

sold

Mitchell, CX 836, at 5.

of August 1985, approxinatsly 105 workers were devoted to the

production of the TM 848.

Huenemcier, Tr. 3683.

400E. A s late as April 1985, printed circuit boards for the TM 848 and
the dual-sided TM 65-2L were stuffed and tested in Tandon's facility in Siai
Valley, California.

Employees at the Sini Valley facility also provided

s u p p r t production for Tandon models made offshore.

c

approximately

full-time employees and

As late as April 1985,

square feet of space at Simi

Valley were involved in floppy disk drive production.

Haldi, CX 711, at 33.

400F. During the first quarter of fiscal year 1985, Tandon was

producing TM 848 double-sided head assemblies both at Chatsworth, California,
c d

and offshore.

c

assembly of

Tandon made

head assemblies at Chatsworth, and had final

head assemblies completed offshore.

During the second

quarter of fiscal 1985, there was virtually no such production in the United
States.

Huenemeier, Tr. 3608; Huenemeier, CX 835, at 11.
400G. As to head assemblies for double-sided drives other than the

TM

848, Tandon has performed some manufacturing operations in the United

States and contracted with Tandon Nagnetics (India) Pvt., Ltd. (TMI), in India
t o provide labor necessary to do final assembly of the head assembly.
Huenemeier, CX 835, at 11.
401.

Tandon's offshore and domestic manufacture for fiscal year

1984, ending September 30, 1984, by model number is as follows:

256

.

.

Domestic
Units

Of fsflora
Units

Mod e 1
C

TM 50

C

TM 55/55D

C

TM 65

C

TM 100

C

TM 101

C

TM 848

Total

These figures reflect manufacture of both single- and double-sided disk
drives.

Serge, CX 717, at 3-4; Serge, Tr. 871.
402.

For the first quarter of fiscal 1985 (October-Deccmbcr 1984)
TM 100s in Singapore,

Tandon produced

TM 848s in the United States.

in India, and

TM 50s and

T M 65s

SRX 176, at 5.

402A. For the period July 1984 to June 1985, Tandon's manufacture of

floppy disk drives was as Eollows:
Offshore
Units

Mode 1

C

TM 65

C

TM 100

C

TM 101

C

TM 848

Domestic
Units

Tota 1
-

Mitchell, CX 836, at 7.
C

4028. The

TH 100s assembled onshore arc-believed to have been

assembled prior to December 6, 1984.
403.

Mitchell, Tr. 3247-48.

Anthony Francis Serge is the Corporate costs control manager of

Tandon Corporation, and has been employed by Tandon since February 1982.
Serge, CX 717, at 1-2.

257

.

403A. Marika E. Y i t c h e l l is the Controller-Dome'stic

Operations of

Tandon Corwration and has Seen employed by Tandon since .'larch 1 9 8 3 ,
M i t c h e l l , CX 8 3 6 , a t 1 , 3.
c

Dr. Malrngren d e f i n e d value-added as the d i f f e r e n c e between the

403B.

cost of materials a c q u i r e d and t h e sales p r i c e .

Malmgren, C P X . 5 6 ,

a t 94.

Mr. S e r g e c o n d u c t e d a value-added a n a l y s i s for Tandon-produced

404.

floppy d i s k d r i v e s t h a t r e l i e d on p r o f i t and loss statements, b i l l s ' o f

material, o t h e r cost r e l a t e d r e p o r t s , and s h i p p i n g r w o r d s .
S e r g e , Tr.

S e r g e , CX 717;

859-59.

U. M i t c h e l l c o n d u c t e d a value-added a n a l y s i s which updated and

404A.

modified t h e S e r g e a n a l y s i s , r e l y i n g on more recent

cost d a t a , and e x c l u d i 6

certain a c t i v i t i e s from the value-added which an importer would also incur.
rr

-.

M i t c h e l l , CX 8 3 6 , a t 6.

Ms. Mitchell's value-added a n a l y s i s was by quarter for t h e

4048.

p e r i o d J u l y 1 9 8 4 to June 1 9 8 5 , and f o c u s e d on the. TM 6 5 , TM 1 0 0 , and TM 1 0 1
Tandon d i s k d r i v e s .

Mitchell, CX 8 3 6 , Drive S c h e d u l e s 1 t o 5.

404C, The TM-65 s c h e d u l e s i n Y a r i k a M i t c h e l l ' s

witness statement

r e f l e c t t h e TM 65-2L p r o d u c t , which is Tandon's 4 8 T P I d o u b l e - s i d e d p r o d u c t .
Huenemeier , T r . 3609.
404D.

B a s e d on Ms. M i t c h e l l ' s

a n a l y s i s , Tandon's e x p e n d i t u r e s for O . S .

m a n u f a c t u r i n g a c t i v i t y and d o m e s t i c content of materials for t h e TM 6 5 ,
-.'. :....'
c* .
TM 1 0 0 , and
101 for t h e f o u r t h q u a r t e r of fiscal y e a r 1 9 8 4 (Ju l y - S e p t embe r

m
-

1 9 8 4 ) and t h e

,.

first t h r e e quarters of fiscal y e a r 1 9 8 5 ( O c t o b e r i984-June

1 9 8 5 ) are a s follows:

258

.

Time Period
C
C
C
C

4 4 1984
19 1985
2Q 1985
3Q 1985

U.S.

Mfg.

and

Domestic Contcnt

.

$

Total Cost
$

-

Mitchell, CX 836, a t 2
404E. The c o s t figures i n 4 0 4 D for U.S.

manufacturing and domestic

content were computed for the TM 6 5 , TM 1 0 0 , and TM 1 0 1 and do not indlude any
o f the U.S.

manufacturing costs and domestic content of Tandon's manufacture

of its TM 8 4 8 product i n Chatsworth.

Mitchell, Tr. a t 3330-30.

4 0 4 F . Tandon's corporate expenses (corporate engineering, marketing,

technical support, corporate GS&A) were allocated t o floppy d i s k drives by
u s i n g the percentage of revenue generated by floppy d i s k drive products over

t o t a l corporate revenue.

The u n i t c o s t per d i s k drive for corporate expenses

was then calculated by d i v i d i n g t h e corporate expense allocated t o floppy d i s k
drives by the t o t a l u n i t s of d i s k drives.
Schedules 1-3

.

Mitchell, CX 836, a t 6, Drive

Ms. Mitchell's method for allocating corporate expenses t o d i s k

404G.

drives included coraorate expenses that a l s o could be further allocated t o
head assemblies, because she assumed that i n every d i s k drive was contained a
head assembly.

Mitchell, Tr. 3313.

404H. Ms. Mitchell assumed that t h e u n i t engineering c o s t s , technical-

s u p p r t c u s t s , and operational C&A c o s t s Were t h e Sam-e for the T H . 6 5 , TM 100
and TM 101.

t.iitchel1, Tr. 3285; H i t c h e l l , CX 8 3 6 , Drive Schedules 4A-4C.

259

4041.

C

percent of Tandon's general GLA expenses were

carved out to account for those G&A functions typically performed by an
importer.

The deductions from G&A included the credit department' and one of

the marketing vice presidents.

.

Mitchell, Tr. 3269, 3284-85; Mitchell, CX 836,

Drive Schedules 4A-4C.
4045. Most of the purchasing costs of importing disk drives are
charged t o Tandon Associates.

Mitchell, Tr. 3270-71.

404K. MS. Mitchell stated that salaries and burdens of

C

Tandon employees who coordinate the purchase of disk drives from Tandon
Associates could also be carved out of the G&A costs to be consistent with her
allocation method.

Mitchell, Tr. 3271-72.

404L. In Octobcr-December 1984, total Tandon's total G&A and marketing

c

expenses accounted for between

percent (TM 65, TM 101) and

(TM 100) of the Tandon cost of production.

percent

Mitchell, CX 836, Drive Schedule

404M. In calendar year 1984, MELA'S G&A and selling expenses accounted

c

for

percent of its costs (excluding interest expense).

CX 854, at 543659.

404N. Tandon's divisional engineering and G&A expenses (expenses
devoted to floppy disk drives) per disk drive were calculated by dividing the
total divisional expense by the total number of disk drives.

Mitchell,

CX 836, at 6, Drive Schedules 1-3.
404P. Direct labor costs for each nodel are based on the Costed
Routing Report R501.

A costed routing list refers to the operational steps

performed in the U.S.

production or manufacture of a disk drive.

Cx

836, at 10.

260

Mitchell,

4044. Yaterial costs for
indented bill of materials.

U.S.

manufacture are reflected in

the

The costed indented bill of materials specifies

the parts and their associated costs that are necessary in' the prLduction of
the product.

Foreign material costs are derived from invoices (India) or from

standard material transfer price from Tandon's Singapore subsidiary.
Mitchell, CX 836, at 11.
404R. Tandon does not keep records that reflect research and
development expenses for each model.

Tandon costs RLD expenses as t h e y are
Mitchell, Tr. 3265.

incurred rather than amortizing them.

404s. Between July-September 1984 and October-December 1984, Tandon

transferred all of the RLD functions that had been in corporate engineering to
divisional engineering.

Mitchell, Tr. 3259-61.

404T. The RLD for the TM 100, T M 101, T M 65, TM 5 0 , and TH 848 had
1

been completcd by December 6, 1984.

rvbst R6D for a floppy disk drive produc+

is performed before it is ever produced commercially.

Huememeier, Tr. 441-15,

498-99; Neun, Tr. 3451.
404U. The engineering costs used in the Mitchell value-added analysis

do not include RLD expenses f o r the Tandon TM 300 project, which is perfornecl
by another Tandon division.

Mitchell, Tr. 3329-30.

404V. Three to four percent

drives represents RLD costs.

of the cost value of Tandon's Eloppy disk

Huenemeier, Tr. 491-93.

404W.;IA

analyzing the cost structures for the TM 100, TX 101, and
.: ,
TM 65, MS. Mitchell used the following cost categories: (1) U.S..
manufacturing; (2) U.S.
( 4 1 material.

Mit.chel1,

non-manufacturing; (3) offshore assembly; and
CX

836, at 9.

261

i n the Mitchell a n a l y s i s i n c l u d e s U.S.

4 0 4 X . The d o m e s t i c value-added

costs and the d o m e s t i c content of material costs.

nanufacturing

U.S.

m a n u f a c t u r i n g costs i n c l u d e e n g i n e e r i n g , t e c h n i c a l s u p p o r t , o p e r a t i o d a l G&A

-

( i . e . , G&A not i n c l u d i n g m a r k e t i n g V.P.
c r e d i t department expenses)

, labor,

s a l a r y or burden and e x c l u d i n g t h e -

material s u p p o r t , and l a b o r s u p p o r t .

M i t c h e l l , C x 8 3 6 , a t 9.
404Y. A c c o r d i n g t o Dr. Malmgren, t h e value of p a r t s m a n u f a c t u i e d and
p u r c h a s e d i n t h e U n i t e d S t a t e s would on b a l a n c e be i n c l u d e d
value-added,

b u t each case would have t o b e a n a l y z e d

Dr. Xalrngren c i t e d a section of U.S.
have Sean e x p o r t e d from t h e U . S . ,
United S t a t e s .
4042.

d

as U.S.

in the

U.S.

on an i n d i v i d u a l basis.

law r e g a r d i n g imports of p r o d u c t s t h a t

p r o c e s s e d a b r o a d , and t h e n r e t u r n e d t o t h e

Malmgren, CPX 56, a t 96-97.

I n Mr. B l o c k ' s a n a l y s i s of U.S.

component s u p p l i e r s , h e i n c l u d e d

s u p p l i e r s o n l y t h o s e whose material q u a l i f i e d a s U.S.-origin

rules e s t a b l i s h e d by t h e U.S.

Customs S e r v i c e .

under

B l o c k , CX 819, a t 5 ; B l o c k ,

TKO 3717-19.
404AA. Tandon takes a d v a n t a g e of d u t y drawback p r o v i s i o n s o f U n i t e d
S t a t e s law for t h e d o m e s t i c component value of t h e d i s k d r i v e s it imports.
M i t c h e l l , Tr.

3332.

404BB. A c c o r d i n g to

or.

Magrath, p r o d u c t i o n costs i n c l u d e t h e costs of

p r o c u r i n g components or raw materials.

Magrath

, Tr

.

3776.

404CC. Material costs a c c o u n t e d for a p p r o x i m a t e l y

C

p e r c e n t of the t o t a l cost of Tandon's
1985.

double-sided

M i t c h e l l , CX 8 3 6 , Drive S c h e d u l e s 4A-4C.

262

p e r c e n t to

d i s k d r i v e s i n April-June:

.

.

404DD. Mr. Block of Tandon calculated Tandon's Floppy D i s k Drive

Division's United S t a t e s materials purchases for floppy disk drives for t h e '

period October 1 , 1984, t o June 30, 1 9 8 5 , from a Tandon computer printout o f

i t s revenue p a i d t o f l e x i b l e disk drive vendors.

Xr. Block excluded from t h i s

p r i n t o u t a l l foreign suppliers, intra-company t r a n s f e r s , suppliers o f services
and f r e i g h t companies.
C

The renaining figures rcpresented Tandon's purchases

o f United S t a t e s material over t h i s period.of

$

million.

B l o c k , CX 819, a t

3, 6.
404EE. Over the October 1 , 1984, t o June 30, 1985, period, United
C

S t a t e s materials were a l s o procured by Tandon Pte. L t d .

) and

(

by the Tandon Printed Circuit Board Assembly Division (printed c i r c u i t boards
C

for the TM 5 0 , TH 6 5 , and TM 848).
million.

For motors, and for P C B ' s used only i n the TM 6 5 and T:4 848,

purchases t o t a l e d $3.4
C

Purchases o f these items totaled $

million.

Block, CX 819, a t 6 , Ex. D.

104FF. The motors parchased from
Singapore.

Block, Tr.

404GG.

a r e shipped d i r e c t l y t o

3710-11.

I n order t o o b t a i n the progortion o f domestic content o f

materials i n t h e TN 6 5 , TM 100, and TH 101, Ms. g i t c h e l l took the r a t i o o f
United States-origin materials (from the B l o c k witness statement) to t o t a l
materials c o s t for t h e period J u l y 1984 t o June 1985.
C

Basad on t h i s

c a l c u l a t i o n , Ms. Mitchell applied a constant percentage o f

to total

material c o s t t o e s t i n a t e the domestic content of material for each modal.
M i t c h e l l , Tr. 3302; : 4 i t c h e l l , C X 836, Drive Schedules 4A-4C.

263

404".

51s. H i t c h e l l included United States-origin n a t e r i a l s for the

United States-produced TM 8 4 8 and for single-sidt-d disk drives i n C a l c u l a t i n g
the percentage domestic content for the TH 65, TM 1 0 0 , and TN 101.

Tr.

?!itchall,

3301.

40411. The labor content of assembling a d i s k drive is about 112 nour.

40455. According t o Ms. M i t c h e l l , the offshore assembly c o s t s used i n

t h e value-added a n a l y s i s include Offshore assembly, offshore overhead and

p r o f i t , and Tandon Associates' overhead and p r o f i t .

Mitchell, Tr. 3293-99.

4 0 4 K K . For the TM 65 d i s k d r i v e , the labor content o f $

C

d r i v e i n January-June

per d i s k

1985 consists of p a c k a g i n g , removing the drives out of a

four-package container and p u t t i n g them into a single-package container.
C

the two e a r l i e r q u a r t e r s , the labor costs o f $

and S

For

par d i s k drive

I

related to s p e c i f i c t e s t i n g and inspection o f drives being imported.
Currently, a l l t e s t i n g and i n s p e c t i m o f the TM 65 d i s k drive is performed i n

India.

M i t c h e l l , Tr.

3288-89; M i t c h e l l , CX 836, a t Drive Schedule

4A.

404LL. Tandon estinates t h a t for the four quarters l i s t e d below, the
percentage of t o t a l product cost for the TY 6 5 , T?t 100, and TM 1 0 1
a t t r i b u t a b l e t o United S t a t e s manufacturing and domestic content of materials
as follows:
July-Sept.

1984

C
C
C

TM 65

%

Jan. -Mar
1985

O C t .-DcC

-

-

1984

%

%

TM

100
TX 101
M i t c h e l l , CX 836, a t 2, 8, Drive Schedule 5 .

264

.

Apr 11-June

1985
-

%

404MM. Based on Ms. Mitchell's a n a l y s i s , u n i t costs o f p r o d u c t i m f o r
t h e TM 6 5 , TM 1 0 0 , and TM 1 0 1 are broken out a s follows for A p r i l - J a n e

Nfg. cost:
Engineering
T e c h n i c a l Support
Operational GSA
Labor
Material S u p p o r t
Labor S u p p o r t
T o t a l Mfg.

TIY 65
percent

1985:

TM 1 0 1

$ /un i t

$/snit

percent

U.S.

C
C
C

M a t e r i a l Cost:
Foreign

Domestic

Total

C
C
C

Non-Mfg.:
Marketing
H a r k e t i n g - r e l a t e d G&A
Total

C

F o r e i g n assembly

U.S.

n

"

Other:
Freight

C
C
C

Customs
Material variance

C

TOTAL COST:

Total

M i t c h e l l , CX 8 3 6 , D r i v e S c h e d u l e s 4A-4C.
405.

a n a l y s i s was based on A p r i l - J u n e

Mr. S e r g e ' s value-added

1984

d a t a , b u t Mr. S e r g e t e s t i f i e d t h a t the information is r e p r e s e n t a t i v e o f

current a c t i v i t y and costs.
406.

Serge, Tr.

8 6 2 , 864.

W i t h t h e e x c e p t i o n of t h e TM 1 0 0 , Tandon's

d i s k d r i v e s do not s e p a r a t e s i n g l e - s i d e d
Tr.

858.

265

r e c o r d s for f l o p p y

and d o u b l e - s i d e d d r i v e s .

Serge,

407.

3ased on Xr. Serge's a n a l y s i s , the following c o s t s and

percentages of t o t a l product c o s t are a t t r i b u t a b l e t o the a c t i v i t i e s performed
by Tandon i n the U n i t e d States:

TM
per c an

$ /u n i t

C
C
C
C

xater i a l :
Labor Value-Added
Hater i a l Variance
Material Support
Labor Support

C
C

Enaineer ina:
Corporat a
Divisional

C

Narketing:
Corporate

C
C

General & Admin:
Corporate
D i v i s iona 1

C

Customs :

C
C
C

50

t

par c en
TX 65

d /u n i t

t

Foreign Value-Added:
Singapore
India

TOTAL COST:

Serge,

CX

717, a t attachments A-1 t o D-1.
408.

Based on Mr. Serge's analysis, the following c o s t s and

percentages of t o t a l product c o s t are a t t r i b u t a b l e t o t h e a c t i v i t i e s performed
by Tandon i n t h e United States:

266

TM 100
percent
$/unit
C
C
C
C

:*laterial:
Labor Valuc-Added
Material Variance
Material Support
Labor Support

C
C

Engineering:
Corporata
Divisional

C

Narketing:
Corporate

C
C

General & Admin:
Corporate
Divisional

C

Customs:

c
c

Foreign Value-Added:
Singapore
India

c

TOTAL COST:

TM 101
$/unit . p r c e n t

Serge, Cx 717, at attachments A-1 to D-1.
409.

Mr. Serge considered that based on his analysis, value-added in

c

the United States accounted for

c

and

percent,

410.

Serge, CX 717, at 5

Based on a Tandon Corporation income statement of November

1984, United States costs in April-June 1983 accoanted for
combined production cost of TIY 100s and T:4 101s.

c

percent,

percent of the production costs for the TM 50, T:4 65, TM 100, and

TM 101 floppy disk drives, respectively.

c

percent ,

percentage f e l l to

percent.

CX 709.

267
4

.

percent of' the

In July-Septtmber 1984, this

411.

T a n d o n ' s c o s t d a t a for the TM 50 a r c based, upon s c h e d u l e s w h i c h

refer t o . t h a s i n g l e - s i d e d TY 5 0 f l o p p y d i s k d r i v e b e c a u s e d u r i n g f i s c a l y e a r
1 9 8 4 , the T:4
412.

5 0 was p r e d o m i n a n t l y a s i n g l e - s i d e d p r o d u c t .

Cost d a t a for the TM 100 r e p r e s e n t b o t h s i n g l e - s i d e d and

double-sided d r i v e s .

Cost d a t a for the Tt! 65 and TM 1 0 1 r e p r e s e n t

double-sided d r i v e s only.
413.

S e r g e , Tr. 869-70.

S e r g e , Tr.

878-79.

T h e components of material costs i n c l u d e the p e r u n i t labor

cost for t e s t i n g and p a c k i n g i n the U n i t e d S t a t e s ("Labor value a d d e d " ) ,

customs d u t i e s (for t h e

TM 1 0 0 and TM 1 0 1 o n l y ) ,

material v a r i a n c e (for t h e

TM 1 0 0 and TM 1 0 1 o n l y ) , material s u p p o r t o v e r h e a d ( f o r the TM 50 and 65
Only)

, and

l a b o r s u p p o r t overhead.

414.

S e r g e , CX 7 1 7 , a t 6 .

A c c o r d i n g t o Dr. H a l d i , " b u r n - i n "

t e s t i n g of d i s k d r i v e s a t

T m d o n i n v o l v e d p l a c i n g d i s k d r i v e s on racks and p l u g g i n g t h e m i n .

T h i s test

I

i n v o l v e d no e x t e n s i v e manual l a b o r and l a s t c d a b o u t four hours.

Haldi,

Tr. 1 1 8 1 - 8 3 .
415.

For the TM 50, U n i t e d S t a t e s l a b o r costs for t e s t i n g and

c

p a c k i n g a c c o u n t e d for

C

for t h e TM 6 5 , T?i 1 0 0 , and TI1 1 0 1 , these costs a c c o u n t e d for

c

p e r c e n t , and

p e r c e n t of t h e t o t a l u n i t c o s t of p r o d u c t i o n , w h i l e

p e r c e n t , r e s p e c t i v e l y , of t h e t o t a l u n i t cost of p r o d u c t i o n .

S Q I q e , CX 7 1 7 , a t t a c h n t n t s B - 1 ,

416.

c

p e r c e n t and

percent,

B-2,

0-1, D-2, A - 1 , A-2, C-1, C-2.

For t h e TM 100 and TM 101, customs d u t i e s a c c o u n t e d for
p e r c e n t , r e s p e c t i v e l y , o f t h e t o t a l u n i t cost o f p r o d u c t i o n .

S e r g e , CX 7 1 7 , a t t a c h m e n t s A-1,

C-1.

268

n

417.

Material variance represents those components, p a r t s , or

supplies ' t h a t are necessary i n the operation due t o shrinkage, scrapping, or
damage of the product , that are generated through the inspection .and' quality
assurance of imported d i s k drives.
C

c

418.

'

Serge, Tr. 885-86.

Material variance accounted for

c o s t of production for the TM 100, and
production for t h e TM 101.
419.

percant of the t o t a l u n i t

percent of the t o t a l u n i t c o s t o f

Serge, CX 717, attachments, A-1, C - 1 .

Material overhead (support) represents c o s t s for rcceiving,

inspection, and planning groups as a function of disk drives as they enter
Tandon.

T h i s c o s t is included i n Tandon's inventory c o s t s .

see Mitchell,
C

CX 836, a t 10.

percent of the t o t a l u n i t c o s t and for the TX 6 5 ,

4

the t o t a l u n i t cost.

I.

Serge, Tr. 8 8 5 ;

421.

Serge, CX 717, attachments

6-1,

percent of

D-1.

Labor overhead (support) represents administrative,

supervisory, quality c o n t r o l , quality assurance, quality engineering, and
product support costs.
422.

Serge, Tr. 886; Mitchell, CX 8 3 6 , a t 11.

Labor overhead c o s t s were allocated equally between the four

c

product lines a t

C

percent, and

per u n i t .

$

T h i s represerits

percent,

percent, respectively, of the t o t a l u n i t c o s t of the

TM SO, TM 6 5 , TN 100,.and TM 101 d i s k d r i v e s , respectively.

attachments

6-1,

423.

percen t ,

Serge, C x 717,

0-1, A-1, C-1.

U n i t engineering c o s t s were calculated on b o t h the corporate

and divisional levels.

Corporate u n i t engineering c o s t s were calculated- by

m u l t i p l y i n g t o t a l corporate engineering c o s t s by an " e f f o r t " variable of

1

vhich represents the percentage of floppy disk drives t o t o t a l product shipped

269

by Tandon i n April-June

1984.

The engineering c o s t attributed t o f l o p p y d i s k

drives was then divided by the t o t a l nuaber o f d i s k drives sold i n April-Junz
1984 t o a r r i v e a t a per u n i t corporate engineering c o s t .

engineering c o s t s include research and development

(RbD)

Corpxati!
costs.

Serge,

Tr. 8 7 2 - 7 4 1 8 8 7 , 8 9 7 - 9 8 , 9 8 5 ; CX 7 1 7 , a t 7 .
423A. For a l l head assemblies assembled i n Chatsworth or a t one of

Tandon's offshore assembly plants, Tand0nI.s Chatsworth facility.performs a
number o f engineering functions.

The d e s i g n of a l l double-sided head

assemblies is conducted i n Chatsworth.

T h e Drafting Department a t Chatsworth

takes engineering sketches and turns them into standard approved velluins,
They a l s o update a l l

drawn t o s c a l e u s i n g accepted drafting procedures.

documents as required through engineering change orders.

Tandon's Chatsworth

model shop is used t o fabricate i n i t i a l prototypes and a s s i s t i n fabrication

1.

of assembly tooling.

Huenemeier, CX 8 3 5 , a t 10-12.

423B. Tandon's "advanced head production" section a t Chatsworth

includes engineers who supervise i n i t i a l production o f new heads and head

c

assemblies.

C

December 1984, Tandon had about

Currently, Tandon has

people i n t h i s section.

to

people i n t h i s section.

to

In

Huenemeier,

Tr. 3 6 5 7 ; Huenemeier, CX 8 3 5 , a t 12.
423C. T h e design of all tooling used

t o f a b r i c a t e p i e c e parts is

conducted by Chatsworth engineering personnel.

T h e design of a l l assembly

tooling and the fabrication of s u c h tooling is conducted i n Chatsworth.
Huenemeier, CX 8 3 5 , a t 1 0 , 12.
423D. Xanufacturing Engineering, located i n Chatsworth, develops,

debugs, and documents a l l manufacturing assembly instructions for use by
assembly personnel.

Engineering personnel, located i n Chatsworth, approve a l l

2 70

first article reports and any new vendors that may be developed during the
life of the product.

In the event that technical problems arise, Chatsworth

engineering personnel are dispatched to offshore assembly plants to spearhead
the corrective action process.
424.

Huenemeier, CX 835, at 1 0 , 12.

Of the $16.3 nillion spent on research and development by

Tandon in fiscal year 1984, $7.5 million was spent on floppy disk drive

RSD.

Haldi, Tr. 1223.
425.

Mr. Serge testified that the RSD costs he used in his value

added analysis did not include RSD for non-floppy disk products, although R&3
for media manufacturing, pleated media nanufacturing, or Winchester subsystem
development may have Seen included in the R&D allocated to floppy disk
drives.

.

Serge, Tr. 990-93.
425A. During the period from January 1984 to present, the following

double-sided head developaent programs were conducted in Chatsworth:

TM 35,

TM 65-8, TM 75-2, TM 75-8, TM 304, TM 306, TM 308, TM 309, and TM 100 (a
high-capacity 5 megabyte half-height floppy disk drive).

Huenemeier, CX 835,

at 12.
426.

C

.

For each product line, the unit engineering cost was $

This represents

percent,

percent,

percent, and

percent of the
c

'

total unit cost of the TM 50, TM 6 5 , TM 100, and TM 101 disk drives,
respectively.
427.

Serge, CX 717, attachments B-1,

D-1,

A-1,

C-1.

In addition to corporate-wide engineering functions, each of

the operating divisions naintains its own angineering staff, which includes
sustaining engineering for the products developed by that division.

FF 453.

see
-

Total "divisional" engineering costs are multiplied by the effort

271

c

, and then divided

variable of

by t h e

total nunber of floppy 3isks sold,
Serge, Tr. 872-73; S e r g e ,

to arrive at a divisional unit engineering coat.

cx 717, at 7.
428.

Sustaining engineering is a continuing engineering process to

-

S e r g e , Tr. 874; sese FF 453.

handle problems that come up on existing products.

428A. Approximately 12-13 persons perform sustaining engineering
Huenemeier, T r . 3687-88.

activities at Ttlndon.

428B. There is a correlation between volune of production and
sustaining engineering activity.

Higher volumes of production involve mor5

sources of components, which leads to more problems and consequently more
sustaining engineering.
429.
C

5

, and

Hucnemeier, Tr. 3688-89.

For each product line, the divisional unit engineering cost was

represents

percent,

percent,

percent, and

percent

of the total unit cost of the TM 50, TM 65, TM 100, and TM 101 disk drives,

respectively.
430.

Serge,

CX

717, attachments B-1, 0-1, A-1, C-1.

Engineering is a stand-alone department, and engineering costs

are separate from labor support costs.
431.

c

Serge., Tr. 886-87.

The marketing unit cost is based on an allocation of total

c o r p r a t e marketing costs to floppy disk drives based on the
1

variable.

3

effort

*

This cost is then divided by the total number of floppy disk drives

to arrive at a unit marketing cost.
432.

Serge, T r . 887-88; Serge, Cx 717, at 7.

:larkctinq costs include salaries, commissions expenses,

advertising, technical

OK

engineering support provided by the marketing group

(product specs) , technical documentation, and departmental overhead associated
writh narketing and product support operations.

272

Serge, Tr. 880.

.

433.

C

represents

C
'

For each product line, the unit marketing cost was
percent,

percent,

percent, and

,

$

anc!

percent of the total

unit cost of the TM 50, TW 65, T?I 100, and T:4 101 disk drivtas, rk.pectively.
Serge,,CX 717, attachments B - 1 , D-1, A-1, C-1.
433A. All of the marketing

for Tandon's double-sided disk drives,

including those assembled offshore, for customers located in the 'Jnited StatPs
is handled by Tandon's sales and marketing personnel who arc officed in the

In addition,,Tandon's LInitad States marketing and salcs

United States.

organization parforms substantial marketing and salos effort with respect to
customers located in other countries.
434.

Huenemeier, CX 722, at 18.

General and administrative costs are broken out between

corporate and divisicnal general and administrative costs.

c

calculated by application of the effort variable of
administrative costs.

to total general

Unit costs are then calculated by divi3ing these costs

by the number of disk drives.
435.

These costs are

Serge, Tr. 887; Serge, CX 717, at 7.

General and administrative costs encompass the executive

offices and officers, the finance departments, the personnel and payroll
departments, as wall as the operational management that may fall within the
division as opposed to the executive levels.

For each product line, the corporate general administrative

436.

c

unit cost was

c

and

Serge, Tr. 881.

$

, and

represents

percent,

percent ,

percent,

percent of the total unit cost of the TY 5 0 , TY 65, TM lOO,-and TM 101

floppy disk drives,, respectively.

Scrgo, CX 717, attachments B-1,

c-1.

273

D-1,-

A-1,

For tach product l i n e , the divisional general administrative

437.

c

u n i t c o s t was $

, and

represents

percent ,

percent,

percent, and

aercent, t s S p e C t i V t ? l y , of the t o t a l u n i t c o s t of the TM 5 0 , TN 6 5 , T:4 1 0 0 ,
and T:4 1 0 1 floppy d i s k drives.

Serge, CX 717, attachments B-1, D-1,

A-1,

C-1.

437A. The procurement of parts used i n the assembly o f the T>l 100,
TN 6 5 , and TY 5 0 overseas is i n part handled i n the United States.

Huenemeier, CX 7 2 2 , a t 16.
4378. Tandon procures components for head assemblies from Chatsworth,

California, for a l l head assemblies assembled i n Chatworth or Bombay.

The

procurement process involves identifying and surveying potential vendors,
negotiating i n i t i a l pricing, and obtaining f i r s t a r t i c l e approval.

The

Chatsworth purchasing people place t h e actual purchase orders w i t h the
I

vendors.
Of

AS

n a t e r i a l is received i n Chatsworth, it i s inspected and disposed

i f found discrepant.

Material is t h e n s t o c k e d and e i t h e r issued t o t h e

Chatsworth production f a c i l i t y or packaged for s h i p m e n t t o one o f Tandon's
offshore assembly plants.

The processing o f invoices, c r e d i t memoranda, and

other documentation necessary t o deal w i t h the vendors is done a t Chatsworth.
As

of December 6 , 1984, a l l o f these procurement steps were performed i n

Chatsworth.

Huenemeier, CX 835, a t 1 3 .

437C. As t o parts procured i n the United S t a t e s , Tandon has performed

appropriate inspection and testing i n Chatsworth where s u c h parts are received
t o control the q u a l i t y of that material.

For t h i s purpose, Tandon maintai-ns

appropriate t e s t equipment i n Chatsworth, much o f w h i c h is designed by Tandoti
i n t h e United States for the purpose of ensuring t h e desired quality of the

incoming material.

Huenemeier, CX 7 2 2 , a t 1 6 .

274

437D. Approximately

C

or

Tandon employees are involved in vendor

identification and vendor surveys with respect to the procurement

Of

materials

and components that are incorporated into Tandon's double-sided disk drives.
NRX 59, at 8-90
438.

In fiscal year 1984, Tandon leased buildings for its principal

executive offices and domestic manufacturing operations in Chatsworth, Sisi
Valley, Thousand Oaks, San Jose, and Santa Clara, California, that occuaied
515,000 square feet.

439.

.

CX 666, at 18.

In April 1985, Tandon's leased buildings in the United States

occupy 448,000 square feet.
440.

Huenemeier, Cx 722, at 2.

In April 1985, Tandon's facility at Simi Valley was not

.

involved in the assembly of floppy disk drives, but has a Winchester disk
drive facility, a printed circuit board assembly operation, and some warahoilre
space.

Printed circuit boards are used in floppy disk drive production.

Huenemeier, Tr. 429.
441.

Tandon's facility at Santa Clara is not involved in the

production of floppy disk drives.
442.

Huenemeier, Tr. 432-33.

The research and development groap at Santa Clara is primarily

involved in R&D for Winchester disk drives, but may have been assisting

-

Microtek (see FF 475-92) in its endeavors with regard to the 3-1/2 inch
product.

Hucnemcier, Tr. 191.
443.

Division.

Tandon's facility at Thousand Oaks houses the Voyager

The Voyager Division is responsible for the design and manifactore

of Tandon computer systems and subsystems that incorporate Tandon's floppy and
rigid disk drives, which arb sold by OEYs m d e r the
Tr. 430-31.

275

OEbl's

name.

Yuenemaier,

A s late

444.

as A p r i l 1985, Tandon's Chatsworth facility ocCu?ied

seven leased buildings occupying approximately 351,000 square feet.
Approximately 270 employees at Chatsworch ate devoted to floppy disk drive
manufacture and related activities, such as marketing, administration, and
research and deuelopment.

Elsner, CPX 33, Interrogatory No. 4; CPX 3 3 at

--

189-90; see also Huenemeier, CX 722, at 12.444A. Prior to January 1984 and through the spring of 1985, Tandon's
facilities involved in the aanufacturing activities of head and head
assemblies for use in doubla-sided disk drives were located in 3uilding 1 a t
9333 O s 0 Avenue, Chatsworth, California, which had 20,080 square feet of
space.

Since the spring of 1985, the various manufacturing functions being

performPd have been done in Chatsworth, California, at three separate
buildings:
I

Building 4

qt

9423 Os0 Avenue, with 15,035 square feet; Building 3

at 20320 Prairie Street, with 76,610 square feet; and Building 5 at

20310 Plummet Street, wi*h 46,440 square feet.
445.

Huenemeiet,

CX

835,

at

15.

Of the 351,000 square feet and 270 employees devoted t o Lloppy

disk drive manufacturing at Chatsworth in April 1985, manufacturing facilities
for the TM 848 occupy about 45,000 square feet and employ 237 employees.
Elsner, CPx 33, at 191.
446.

In the remaining 306,000 square feet, about 200 employees ate

engaged in warehousing, administration, finance, and other corpratr-related
functions.

Elsntw, CPX 33, at 191-92.

446A. At the Chatsworth facilityl the procurement process, which

surveys vendors and negotiates pricing, etc., has approximately four
employees.

Huenemeier, Tr. 3661.

,

276

446B. At the Chatsworth facility, the detailed planning of components
and piece parts employs about four individuals.

HuenemPier, T r . 3661.

446C. The division that receives and inspects materials at Chatsworth
has approximately 12 employees.

Huenemeier, Tr. 3661-62.

446D. As of January 1984, those Tandon United States employees
involved in manufacturing activities related to head assemblies numbered
C

approximately

C

today, number approximately

;

and as of December 6, 1984, numbered approxiaately

.

approximately
employees.

and

The above numbers include engineering

personnel devoted to heads, which broken down include:
C

;

employees; as of December 6, 1984,

As of January 1984,

employees; and today,

Huenemeicr, CX 835, at 15-16.

447.

With the exception of development of the 3-112 inch disk drive,

all research and development for Tandon's floppy disk drives is done in the

4

United States at Tandon's Chatsworth facility.
"

facility includes approximately

The Tandon's Chatsworth R&D

square feet of building space,

offices, two full-test and evaluation laboratories, and as of April 1985,
C

enq ineer s ,

technicians,

drafting emplwjees.
448.

document control individuals, and

Huenemeier, CX 722, at 10.

RSD expenses accounted for 5.0 percent of net Sales in fiscal

1983 and 4.0 percent in fiscal 1984.

CX 666, at 23.

448A. In fiscal year 1984, Tendon expended $16,269,000 on research and
development or approximately 3-4 percent of the cost value for its .floppy disk
drives.

Product research and development expenses increased by 127 pexcent in

fiscal year 1983 and 18 percent in fiscal year 1984, while remaining
essentially constant as a portion of net sales,
CX 666, at 29.

277

Huenemeier, CX 722, at 10-11;

449.

A l l R&D and engineering in connection with the original design

of Tandon's TM 100s and TM 101s (assembled in Singapore and at TP), TX 50s .

(assembled in India), and TM 65 (assembled in India and at TP), has
conducted in the United States.

been

A l l drawings and specifications defining the

product as a result of such RLD and engineering were prepared in the United
States.

A l l engineering prototypes were assembled

and tested in the United

States to insure that the design met the product objectives.

Huenemeier,

CX 722, at 12-13.

450.

The RLD and the production of engineering prototype units and

pilot production for the TM 1009, TM 1019, TM 65s, and TM 50s had been
completed by December 6, 1984.
451.
,

1978 and 1979.
452.

-

The development of the doublrsided TH 100 took place between

-

Huenemeier, TL. 443.
The development of the TM 848 double-sided disk drive took

place in the 1980 to 1981 time frame.
453.

.

Huenemeier, Tr. 498-99.

Huenemeier, Tr. 444.

After a product is in production, production problems are

occasionally confronted which require technical evaluation and solution.

This

evaluation is customarily performed by manufacturing engineers and i s referred
to as 'sustaining engineering.'

In addition, after a product i s in

productiont there are ongoing efforts to improve the manufacturing process
both in terms of enhancing the quality of the product and in trducing costs.

With re!spact.to-Tandon's floppy disk drives produced overseas, all or
:: '

virtually all-of such sustaining engineering has been and continues
performed by Tandon in the United States.

278

to

Huenemeier, CX 722, at 15-16.

be

According ' 0 complainant's economic exper?, RSD accivicies i n

154.

the flexible disk drive indusbry Cake place a+ a pace that is independent of

Current production, and they take place at a site that is removed from current
.production.

RLD activities tend to be of a non-recurring nature, where

production tends to
line.

Se

a highly repetitive flow process down an assembly

Haldi, Tr. 1272.
454A. Tandon's engineering activities regarding heads and head

.

assemblies during the first fiscal quarter of 1985 included the development of
head assemblies for the TM 65-8, the TM 300, and the TM 75.
455.

Primarily as a result of Tandon's restructuring of its

manufacturing operations to emphasize offshore production of mature product.
lines, Tandon's employment in the United States during fiscal p a r 1984
decreased to 1,605 as of December I , from a level of 3 , 3 0 0 a year earlier.

.

Employment in Singapore inCLeaSed from 2,500 to 2,997 over the same period.
CX

666, at 18.
456.

Tandon contracts with various companies in India for the

assembly or purchase of component used by Tandon in its final products and for
the purchase of complete half-height 48 TPI 5-1/4 inch flexible disk drives.
CX 666, at 11.

457.

The Indian companies include Tandon Xagnetics (India) Pvt.,

Ltd. (TMI), which assembles recording heads and certain labor-intensive disk

-.

dr ive sub-asse'mbiiss; Tandon Xotors Pvt.

, Ltd.

(TMM-)

, which

manufactures

_...-..~ .- a .%
precision stcppek' motors used in Tandon's flexible and rigid disk dzives;

Barnala Electronics (Barnala), which manufactures harness assemblies for use
in Tandon's disk drives; Tancom Electronics (Tancom)', which manufac*ureS r i g i d

279

disk drive recording heads; and Eastern Peripherals Pvt.., Ltd. (Eastern
Peripherals), which xanufacCJres completed half-height 48 TPI 5-1/1 inch
flexible disk drives.

CX 666, at 11.

457A. It was only after + h e initial production problems were

identified and design changes nade in response thereto that Tandon arranged
for the assembly of TM 100, TM 65, and T!4 50 overseas.

In connection wi*h

such ovetseas assembly, Tandon has provided to t h e overseas operations the
drawings, specifications, manufacturing assembly instructions, hest equipment,
test procedures and related documentation from which the drives could be
assembled and tested. Huenemeier, CX 722, at 13-15.
TMI provides contract assembly services to Tandon pursuant tp

458.

an agreement under which Tandon provides T X I with the raw materials and
know-how required for tSe assembly of recording heads and disk drive
subassemblies, and TMI uses i t s best efforhs to perform all assembly operation
requested by Tandon.

This agreemen+ will continue to December 1, 1985, at

which tine i+ may be extended by mutual agreement or terminated by either
party.

CX 666,

459.

at 11-12.
Finished products and components are purchased directly by

Tandon from Thy, Barnala, Tancom, and Eastern Peripherals pursuant to standard
purchase orders placed by Tandon, and there are no long-term purchase
commitments from Tandon to any of the Indian companies.
460..
-

CX 666,

at 12.

The contract assembly and purchase transactions Setween Tandon
.

and the Indian companies are cwrdinahed and effected through Tandon
Associates, Inc.,

which acts on *half

of the various Indian companies and

290

directly invoices Tandon at priccs reflecting a !IIatk-Up for the services of
Tandon Associates for the products and serviccs of the Indian companies.
Cx 666, at 12.
461.

C

c

The Indian companies manufacture approximately

TM 50s a month, of which about

to

are offered for sale in the United

Prior to January 1985, all TM 50s shipped to the United States were

States.

inspected at Chatsworth.

In January 1985, the disk drives xere subjected to

standard 105(d) evaluation, which includes testing the first 100 drives
received in each shipment and then 80 of the next 1,030 drives selected
randomly.

If 10 percent of this selected groap fails the testing, then the

entire shipment is p l l e d for re-examination.
462.
I .

Hucnemeier, CX 722, at 9-10.

The 105(d) evaluation of Indian-assembled disk drives at

Chatsworth was made in conjunction with the successful implementation of
certain inspection criteria in Bombay as of January 1985.

Hueneneier, Tr. 490.

462A. For all head assemblies assembled in Chatsworth

or at one of

Tandon's offshore assembly plants, the Chatsworth facility has provided the
following quality services:

Quality engineers support the procurement cycle

by assisting in vendor surveys.

Chatsworth quality engineers are also

responsible for developing detailed receiving inspection and in-process
inspection pzocedurts.

Quality engineers working with engineering

representatives approve the disposition of all discrepant material and
coordinate and approve vendor corrective action programs.

Quality control

personnel working in receiving inspection perform inconing inspections on: 100
percent of the lots of material received as well as perform all first article
inspections.

As

of December 6 , 1 9 8 4 1 all these quality activities were

performed in Chatsworth.

Huenemeier, CX 835, at 13-14.

.

4628. During late 1984, sone of the TM 848 doublc-sided

assemblies were assembled overseas.

head

Nith respect to all such head assemblies

which have bean assembled offshore from January 1984 +o +he present, 100
percent inspection and testing is performed in Chatsworth.

Xith respect +o

any head assemblies assembled overseas which require rework, all such rework
is performed in Chatsworth by Tandon.

Tandon petformed each of these

activities in Chatsworth, California, as of December 6, 1984.

Huenemeier,

Cx 835, at 10-14.
463.

Quality control on Tandon's TM 65-4, TM 65-2, and TM SO is

performed by Eastern Peripherals in India, the sole place of manufacture.

. .

Huenemeier, Tr. 450-51.

463A. When Tandon's disk drives, including those assembled overseas,
are sold to customers, it is sometimes necessary to consult with the customer

to answer technical questions about the product and its interface with the
system in which it is installed.

This consulting with Tandon's customer base

is handled by technical personnel in the United States for United States
customers who purchased Tandon's disk drives, including those assembled
overseas.

Huenemeier, CX 722, at 17.
464.

Eastern Peripherals has produced half-height flexible disk

drives of the single- and double-sided variety in the quantities of 60,000
80,000 per month.

to

Huanemaier, Tr. 784.

464A. With respect to each of Tandon's disk drive models assembled
overseas, Tandon conducts reliability testing in Chatsworth.

This reliability

testing is performed on samples for all of the disk drives manufactured by
Tandon and includes testing for burn-in, long-+erm re'liability, as well as
.--

232

shake, vibration, and drive tests.

These

tc.sts ara parforned not c n l y cn a

routine basis with respect to Tandon's existing designs, but are also
garformad with respect to disk drives containing recent design changcs to
ensure that those design changes have not inadvertently caused long-term
reliability problems.
464B.

All

Huenamaicr, CX 722, at 17.

customer liaison and application engineering 'support with

respect to the use of Tandon's drives in their systems is provided to
customer by the quality assurance group at Tandon in Chatsworth.

cx

Singapore Ltd.

Tandon's wholly-owned subsidiary in Singapore is Tandon
This subsidiary manufactures the TM 100, the

certain Winchester disk drives.
466.

c

Huenrmcier,

722, at 17.
465.

-

the

??I

101, and,

Huenemeier, CX 722, at 6.

Doubla-sided TM 100s are assembled only in Singapore.

Huenemeier, T r . 449.
467.

Tandon Singapore Ltd. currently produces about

a month, of which

units are shipped to Chatsworth.

TM 100s

Huenemeier, CX 722,

at 10.
467A. The capacity of the Tandon Singapore facility for manufacturing
double-sided floppy disk drives is in the neighborhood of 200,000 drives per
month or 10,000 drives per day.
468.

Abraham, Tt. 1137.

All of thc TM 100s that are shipped to Chatsworth from

Singapore arc subjected to quality control at Singapore, and then subjected to
105(d) sample testing at Chatsworth.
169.

Huenemcicr, Tr. 473.

As of April 1 9 8 5 , 149,000 of t h e 150,000 TM 100s produced in

Singapore are 3ouble-sided.

Huenemcicr, Tr. 490.

28 3

470.

.4s O f A p r i l 1985,

approxinatcly 1 2 9 , 0 0 0 of the 1 5 0 , 0 0 0

TY 100s

produced in S i n g a F r e arc quality-tested in Singa?ore and then drop-shi2pd
directly to I B Y in Singapore.
471.

Hucncmeier, Tr. 490-91.

A l l warranty repairs and service on the TIY 100 units drop

shipped to IBly in Singapore are currently performed in Singapore.

cx

Huenrmcier,

7 2 2 , at 1 8 .
471A. Servicing and repair of Tandon's disk drives, both warranty

repair and out-of-warranty repair, a r e performed at Chatsworth or elsewhere in
the United States by Tandon's subcontractors m d e r Tandon's control.

!Jith the

exception of TM 100 disk drives assembled in Singapore and drop shipped to
IBM, such service and repair has always been performed in the United States.

The service and repair for Tandon disk drives sold to IBM which arb
out-of-warranty has always been handled in Chatsworth or elsewhere in the
I

In December 1 9 8 4 , Tandon's Chatsworth facility had a

United States.
C

employees for service and repair.

full-service staff of approximately
Huenemeier, CX 7 2 2 , at 18.
472.

Tandon is currently working on a 5-1/4

C

double-sided flexible disk drive

C

order from

C

for

472A. The

, the

.

inch half-heiqht
Tandon has a purchase

Huanameier, Tr. 295-96.

units.

.

is currently in the evaluation stages

Edwards, Tr. 3 7 5 9 ; Edwards, CX 8 1 8 , at 4.
C
C

4728.

since that time.
development.

C

product development began in late 1984 and has continued

473.

There have bean

to

Tandon engineers involved with the~.

Hucnemcitr, Tr. 2 9 5 .

.

Tandon intends to manufacture the

devclopinent work has taken place in

the

'Jnitsd States.

The

Huencmcier, Tr. 2 9 7 .

.

.

The

474.

C

Edwards, Tr. 3759; Edwards, CX 818, a t 4.
4 7 4 A . Tandon purchased over $

C

from United Statas suppli+rs

relating t o i t s floppy disk drive p a r t s requirements since January 1981.
Block, CX 819 a t 2.
4748. Tandon purchased $

C
C

o f f l e x i b l e d i s k drive materials

from United S t a t e s suppliers d u r i n g Tandon's f i s c a l year 1984 and $
from United S t a t e s suppliers during the f i r s t three quarters of f i s c a l years

1985.

Block, CX 819, a t 5, 7.
474C. T h e c o s t s of f l e x i b l e drive components Tandon purchased from

United S t a t e s suppliers show t h a t purchases over the past seven q u a r t e r s , s i n c e
January 1 , 1984, have Sean as follows:
Time Period
C

~

Q

I2Qt

Amount

3Q FY 1984

$

n

.-

44 FY 1984

$

C

1Qt 241 3Q FY 1985

b

C

FY 1984 and
10, 2Q 3Q FY 1985

b

Block, CX 819, a t 7 , Ex. E.
474D. Tandon has purchased other components for heads and head

assemblids from United S t a t e s ' vendors.

S u c h components consist of f i v e

conductor black c a b l e , f l e x c a b l e s , back bars, back bar c l i p s , gimbal
flexures, round shields, insulation pads, p l a s t i c i n s e r t p i n s , rectangle
s h i e l d s , arms, f l e x arms, s l e w i n g , connectors, terminal p i n s , button
housings, epoxy, p l a s t i c carriages, compression springs, spring housings,

285

erase cords, R/'W c o r e s , f e r r i t e J bars, outriggers, and i,nsulating shims, from

c

the following su2ppliers:

C
C
C

C

.

C

835, a t 17-18.

CX

c

Huenemeier,

Tandon's purchases of components for head assemblies from

the foregoing United S t a t e s suppliers has totaled over 8
January 1984 through J u l y 1 2 , 1 9 8 5 .

Tandon

D.

762; Huenemeier, C X 8 3 5 , a t 18.

-- Microtek

475.

1

CX

from

Tandon is currently developing a family OE 3-112 i n c h

double-sided d i s k floppy drives i n San Jose, C a l i f o r n i a , a t i t s Microtak
subsidiary.

-

Huanemcier, Tr. 287-88; See C x 666, a t 7.

The 1.0 megabyte

floppy b e i n g developed a t Mictorek includes f i v e d i f f e r e n t models, the TX 304,
TM 3 0 5 , TM 3 0 6 , TM 307 and TM 3 0 8 .
475A. Xicrotek i s currently working on development of a

.

C

c

and

part-time engineers working on t h i s project.
475B. There have Seen approximately

C

c

e f f o r t s and close t o

$

micro-floppy a t Microtak.

Microtak has two f h l l - t i m e
D a l z i e l , T t . 4297.

man-y+?ars o f engineering

expended on dcvclopment of the
Dalziel, Tr. 4298-99.

286

.

.

.

...............

.

.

.

.

.

.

.

.

...

.._..

. __

.

.

476.

Tandon has completed its engineering pototype activities on

the TY 306 and preproduction involving 50-100 units of TX 304s and TX 306s h a s
started at Microtek for the purpose of providing samples to Tandon's marketing
organization.

Huenemeier, Tr. 289.

476A. Tandon's double-sided engineering expenses incurred by its

Yicrotek subsidiary was $ 8 7 5 , 3 0 0 in fiscal years 1984 and 1 9 8 5 .

Hucnemcier,

Tr. 3608-09.
C

c

477.

Tandon's Microtek subsidiary occupies

square feet of

?ersons with respect to the design

nanufacturing space and employs about

and development of the TM 300 series of 3-112 inch double-sided disk drives.
:.licrotek has acquired tooling for the nanufactura of these drives and intends

to commence production in San

Jose,

California, as soon as an order of

commercial production has been received.
C

477A. Hicrotek is starting

adjacent to its present facility.
478.

Huenemsier, CX 722, at 26.

to occupy an additional

square feet

Dalziel, Tr. 4290-91.

Microtek has acquired tooling for the purpose of commercial

production of the TY 304 and

TH

306.

The cost of this tooling was $400,000.

Production tooling comprises the various molds and jigs that arc? used to
fabricate the piece parts that are used in the assembly of the flexible disk
drive.

Huenemaisr, Tr. 289-90.
479.

Tooling purchased by Xicrotek for the 3-112 inch double-sided

floppy disk drive would be located at vendors who would-supply various parts
for which they are tooled, including the chassis and other parts.
Tr.

1212-13.

287

iialdi,

480.
C

For rascarch and development regarding the TM 300 B c r i c s ,

Tandon has spent anysrnare from

C

to

$

to

employees, primarily engineers.
481.

customers.

, and

$

has amploy5d f r o 3

Hueneneier, T r . 294.'

Microtek has sold evaluation units of its TM 304 and TI4 306 t o

Abraham, T r . 1019.

482.

In order for !licrotek to commence production o f 3-112 inch dist

drives in commercial quantities, parts would have to be ordered into
production from Xicrotek's vendors, workers would have to
fo

commence assembly of the parts into

9

482A.

hired and trained

disk drive, and quality contr3l

inspection and testing procedures would have to be s e t up.
take 90 to 120 days.

bi?

This

?KOCFSS would

Haldi, T r . 1275-76; Hucnemeicr, Tr. 3679.

There is no assembly line in place at the present tine

Nicrotek capablc of producing the TM 300 series.

st

Hucnemcier, Tr. 3678.

I

483.

It would take 90 to 120 days to achieve voluines in the 10,000

unit per month range for TM 300 sCries drives at Microtek.

Hucnemeicr,

Tr. 291; Haldi, Tr. 1196.
484.

Production at Aicrotek at the 10,000 unit per month level would

employ 100 to 250 workers, with about 50 percent being direct production
personnel and the remaining being engineering and support personnel.
Huenemeier, Tr. 292-93.
485,

According to Y r . Hurnemeicr, the Microtek facility has the.

capacity to produce 20,000 to 30,300 3-112 inch flexible disk drives per
month.

Hucncmeicr, Tr. 292.
486.

Currently, Hicrotek has no production orders for 3-112 f l o p p y

disk drives, and has no plans to produce these drives for inventory pur?oses.
!iuenencizr, Tr. 752; Huenemeicr, CX 835, at 9 .

2 38

487.

Orders are being s o l i c i t e d by Xicrotzk for double-sided 3-1/2

inch disk drives.

Huenemeier, Tr. 753.

487A. Since May 3 0 , 1 9 8 5 , Tandon has forwarded 3-112

evaluation drives nanufactured i n San
C

Jose,

C a l i f o r n i a , a t i t s Yicrotek

. subsidiary t o

, where

evaluation i s ongoing.
488.

i n c h double-sided

Edwards, CX 8 1 8 , a t 3.

I f production orders are reccivts,d a t Microtek for the 3-112

i n c h d i s k d r i v e , i n i t i a l production would be a t Microtek.

Hucnemeier, Tr. 753.

488A. Tandon has now completed development of the one megabyte
3-112

i n c h micro-floppy d i s k drive, b u i l t engineering evaluation models o f

t h i s d r i v e , and proceeded into preproduction.

Tandon has f u l l y tooled the

product and had produced preproduction models that i t has evaluated and t h a t
it is having customers evaluate.

D a l t i e l , T r . 4290.

4888. Tandon has

C

.

C

!4RX 5 9 , a t 12.

488C. Tandon has produced approximately 1 0 0 drives during i t s

preproduction TM 300 run.

Hucnemeier, Tr. 3 6 3 0 ; CX 845.

488D. Tandon has delivered evaluation u n i t s o f t h e T!4 3 0 0 s e r i e s t o

various customers for evaluation.

Huencmeier, CX 8 3 5 , a t 8 .

488E. Xicrotek s t i l l has its tooling for the nanufacturc of these

drives i n production quantities and s t i l l intends to commence production of
the same i n San J o s e , California, as soon as an order for commercial
production has bean received.
489.

Huenerneier, CX 8 3 5 , a t 8-9.

~.

Based on i n i t i a l expectations of large-volume orders, Hictotek

had p l a n s t o move production of t h e T:? 3 0 6 offshore i n l a t e 1984.

Tr. 754.

.

Huenemeier,

Tandon has no plans a t present t o assemble the T?4 300 s e r i e s

289

products offshore, and any future decision whether to do.so will depend +on
the relative costs and efficiencies of assembling domestically or offshore.
Huenemeier, CX 835, at 9.
490.

Microtek may determine to move manufacture of ita 3-1/2 inch

disk drive offshore if demand conditions warrant such a move.

Haldi,

Tr. 1246-47.

sells to the OEM narket.
492.

Huanemeier, Tr. 433, 756.

The TM 35 (another 3-1/2 inch drive that Tandon had been

developing) never went into production because the TM 35 program vas scrapped
in favor of a program that would meet the specifications of IBM.
was designed to meet IBM requirements.

E.

The TM.308

Huenemrier, Tr. 457-58.

Texas Peripherals
493- Effective January I, 1984, Tandon entered into a joint venture

agreement with Tandy Corporation for the joint ownership and operation of
Texas Peripherals (TP), a Fort Worth, Texas manufacturer of full-height,

5-1/4 inch flexible disk drives.
494.

CX 666, at 14; CX 619.

Tandon and Tandy each own equal interests in TP, and revenues

and profits are divided equally between Tandon and Tandy.

In fiscal year

19841 Tandon was allocated $808,416 in profit from the TP ventqre.

CX

666, a+

14
495.

The joint venture agreement provides that TP will s e l l its

.

products exclusively to Tandy and Tandon unless otherwise agreed to by Tandy
and Tandon.

During fiscal year 1904, substantially all production of TP was

purchased by Tandy.

CX

666, at 14.

290

496.
the

The initial cost to Tandon for joining the joint ventur+ was

contribution of Tandon's half-height flexible disk technology, as well a s

a paynent

of approximately $1.9 million.
497.

TP facilities consisted of approximately 8 7 , 0 0 0 square f e e t of
CX 6 6 6 ,

manufacturing and commercial space.
498.

In

499.

at 1 4 .

April 1 9 8 5 , approximately 350 to 360 persons were employcd

Hochman, Tt. 1 6 4 8 ;

by TP.

Huenemeier, T r . 3 0 2 .

CX 6 6 6 ,

at 14..

The current representatives of the TP joint venture committee

are Herschel Hochman, the general nanager of TP; Dr. Patterson, a vice
president of Tandy; Jim Mortenson, a vice president of Tandy; Steven
Huenemeier, Tandon; and Dennis Trafecanty, a vice president of Tandon.

,

Huanemeier, Tr. 299.
500.

,

During 1982 and 1 9 8 3 , TP manufactured a full-height f-1/4

inch

single-sided drive called the TM 100-1, as well as an 8 inch Elexible disk
product.

Huanemeier, T r . 300.
501.

Tandy had received a license from Tandon to produce a

single-sided TM 100, and that license was used for TM 100-1 production at TP
during 1982-1983.
502.

Huenemeier, Tr. 300.

From 1982 to 1 9 8 3 , approximately 2 0 , 0 0 0 to 2 5 , 0 0 0 sinqle-sided

TM 100s per month were nanufactured by TP for sale to Tandy.

Huencmeior,

Tr. 301.
502A. TP's capacity to produce doublc-sided floppy disk drives was

per month on a doublc shift.
503.

Hochnan, Tr. 1 6 2 8 .

Since December 1 9 8 4 , TP has Seen assembling singb-sid~d

TX lOOs, and singls- and double-sided TY 6 5 s .

291

Hochman, Tr. 1 6 3 2 .

From J a n u a r y to December 1984, TP produced

504.
TM 100s.

Huenemeier,

722, a t 8.

cx

I n l a t e 1984, TP commenced p r o d u c t i o n o f 5-1/4 i n c h h a l f - h e i g h t

505.
double-sided

f l o p p y d i s k d r i v e s r e f e r r e d t o a s the TII 6 5 .

approximately

Huenemeier , Tr

d o u b l e - s i d e d TM 65s.

.

Huenemeier, Cx 722, a t 8 ;

1614.

.

were
approximately $

is unknown.

The cost of t h e

was

Some TM 65-2 d r i v e s were m a n u f a c t u r e d

per u n i t .

t h e p e r c e n t a g e o f d r i v e s produced from

, but

I

TP a s s e m b l e d

.Most o f t h e TM 65-2 d o u b l e - s i d e d d i s k d r i v e s produced by TP

506.

506A.

sinqle-sided

Hochman, T r . 1613-14.

T e x a s P e r i p h e r a l s p r o c u r e d a l l o f i t s d o u b l e - s i d e d head

assemblies used i n t h e TM 65-2 from Tandon, which i n turn p r o c u r e s them from
TW.

HUenemeier T r . 474-75; Hochman, T r . 1633.

507.

Tandon p u r c h a s e d

from TP for evaluation.
508.

s i n g l e - s i d e d and

d o u b l e - s i d e d TM 659

Huenemeier, T r . 779; Huenemeier, cx 722, a t 8.

TP r e c e i v e d a p u r c h a s e o r d e r

from Tandy Home Computer d a t e d

October 9 , 1 9 8 4 , for 6,000 TM 65-2 d o u b l e - s i d e d f l o p p y d i s k d r i v e s .

These

d i s k d r i v e s were t o b e d e l i v e r e d over a t h r e e month p e r i o d commencing i n

October or November o f 1984.
509.

Cx

707: Huenemeier, T r . 361-62;

TO d a t e , TP h a s s h i p p e d

450 d o u b l e - s i d e d d i s k d r i v e s to Tandy.

Huenemeier, CX 722, a t 8.
5 0 9 ~ . After t h e announcement of t h e I n i t i a l Determination w i t h r e s p e c t
t o Tandon's motion for temporary r e l i e f , Tandon and Tandy d i s c u s s e d t h e future

of TP.

The immediate reauirements of b o t h Tandy and Tandon for t h e TX 65-2

29 2

.

double-sided drive were explored.

Tandy a d v i s e d Tandon t h a t i t s s u r c h a s ~

order commitments t o other vendors were more + h a n adeqaate t o s u p p l y a l l of
i t s needs for t h i s t y p e o f product through November 1 9 8 5 .
Tandon has not yet been able t o aenetrate the 5-1/4

S i m i l a r l y , since

i n c h half-height

double-sided d i s k drive marketplace, Tandon i t s e l f had no immediate need for

t h i s product from TP.

Huenemeier, CX 8 3 5 , at 1 8 .

509B. I n order t o preserve t o the f u l l e s t extent possible the

production c a p a c i t y of T P , Tandon proposed t h a t Tandy and Tandon each p r o c u r ~
5 , 0 0 0 drives per month from TP for the months o f J u l y ,

of 1985.

A u g u s t , and September

Huenemeier, C X 8 3 5 , a t 1 9 ; CX 7 6 0 .
509C. S h o r t l y a f t e r presenting t h i s proposal, Tandon was notifiqd by

Tandy t h a t , because i t had no need for 5-1/4

i n c h half-height double-sided

d i s k d r i v e s before December 1 9 8 5 , it was u n w i l l i n g to order 5 , 0 0 0 u n i t s par

month from TP for the months of J u l y , A u g u s t , and September 1985.

Huenmeier,

5090. Tandon authorized a u n i l a t e r a l commitment to purchase TM 65-2
drives from TP for these three months s t a r t i n g a t approximately 2 , 0 0 0 units
per month.

T h i s proposal was submitted t o TP and Tandy by letter dated

June 2 8 , 1 9 8 5 .
509E.

Huenemeier, CX 835,

a t 1 9 ; C X 758.

Qn J u l y 1 0 , 1 9 8 5 , the TP j o i n t venture committee met t o discuss
Mr. Hochman presented a projected p r o f i t and loss p l a n

the future of TP.
based upon Tandon's

offer t o procurt= 2 , 0 0 0 u n i t s per m o n t h from TP.. A s s u n i n g

t h a t Tandon purchased s u c h drives a t $90 per u n i t and provided TP wi'h-

Tandon's refurbishing business, i t was estimated t h a t TP would suffer lossps
of $101,1100 i n the months of A u g U S t , September, and October 1 9 8 5 .
CX 8 3 5 , a t 19-20;

cx

--

759.

293

Huenemeier,

509F. :Jhile Tandon and Tandy both agredd that

it

,was desirable

preserve the ability of TP to nanufacture TY 65-2s if either Tandon of Tandy
should have a need for such product in the future as a result of

?he

Commission proceeding, Tandy did not agree +hat it was necessary to keep TP's
manufacturing facility in operation for that purpose.

Moreover, Tandy was

desirous of using the TP Fort Worth facility for other purposes.

Tandy was

only willing to agree to the continued operation of TP if Tandon absorbed all
of the losses in excess of the costs of storing TP's production equipment,
estimated to be $18,000 per month.

Tandy believed that reactivating

production with stored equipment would not take any longer than camping up
from limited production in the interim and that TP should therefore ceasq
production pending further developments.

-

Huenemeier, CX 8 3 5 , at 20.

509G. After the July 10, 1985, meeting, Tandon's management reviewed

,

the continued operation of TP.

Since Tandy was unwilling to absorb any

operating losses in excess of $18,000 per month, even if Tandon purchased
TM 65s from TP at a price of $90 per unit--a price at which Tandon would
suffer additional losses-Tandon

losses unilaterally.

decided that it was unwilling to absorb such

Tandon concluded that it had no choice but to acquiesce

in Tandy's proposal that TP's production equipment be stored pending the
ruling of the Commission after the hearing on permanent relief.
Cx

Huenemeier,

835, at 21; CX 761.
,

.

50911, TP, as of April 1965, has not produced production quantities of
..t

3

:

- an
'd.

the TM 65-2,'i.e.e
drive.

order of 15,000 drives a month of any one type of

Hochman, Tr. 1628.
..-

294

5091. TP has not produced any commercial qilantitirs of double-sid+d
5-1/4 inch disk drives since April 1985.

F.

HumP!wiPK, Tr. 3630.

Control Data Corporation/Xagnrtic Periph+rals
510.

Control Data Corporation ( E X ) is a nsjority (67%) owner of

Xagnetic Peripherals, Inc. (MPI). The other owners of MPI are Honeywell,
Sperry, and Bull.

Flexible disk drives are produced by the subsidiary, XPI.

OUSley, Tr. 629, 691.
511.
aarket.

MPI manufactures disk drives solely for CDC for sale to the OEY

Ousley, Tr. 631.
512.

CDC has a license from Tandon with respect to Tandon's patent

on double-sided disk drives.
513.

Ousley, Tr. 632; CX 620.

CDC becane a Tandon licensee on September 30, 1984.

Ousley,

Tr. 702; CX 620.
513A. The $1.0 million license fee that CDC paid to Tandon with
respect to the '573 patent license was based in part upon the amount of CDC's
past sales for double-sided floppy disk drives, including sales of :40del
Nos. 9409, 9409-TI 9428, and 9429.

514.

Ousley, Tr. 3338.

Approximately 90 percent of the 5-114 inch full height disk

drive production in 1983 and 1984 was double-sided.

Virtually all of the

5-114 inch half-height product was double-sided in 1984.

515.
C

The 8 inch double-sided floppy disk drive product line

accounted for aboat

516.

Quslay, Tr. 549-50.

percent of CDC/NPI orders in 1984.

Ousley, _Tr. 649.

In 1983, ZDC/MPI had approxinately 20 percent of the

full-height disk drive narket and a ainimal share of'tha half-height market.
Ouslsy, Tr. 633.

295

517.

5-114

In 1983, CDC/?lPI had approximately 1 0 percent of the total

intn narket, with approximately 2 0 percent of the full-height and 1 0

percent of the half-height markets.
517A. In 1 9 8 3 , CDC sold $

C

c

Ouslay, Tr. 6 3 3 , 703.

,

Ousley, Tr. 645-46.
518,

The estimated maximuin production capacity at CDC in Oklahoma is
Ousley, T r . 669.

5 5 0 , 0 0 0 drives.

519.

market.

Currently, CDC/MPI has about two percent of the half-height

In the full-height narket, CDC/I.IPI's market share may have increased

from 20 percent because the total market has declined,
share was available.
520.

I

In

worth of Eloppy disk drives as of December of that

1984, it sold 6
year.

worth of floppy disk drives.

but no actual market

Ouslsy, T r . 633-34.

The 5-114 inch double-sided full-height and half-height floppy

disk drives manufactured by CX/.LIPI were originally designed in Oklahona
City.

OuSley, Tr. 634-35.
520A. In 1 9 8 3 and 1984, CDC's full-height 5-114

manufactured in Oklahona City.

inch disk drives were

In 1 9 8 3 , CDC's half-height 5-1/4

inch disk

drives were also manufactured in Oklahoma City, but commencing in the fourth
quarter of 1 9 8 4 , CDC started to move its assembly of half-height 5-114 inch
disk drives offshore.

Ouslay, T r . 631-32.

A s of April 10, 1 9 8 5 ,

approxiaately 1 0 percent of CDC's total production of half-height disk drives
were being produced in Oklahoma City, with the rest being produced overseas.

Ousley, T r . 632.
521.

In 1 9 8 3 , CDChIPI emplojed approximately 350 persons in Oklahoma

City in the nanufacturc of floppy disk drives.

In 1 9 8 4 , the number of

amployc+s in the floapy disk drive. business was between 650 and 675.

296

.

In April

1 9 8 5 , CDC/MPI employed approxinately 100 to 1 5 0 persons

in the floppy disk

drive business in the United States, of which 2 5 were involved in resParch and
Ousley, Tr. 641-43.

development.

521A. On A p r i l 1 5 , 1 9 8 5 , CDC laid off approximately

C

employees at

its Oklahoma City floppy disk drive facility, leaving 7 5 emplsyecs primarily
engaged in continuation and support engineering with respect to the overseas
assembly of drives and CDC's customers, Ousley, CX 8 2 0 , at 2-3.
522.

CDC/MPI currently sells 5-1/4

drives (No. 9 4 0 9 ) and 5-1/4
9429).

inch full-height floppy disk

inch half-height floppy disk drives (Nos. 9428 and

OUSley, Tr. 6 2 9 ; CX 728.
523.

In 1 9 8 3 , CDC/MPI ' s Oklahoma City facilities covered

approximately 100,003 square feet, which was devoted to aanufacturing.
OuSley, Tr. 642.
524.

CDC/MPI's decision to move some of its facilities offshore

occurred in late September 1 9 8 4 .

Implementation of this decision occurred in

October 1 9 8 4 , when 450 employees were terminated.
525.

c

The decision to move offshore was based on an mstable aarket

situation in the last half of 1 9 8 4 , when CDC/MPI

.

C

c

$

c

compared to

C

Ousley, Tr. 691-92.

to

$

CDCIMPI believed that it could produce approximately

cheaper offshore on a per unit basis
$

526.

($

in the United States

offshore). Ousley, TK. 666-67.
CDC/!4PI continues to assemble and test abQUt

of its drives in Oklahoma City.

to

percent

This volume will not likely move offshoie

because it is nade up of drives that have special requirements.

Ousley,

Tr. 6 6 8 , 3384-86.

297

.

In April 1 9 8 5 1 CDC/MPI had capacity in Oklahoma City to produce

527.
C

half-height drives per month.

to

C

months to reach production at that level.

C

annually
units.

per month).

(

Overseas capacity is

CDC/NPI inventories

'

units

as of April 1985 were

Ouslay, Tr. 666-70.

C

employees:

C

non-degree employees;

management employees;

operation employees.

professional engineers;

clerical employees;

craftsmen; and

technical
line

Ousley, CX 820, at 5-6.

527B. On January I , 1984, CDC's floppy disk drive division had

C
C

employees:

C

non-degree employees;

management employees;

operation employees.
527C
C

to

527A. On January 1, 1983, CDC's floppy disk drive division had

C

,

It would require

professional engineers;

clerical employees;

craftsmen; and

line

Ousley, CX 820, at 6.

. At the end of 1984, the total number of

employees was about

technic?l

.

CDC's

flop?y disk drive

Ousley,'CX 820, at 6.

5270. CDC

C
C
C

Ousley, CX 820, at 3.

C

527E. CDC has

C
C

.

C
528.

Ousley, CX 820, at 3.

CDCIMPI contracts with foreign suppliers

for its offshore disk

drive requirements and is currently purchasing from its foreign supplier at
$

or

$

get month.

Ousley, Tt. 668-71.

298

528A. As o f A p r i l 1 9 8 5 , C 3 C had research and development f a c i l i t i e s i n

Oklahoma C i t y , Oklahona, as well as M i n n e a p o l i s , Minnesota.

-

528B. I n 1 9 8 4 , CDC expend&

approximately $

O u s l ~ y ,T r .

634.

m i l l i o n for r+sltarch

and development for f l o p p y d i s k d r i v e s , i n c l u d i n g research and development for

i t s 5-114 i n c h 1 . 6 inegabyte d r i v e and i t s 3 - 1 / 2

i n c h drivrs.

All

such

r e s e a r c h and development took p l a c e i n t h e U n i t e d S t a t e s and v i r t u a l l y a l l

s u c h expenses r e l a t e to double-sided d r i v e s .

529.

O u s l c y , CX 8 2 0 , a t 4 .

Drawings, s p e c i f i c a t i o n s , n a n u f a c t u r i n g a s s e m b l y i n s t r u c t i o n s ,

and t e c h n i c a l s u p p o r t for d i s k d r i v e s m a n u f a c t u r e d overseas for CDC/?lPI come

from CDC/MPI i n Oklahona C i t y .

Ousley, Tr.

636-37;

Ousley,

cx

820, a t 7.

529A. The e n g i n e e r i n g p o t o t y p e s and cvaluation u n i t s for t h e
5-114

i n c h double-sided

f u l l - h e i g h t and h a l f - h e i g h t

floppy disk drives

m a n u f a c t u r e d by INPI were d e v e l o p e d and t e s t e d i n the U n i t e d S t a t e s .
Tr.

Ousley,

634-35.

5298. The p r e p r o d u c t i o n u n i t s and i n i t i a l p r o d u c t i o n u n i t s of t h e MPI
f u l l - h e i g h t and h a l f - h e i g h t
t e s t e d i n t h e United S t a t e s .

5-1/4

i n c h f l o p p y d i s k d r i v e s were a s s e m b l e d and

Ouslay, Tr.

635,

529C. A s o f A p r i l 1 9 8 5 , a l l m a n u f a c t u r i n g e n g i n e e r i n g and s u s t a i n i n g

e n g i n e e r i n g for a l l 5-1/4

i n c h doublc-sided

d i s k d r i v e a r o d u c t s marketed by

CDC was performed i n Oklahoma C i t y , Oklahona.

529D.

As

Ousley, Tr.

635.

of A p r i l 1 9 8 5 , e n g i n e e r i n g f i e l d c h a n g e and d e s i g n c h a n g e s t o

solve p r o d u c t i o n problems for a l l 5-114

i n c h floppy d i s k d r i v e products

c u r r e n t l y o f f e r e d by CDC was performed i n Oklahoma C i t y , Oklahoma.
Tr.

635-36.

299

Ousley,

529E. A s of A p r i l 1985, technical support and supervision for all

overseas manufacture of

CDC

drives comes from Oklahona City, Oklahoma.

Ousley, T r . 636-37.
529F. In 1984 and continuing into 1985, C3C's Oklahoma City facility

c .
OUSleyr CX 8 2 0 , at 6.

C

529G. CDC's Oklahoma City's Eacility was responsible for the

evaluation and selection of vendors for the assembly materials, ?roviding
drawings and specifications generated by CDC in the United States to such
vendors for the materials, and insuring that the materials actually 2rovided
Ouslcy, CX 920, at 6-7.

and conformed to specifications.

C
,

529H. During 1984 and continuing into 1995, over
total material cost of CDC's 5-1/4

percent of

the

inch half-height floapy disk drives that

were assembled offshore was attributable t o materials produced from domr?stic
sources.

In addition, CDC conducted substantial domestic activities in

connection with the manufacture of its drives that were assembled offshore,
including research and development, design engineering, manufacturing and
support engineering, material procurement overhead, testing, 3nd overhead and
ganeral and administrative costs in connection with such activities.
Cx 820,
C

ousley,

at 7.
530.

Approximately

percent of the materials used to assemble

drives offshore are currently procured by CDC/?lPI in the United Statpas.
the exception of initial qualification of a vendo:,
takes place at the nanufacturing Site.

testing of incoming parts-

3uslzy, Tr. 637-40, 3371.

300

Vith

531.

The disk drives that are manufactured offshore are also tested

offshore, and quality control for drives produced offshore takes place in
Ousley, Tr

Oklahoma city through a sampling process.
532.
,

.

638-39

,

6$9-700.

The CDCIMPI activities in connection with identifying and

Selecting test equipment for quality control takes place in the United
States.

Ousley, Tr. 636.
532A. A s of April 1 9 8 5 , all 5-114

inch double-sided disk drives which

are currently being manufacturcd offshore for CDC are received in Oklahona
City and tested.

The drives are certified to meet the spxifications which

were negotiated with the vendor.

CDC tests the 5-114 inch drives manufacturPd

abroad to comply with UL requirements and CSA certification. Ousley,
T r . 638-41,

3379-80.

533.

I

CDC/MPI customer liaison, application and engineering support,

and service and repair ace based in the United States for disk drives produced
offshore and in the United States.
534.

Ousley, Tr. 638-39.

From the third quarter of 1984 up to the present, CDC's

double-sided head assemblies have been assembled offshore.
7.

CX 8 2 0 ,

at

Lafe, located in Korea, supplies a l l the head assemblies for CDC/?lPI's

double-sided disk drives.
C

Ousley,

535.

Ousley, Tr. 698.

In April 1 9 8 5 , CDC/tlPI had parts on hand to build

c

for 1 9 8 5 , but has firm orders for approximately

c

forecast for 1985 sales is about
536.

CDCIXPI

Units.

percent of this total.

inch, double-sidzd floppy

CDC/?IPI initially planned to produce this drive

in Oklahoma City, but shelved the product in the fourth quartrr of 1984
because of low market prices.

The

Ousley, Tr. 651-52.

attempted to develop a 3-112

disk drive, starting in 1983.

units

Dusley, Tr. 679-81, 7 0 0 .

301

537.

A r o u g h prototype

of the 3-112

i n c h d r i v e may have been shown

t o customers, b u t n o t h i n g was a c t u a l l y j i v c n t o a customer.
538.

worked from
C

T h e CDC/MPI

i n c h f l o p p y d i s k d r i v e was of a & s i g n

a t e c h n i c a l standpoint.

on the 3-1/2

C

Ousley, Tr.

682.

Ousley, Tr. 682.

C D C I M P I has explored 1 . 6 megabyte d r i v e s , w h i c h were i n the

p r o t o t y p e stage i n the fourth quarter of 1984.

.

pur sued because
541.

that

i n c h d i s k d r i v e , CDC/MPI would consider rcsuning

i n c h d i s k d r i v e project.
540.

C

729.

I f market conditions improved and CDC/MPI

539.

t h e 3-112

3-112

Ousley, T r .

T h i s product w i l l not be

Ousley, T r .

686.

Production of the 1.6 megabyte d r i v e would have been i n

Oklahoma C i t y and t h e n most l i k e l y moved t o t h e Far East for contract
production.

I

C

542.

O u s l e y , Tr. 687.
CDC1MPI has an inventory

d i s k d r i v e s and has a

of

C

commitment w i t h an offshore s u p p l i e r to purchase

C

does not purchase t h e

C

would go i n t o domestic production

u n i t s , it w i l l ' incur some penalty.

OUSley, Tr.

C

units.

I f CDC/!.lPI
CDC/MPI

709-10.

542A. I n A u g u s t 1 9 8 4 , IBM commenced the manufacture of 5-114

double-sided

floppy d i s k drives i n Boulder, Colorado.

IB!4 has c o n t i n u e d

manufacturing s u c h d i s k drives from t h a t t i n e u n t i l the present.
Fenstermakcr, CX 8 5 9 , a t 1.

302

inch

5 4 2 3 . T h o I3M drive (CPX 5 4 ) is covered by claias. 1, 5, and 12 of Che

'573 patent.

Coms+ock, Tr. 4145.

542C. The disk drives manufbctured by IBY were for use in' IBM's
personal computer and also in other IBM small computers and display products.
IEM

commenced such nanufacture for the purpose of supplying in substantial

part its own in'ernal
from outside vendors.

needs for such disk drives in lieu of purchasing then
Fenstermaker, CX 8 5 9 , at 1-2; Fenstermakor, T r . 3566.

542D. IBM initially decided to nanufacture double-sided floppy disk
drives commencing in August 1984 because it thought it would be a profitable

venture.

IBX had only planned to use the drives for internal production

purposes and never planned to sell the drives in the marketplace.
Fenstermaker
,

Tr

.

. .

3567-68.

542B. The double-sided head assemblies incorporated in the IBM drives
contained two heads, one fixed on the head carriage assembly and the other
mounted on a hinged arm which pivoted.

Fenstermaker, CX 859, at 2 .

542F. The IBM Boulder double-sided 5-1/4 inch floppy disk drive
manufacturing facility features fully automated subassembly and alignment
operations, manual final assembly operations, and semi-autonated final tests
and packaging.

Robots are used, including the IBM 7545 and internally

developed "pick and place" robots.

Fmstormaker, CX 859, at 3-4.

542G. IBM employs statistical process control techniques for quali'y
control and quality assurance activities.
100 percent.

Production-yields are targeted a+

Fenstermaker, CX 859, at 4 .

5428. During

the

period from August 1, 1984, throagh June 30, 1985,

IBM produced the following quantities of floppy disk 'drives:

303

P a r iod

3rd
4th
1st
2nd

2uanc i c y

2uarcer 1 9 8 4
Quarter 1984
Guarter 1985

7,150
932

Quarter 1985

5,552

Fenstermaker, CX 859, at 2.
1984

WOK-

4116a

T h o 7,150 drives produced in the t h i r d qaareer of

full-height 5-1/4 inch double-sided drives.

thereaftor were all half-height 5-1/3

1.2 megabytes formatted.

The dr ives produced

inch double-sided floppy disk drives of

-

Fensternaker, T r . 3554-55; CX 866; see Cx 868-69.

5421. The double-sided head assemblies used in the IBM disk drives
were assembled offshore.

The head assemblies were mad- in accordanco wi'h

drawings and specifications provided by IBM.

These hpad assemblies were

procured by IBM purchasing personnel in the United States using normal
procurement procedures.

--

'

Once selected, the vendor's product was qualified by

I

an onsite review of its process.
IBM employees.

Product tosting was performed by domestic

IBM has provided final test equipment for use by the vendor in

some instances.

Fensternaker, CX 859, at 2-3.

5425. IBM procures the printed circuit board, two motors, and a nurnber

of minor parts for us- in its head assemblies from offshoro suppliers.
Approximately 75 percent of tho material costs of the completed printed
circuit boards, the completed motors, and the completed head assembly is
procurod from offshore suppliers.

Fonstormaker, Tr. 3563-64.

Materials

COS?

comprises 80 percent of the total production cost of tho IBM disk drivo.

-

-a-

Fenstetmaker, Tr. 3565.
542K. IBM Boulder will continue to manufacture 5-1/4 inch double-sided
disk drives.unti1 current commitments are mec, at which
discontinue such manufacture.

'ime

IBM plans to

IBM plans to continue to purchase complo+D head

304

assemblies from a foreign source for these drives during such time.
Completibn o f the current commitments is expected around J u l y 1986.
Fensternaker, CX 859, a t 3.
542L. T h e reason IBM p l a n s t o cease the manufacture o f d i s k drives i s
that management has decided that internal nanufacture o f 5-114 inch disk
drives is not financially a t t r a c t i v e and that there are adequate supplies
available i n t h e marketplace.

IBM management has therefore decided t o

purchase such drives, other than the aforementioned commitments, from outside
sources rather than t o nake them internally.
Ftnstermaker, T r . 3577.
drives i n l a t e J u l y 1965.

Fensternaker, CX 359, a t 3;

IBM made the decision t o cease production of the d i s k

Fenstermaker, Tr. 3567.

542M. The decision t o discontinue production o f the I B H manufactured
d i s k drives was based upon considerations o f resource allocation rather than

c o s t effectiveness of t h e project.

Fcnstermaker, Tr. 3583, 3588.

542N. Once I B X had reached economies of s c a l e i n i t s production o f
d i s k drivts,’IBM planned t o produced half-height 1.2 megabyte 5-1/4 i n c h

double-sided floppy d i s k drives i n Boulder, Colorado, a t a projected average
C

cost of $

to $

for a volume exceeding

u n i t s a year.

The average

c o s t for production of the full-height drive i n Boulder was about $175.
Fenstermaker, T r . 3569-71, 3581-82, 3584-86.
542P. IBM planned t o achieve economics of s c a l e by u t i l i z i n g f u l l y
automated production l i v e techniques, i n c l u d i n g use o f robotics.

IBM

thought

that the use of these techniques reduced the c o s t of producing the drivekmore
than a labor intensive s t y l e operation.

305

Fsnstermaker, Tr. 3571-72.

If IBM reduced t h e number o f d i s k d r i v e s produced a t a c o s t p e r

5424.

to

for a volume e x c e e d i n g

C

u n i t of $

C

c o s t p e r u n i t would increase about

$

to

u n i t s a Year, t h e e s t i m a t e d
d o l l a r s for the f i r s t 1 0 0 , 0 0 0

r e d u c t i o n o f u n i t p r o d u c t i o n , t h e n accelerate for e a c h a d d i t i o n a l 1 0 0 , 0 0 0 u n i t
The increase i n cost p e r u n i t b a s e d on

reduction.

a reduction i n total u n i t

p r o d u c t i o n i s c a u s e d by t h e reuuirement to cover f i x e d costs.

Fenstermaker,

T r . 3583-85.
542R. When IBM e s t i m a t e d that it c o u l d manufacture a volume of

C
C

disk drives a t

a, cost o f

$

to

$

u n i t , it also i n v e s t i g a t e d t h e market

p r i c e for d i s k d r i v e s and concluded that it c o u l d make an a c c e p t a b l e p r o f i t a t
t h i s price.

F e n s t e r m a k e r , T r . 3586.

5428. I n December 1 9 8 4 , IBM employed about 1 0 i n d i v i d u a l s who were
d i r e c t l y i n v o l v e d i n t h e manufacture and a s s e m b l y of i t s 5-1/4

,

d o u b l e - s i d e d f l o p p y d i s k d r i v e s , i n c l u d i n q assemblers and
manager, and 3 7 employees i n d i r e c t l y i n v o l v e d .

inch

a manufacturing

Now t h e r e are 3 2 employees

d i r e c t l y i n v o l v e d i n t h e manufacturinq p r o c e s s and 37 employees i n d i r e c t l y
involved.

F e n s t e r m a k e r , Tr.

3 5 5 2 ; F e n s t e r m a k e r , Cx 859, a t 3 ;

542T. The head assemblies used i n IBM's 5-1/4
C

867.

inch full-height

d o u b l e - s i d e d f l o p p y d i s k d r i v e s are assembled i n HOng Kong
The head a s s e m b l i e s used i n IBM's 5-1/4

C

cx

i n c h h a l f - h e i q h t d o u b l e - s i d e d floppy

d i s k d r i v e are assembled i n Korea
Tr.

Fenstermaker,

3562-63.
542U. The p r i c e p a i d by IBM for t h e a s s e m b l y o f f u l l - h e i g h t 5-1/4

head a s s e m b l i e s i n Hang KOng i s $ 3 0 p l u s an a d d i t i o n a l $5 burden.
Fenstermaker , T r .

3559.

306

inch

.

5 5 2 V . The ?rice ?aid by I B Y for the assrmbly of half-h+-ight 5 - 1 1 4 i n c h

head assemblies in Korea is 5 2 5 plus an additional $5 burden.
Tr.

Pcnstwnaker,

3559-60.
542W. IB4I drew up specifications for the head assemblies and left it

C

and

to

to research and develop th? product.

Fenstarmaker, T r . 3562-63.
C

542X.

and

subject their hpad

assemblies to quality control befor0 shipping them to 13M.
Subj+ct

the

does not

iinported hPad assenolies to quality control, but rcceives them

directly into stock.

H.

IBX

Fensternaker, T r . 3561-62.

Substitution
543.

A l l floppy disk drives perform essentially the same storage and

retrieval functions for snall computers, which means that from both a
technical and broad economic perspective all floppy disk drives are potential
substitutes for one another.
544.

-

Haldi, CX 711, at 4 8 ; see CX 666, at 1 4 .

The economic concept of substitutes not only includes but goes

beyond technical and engineering possibilities of substitution. Not o n l y nust
it be technically possible% to substitute one product for another, but the
purchaser must also regard the products as substitutes for each other.

Haldi,

CX 711, at 4 8 .
545.

Competition for t h e principal floppy drive configurations has

come from ncIwer floppy drives offering more capacity, smaller site, or-lower
price.

CX 6 7 9 ,

at SUM-16.

307

t o be l i m i t e d t o d i s k d r i v e s h a v i n g t h e sane diameter.

-

see S o l l m a n , T r .

H a l d i , CX 711, a t 5 2 ;

211-12; Abraham, T K . 1087-89; o u s b y , T K . 718.

T h e f o l l o w i n g table shows U n i t e d S t a t e s sales o f d i s k d r i v e s by

547.

size from 1980 to 1983, and f o r e c a s t e d s h i p m e n t s for 1984 a n d 1985:
S h i p m e n t s o f F l o p p y D i s k Drives f o U n i t e d S t a t e s
Destinations by A l l Y a n u f a c t u r P r s , Domestic a n d F o r e i g n
( T h o u s a n d s of U n i t s )

1980
ADD FDD'S

1,258

1982
2,336

3,394

1983
8 ,169

1984 (E)

1995 (E)

11,662

15 ,138

&INCH
Sing le-S ide

464

221
685

Two S i d e s
I

Total

517
269
786

-

449

401
850

216

455
672

146

4 14
560

73

346
419

5-25 INCH
Single-Side

Two S i d e s

Total

MICRO-FLOPPIES

444
129
573

-

1,287
264
1,550

--

--

1,731
804
2,535

3,732
3,496
7,228

3,840
6 ,198
10 ,038

-

269

1,064

2,423

-

9

3,839
8,457
12,296

H a l d i , CX 711, at 27.

548.

I n 1976, t h e * s t a t e o f t h e a r t " was an 8 i n c h f l o p p y d i s k d r i v e

i n c o r p o r a t e d i n t h e Xang d e s k Cop c o m p u t e r s y s t e m .

549.

The f i r s t s h i p m e n t o f t h e 5-1/4 i n c h s i n g l e - s i d - d

o c c u r r e d i n August 1976.

550.
13M

S o l L n a n , Tr. 44.

At

disk drive

S o l l m a n , Tr. 53-54.

f i r s t , sales o f t h e 5-1/4 i n c h 3 i s k d r i v - wer- slow since -

was u s i n g 8 i n c h d i s k d r i v e s .

S o l l m a n , Tr.

308

53-54.

551.

1977-1978,

t h e 5-1/4

552.

States.

With t h e e x p l o s i o n of t h e personal computer nark@+ i n
i n c h d i s k d r i v e began *o s e l l .

S o l l m a n , Tr. 5 4 .

I n b o t h 1980 and 1981, s a l e s of 8 i n c h d o u b l e - s i d e d disk d r i v e s

CX 7 1 1 , a t 27.
553.

I n 1982, a Tandon customer a s k e d for a quote for both

5-1/4 i n c h and 8 i n c h d i s k d r i v e s , and similar r e q u e s t for quotes h a v e
subsequently occurred.

554.

Abraham, T r .

1126-27.

Tandon seeks customers for t h e TM 848, i n c l u d i n g cus+omers t h a t

p l a n t o g o out o f t h e 8 i n c h d r i v e computer b e c a u s e of S h u g a r t ' s e x i t from t h e

8 i n c h d i s k d r i v e market.

The 8 i n c h d r i v e b u s i n e s s is e s t i m a t e d a+ s e v g r a l

hundred thousand d r i v e s p r y e a r , a n d Tandon e x p e c t s to compete w i t h
X i t s u b i s h i and one or two o t h e r J a p a n e s e companies for t h a t b u s i n e s s .
Abraham, T r .

1127-30.

Although t h e r e i s no new b u s i n e s s for t h e 8 i n c h d r i v e , t h o r e are c o n t i n u i n g
o p p o r t u n i t i e s with e s t a b l i s h e d customers.

The markoting window for 8 i n c h

d i s k d r i v e s i s c l o s i n g due i n p a r t t o t h e increase i n demand for smaller d i s k
drives.

T h i s s h i f t i n consumer p r e f e r e n c e is a long term factor.

Abrahaa,

-

T r . 1068-69; see MRX 5 1 , a t B a t e s No. 530745.

556.

Dr. H a l d i d i d not i n c l u d e 8 i n c h d i s k d r i v e s i n h i s a n a l y s i s
_I

.

b e c a u s e h e believed t h a t o n l y 3-1/2 i n c h and 5-1/4 i n c h d i s k d r i v e s wore b e i n g
--.
. e..
i m p o r t e d , and because t h e 8 i n c h d i s k d r i v e i s g r a d u a l l y f a l l i n g . o u t of t h e
I

n a r k e t p l a c r a s an important factor.

H a l d i was aware o f no new computer

products t h a t are.incorporating t h e 8 inch d i s k drive.

309

H a l d i , Tr. 1232.

557.

T h e 3 i n c h d i s k d r i v e market has d e c l i n e d b e c a u s e o f t h o vealth

of software a v a i l a b l e for 5-1/4 i n c h and 3-1/2 i n c h d i s k d r i v e s , and
by IBM and Apple of 5-1/4 and 3-1/2 i n c h formats.

Haldi, Tr.

use'

1237-38.

OEMs i n i t i a l l y c o n s i d e r e d a l l sizes of d r i v e s wh-n d e s i g n i n g a

558.

For e x a m p l e , i n 1982, OEMs c o n s i d e r e d w h e t h e r +o use an 8 i n c h

new p r o d u c t .

d r i v e or a smaller d r i v e , b u t many s e t t l e d on a 5-1/4
A b r a h a a , Tr.

'he

inch disk drive.

. .

1098.

Tandon o f f e r s i t s f u l l r e g e r t o i r e of d i s k d r i v e s , i n c l u d i n g * h e

559.

8 i n c h d i s k d r i v e , t o customers d e s i g n i n g a new computer s y s t e m .

However,

Mr. Abrahaa c o u l d not remember t h e l a s t time a nrw computer s y s t e m used an
Few customers c u r r e n t l y ask for and c o n s i d e r t h e 8 i n c h d r i v ?

8 inch drive.

for a new computer system.

Abraham, Tr. 1130-32.

Only i n 1978 or 1979 d i d t h e smallor size of t h e d i s k d r i v e

560.

become a c r i t i c a l f a c t o r , and t h i s was due to IBM's

5-1/4 i n c h d i s k d r i v e at t h a t tima.

d r i v e s , t h e r e was a 5-1/4

"micro-floppy")

i n c h software s h o r t a g - .

inch disk

L a n g e r , Tr. 2442.

i n June 1981 at t h e NCC show.

It was produced by Sony.

114.
Disk/Trend Report r e p o r t e d t h e f i r s t U n i t e d S t a t e s shipment of

563.

disk d r i v e s i n 1982, when 9,030 u n i t s

269,000 u n i t s were s o l d , and D i s k / T r e n d ' s
units.

.

Mr. Sollman f i r s t saw a s i n g l e - s i d e d 3-112 i n c h d i s k d r i v e ( t h o

562.

micro-floppy

S o l l m a n , T r . 205-06.

When t h e market i n i t i a l l y began t o expand for 5-1/4

561.

Sollman, Tr.

i n i t i a l use of a

CX 7 1 1 ,

a t 27.

310

weto s o l d .

I n 1983,

estimate for 1984 sale$ is 1,064,000

564.

In 1983, only

drives were double-sided.
percent.

CX

3.8

prcnnt of total salos of 3-1/2 in:>

In 1984, *his potcentage was estina*4

be

23.3

679, at DT15-9.
Initially, there was no standard size for micro-flo?py d i s k

565.

drivos, and diameters ranged from 3.4 inches to 3.9 inches.

The cine f r b w

Sollman, T r . 116.

was Apf il 1982.
566.

:is<

An industry standards committee was formed in approxina*nly

Yay 1982, and a standard micro-floppy disk size (3-1/2 inches) was aqr-a
year lator.
567.

3

Sollman, Tt. 118.
Shuqart inttodUCQd a single-sided 3-1/2

inch floppy disk dr i v a

in April 1983 and a double-sided 3-1/2 inch disk drive in October 1983.
Sollman, Tr. 121.
568.

4

In 1983, Shugart sold evaluation units of +ha double-sided

3-1/2 inch disk drive to approximately 15 to 2 0 accounts.
569.

Sollman, Tr. 1 2 3 - 2 4 .

Sony b q a n to offer in the United States its Slimline
CX

doubla-sided micro-floppy disk drive in the third quarter of 1984.

208, a b

3.

570.

The factors most critical for affecting interchangoa5iliby of

disk drives are: (1) interchangeability of media from one drive to anoeh=+r;
( 2 ) physical interchangeability of one drive for another; (3) whe+hor

different disk drives use the same set of signals; and ( 4 ) whothef 3iEf=+ran+
disk drives use the same set of connectors with the samo output.
critical factors include

the

interchangeability of spare parts,

Other l a s s
tho

'ininq of

input signals, and power usage differentials, Sollman, Tr. 262-63.
tyys

Of

compatibility are the disk drive's rotational speed and its

track-co-track access tine.

Solhan, Tr. 22.

311

C)+hor

(diameter) of the diskette ( w d i a ) which the disk drives

US-.

Abraham,

Tr. 1143-46.
572.
,

A 5-1/4

inch disk cannot be placed in an 8 inch drive.

Abraham, Tr. 1090.
573.

In terms of media interchange compatibility, a 3-1/2

double-sided disk drive cannot be made compatible with a 5 - 1 / 4
doubb-sided disk drive.
574.

inch

SolLnan, Tr. 219.

Diskeetes ace interchangeable between drives of different makes

if the diameters of the drives are the same.
575.

inch

Abraham, Tr. 1018.

In order for data stored on a 5-1/4

inch disk to be trans’fer-ied

inch disk, the data would have to be regenerated, which is a

to a 3-1/2

laborious procpss.

Abraham, Tr. 1091-92.

I.

576.

Electrical interfacing between 3-1/2

inch and 5-1/4

is the same for those devices that are quoted as being compatible.

inch drives
Abraham,

T r . 1145.
577.

Soma Japanese 3-1/2

inch disk drive manufacturars advertise

their product as being compatible with 5-1/4
578.

The Sony OA-03299 is a 3-1/2

inch disk drives.

CX 217.

inch double-sided floppy disk drive

that is interface compatible with an 8 inch disk drive.

Mergentime, CX 2 5 2 , -

at 78: CX 205, at 750569.
579.

and a 3-1/2

The significance of interface compatibility between an 8 inch

inch drive is that less redesigning would be required to convert

an 8 inch computer system into a 3-1/2

inch computer system.

C x 2 5 2 * at 79-80.’

312

Xergentime,

580,

Mr. Abrahan of Tandon is not awaro of a situation

TM 848 ( 9 inch drive) or TM 100 (S-1/4

an

OE.I

An OEY would unlikoly

has replaced an 8 inch drive with a 3-1/2 inch drive.
feplacD a

WheKo

inch drive) with a'TX 3 0 4 or

TM 306 (3-1/2 inch drives) in an existing system because of diskette (media)
,

incompatibility, Abrahan, T r . 1016-18.
581.

Competition between 3-1/2 inch and 5-1/4

place primarily in the procurement of new products.
582.

inch drives takes

Ousley, T r . 718.

If a new product is a small desk top or portable computer,
OEMs

customers want the smallest, and smallest is best in many cases.

would

want to evaluate 3-1/2 inch products for their next generation of machines,
even though the current generation machine may be using a 5-1/4
drive.

.

Ousley, T r . 718.
583.

An OEM could potentially substitute a 3-1/2 inch drive in the

space f0rmerl.j occupied by a 5-1/4
full-height 5-1/4

584.

inch drive the way OEMs replaced

inch drives with half-height 5-1/4

keeping the larger bezel.

inch drives, that is, by

Ousley, Tr. 718-19.

In an existing product, the probability of substitution of

3-1/2 inch drives for 5-1/4

inch drives is less than the substitution of

half-hoight for full-height 5-1/4

inch drives, because the 3-1/2 inch drive

differs more in terms of length and width.
drive is priced lower than the 5-1/4
nade.

inch disk

However, if the 3-1/2 inch disk

inch disk drive, this substitution may be

Ousley. Tr. 719-20.
585.

Media incompatibility complicates the substitutabjlicy issue

becWeQn 3-1/2 inch and 5-1/4

inch disk drives.

Ousley, T r . 720-21.

,
313

586.

Y r . O u s l e y was not aware o f a n y cases w h e r e CDC had b i d on an

OEX contract w i t h a

5-114 i n c h d i s k d r i v e a n d l o s t t h e business t o a

3-112 i n c h d i s k d r i v e .
587,

Ousley, Tr.

721.

A c c o r d i n g t o Mr, L a n g e r o f SONAM, t h e c h a n g e from a 5-114 i n c h

d i s k d r i v e t o a 3-112 i n c h d i s k d r i v e would b e d i f f i c u l t

because it would

involve s u b s t a n t i a l d e s i g n c h a n g e s , i n c l u d i n g size, w i r i n g , and plugs.
Langer, Tr.

2416.

588.

For several y e a r s , a l l 8 i n c h a n d 5-114 i n c h f u l l - h e i g h t

d r i v e s were 3 - 1 1 2

inches high.

I n 1981, Tandon i n t r o d u c e d i t s f i r s t 8 i n c h

d i s k d r i v e w h i c h was o n l y 1-314 i n c h e s h i g h , t h e h a l f - h e i g h t
Half-height

disk

d r i v e s are e x p e c t e d to r e p l a c e f u l l - h e i g h t

disk drive.

d r i v e s i n many o f , t h e

most w i d e l y d i s t r i b u t e d n i c r o c o m p u t e r p r o d u c t s w i t h i n t h e next two years.
I

CX 670, a t DT13-7, DT13-11;
589.

679, a t DT14-4; H a l d i , CX 711, a t 18A-18B.

I n many cases, because of a lower p r i c e , customers s w i t c h e d

from f u l l - h e i g h t
Ouslty, Tr

CX

. 719.

d r i v e s to h a l f - h e i g h t
"t

d r i v e s , keeping t h e full-height

bezel.

589A. T h e g e n e r a l d e c l i n e i n f u l l - h e i g h t d i s k d r i v e p r i c e s r e s u 1 t i . d
from p r i c e p r e s s u r e s c r e a t e d b y h a l f - h e i g h t d r i v e s c o m p e t i n g a g a i n s t
full-height drives.

590.

c

O u s l e y , Tr. 3372.

TEAC's h a l f - h e i g h t d i s k d r i v e s c o m p e t e d a g a i n s t f u l l - h e i g h t

d i s k d r i v e s for sales t o

.

C
B r e h m e , CX 48, a t 185-90.

591,

I n t h e S p r i n g 1982 NCC s h o w , o n l y S h u g a r t showed a h a l f - h e i g h t

p r o d u c t , which it had d c v c l o p r d w i t h t . l a t s u s h i t a .

314

Sollman, Tr. 87.

I n t h e T a l l 1 3 8 2 Comdex s h o i ~ ,? , s l f - h e i g h ’ . d i s k

592.

shown b y T a n d o n , S h u g a r t , a n d CDC, as v e l 1 as by 1 2

d r i v e s warn

15 Japanese s u p p l i e r s .

S o l h a n , T r , 87.

I n J a n u a r y 1 9 8 3 , I B Y had d i s c o n t i n u e d p u r c h a s i n g f u l l - h e i g h t

593.

d i s k d r i v e s from Tandon and a g r e e d t o p u r c h a s e newer p r o d u c t s s u c h as

fast-access W i n c h e s t e r d i s k d r i v e s 3nd h a l f - h e i g h t
d r i v e s for

US@

5-1/4 i n c h f l e x i b l e d i s k

.Cx 667, a t 11.

i n microcomputer p r o d u c t s .

593A. B a s e d upon recent n e g o t i a t i o n s wi‘h

IBN, Tandon estimates t h a t

i t w i l l p o d u c e a p p r o x i n a t e l y 4 0 , 0 0 0 TX 199-2 d o u b l e - s i d e d d i s k d r i v e s f o r 13?l

for a t l e a s t t h e next several months from A u g u s t 1 9 8 5 .

Huenerneier, CX 8 3 5 , a t

S.

I

594.
half-height

T h e r e exists a r a p i d a n d b r o a d - b a s e d

5-1/4

disk drives.

same time
Tr.

i n d u s t r y t r e n d toward

i n c h f l e x i b l e d i s k d r ives a n d h i g h e r c a p a c i t y : i i n c h e s t e r

T h i s & r e n d h a s ‘ r e s u l t e d i n s i g n i f i c a n t and i m m e d i a t e p r i c e

erosion i n e a r l i e r m o d e l s o f f u l l - h e i g h t
595.

-

The half-height

took a d v a n t a g e

flexible disk drives.

CX

667, a b 12.

d i s k d r i v e a l l o w e d miniaturization and a t t h e

o f t h e a v a i l a b i l i t y of 5-1/4

i n c h software.

Lang-r,

2415.

596.
double-sided

T h e f o l l o w i n g t a b l e shows sales of f u l l - h e i g h t

and h a l f - h e i g h t

d i s k d r i v e s , by d i s k d r i v e d i a m e t e r , for 1 9 8 0 t h r o u g h 1 9 9 3 , a n d

forecasted sales for 1 9 8 4 a n d 1985:

315

1982
-

1933
-

1984 (El

1985 ( 2 )

8-INCH DRIVE
full-height
half-height

286.2
195.3

241.9
436.1

192.4
491.8

142 .'6
454.9

955.1
314.3

2,572.5
3,107.3

2 I 732.8
6,189.2

2,252.a
10,132.1

5-1/4 INCH

fu l l - h e i g h t
half-height

CX 679, a t DT12-10, DT14-13; CX 578, a t DT11-10, DT13-13.

596A. X i t h r e s p e c t to new c o m p u t e r s y s t e m s , Compaq h a s s w i t c h e d f:on
5-1/4
I

3

i n c h d i s k d r i v e t o a 3-1/2 i n c h d i s k d r i v e , and IBM h a s i n d i c a - e d C h i L

i? w i l l h a v e a 3-1/2 i n c h d i s k d r i v e i n i t s now g e n e r a t i o n PC.

Ousloy,

T r . 721.

597.

T h e 3-1/2

i n c h d i s k d r i v e is t y p i c a l l y s o l d i n a d e s k 'op

p o r t a b l e c o r n p u t o r , b u t t h i s market h a s b e e n d i s a p p o i n t i n g i n 1905.

3:

SofL;.Iarp

a v a i l a b i l i t y h a s been a p r o b l e m for the 3-1/2 i n c h cornputor marko*--Lhero a r e
*

- _ I

c u r r o n t l y a b o u t 170-175 sof'ware

I

p r o g r a m s a v a i l a b l e on 3-1/2 i n c h d i s k e C ' . P s ,

w h e r e a s t h e r e a r e about 101000 software p r o g r a m a v a i l a b l e on 5-1/4
diskettes.

L a n g o r , Tr. 2409-12.

598.
availability
'his

inch

A c c o r d i n g t o Mr. L a n g e r of SONAM, it would t 3 k o n i n e y e d r s for.

of 3-1/2 i n c h Software t o m a t c h t h a t

time frame d e p e n d s on IBM's

O f

5-1/2 i n c h sofcwdra, ka'.

d e c i s i o n w i t h r e s p e c t t o intKOdUC'im

3-1/2 i n c h c o m p u t e r I a s well as 3-1/2 i n c h sofLware d e v e l o p i n e n C .
T r . 2461-63.

316

of

!..anger,

d

599.

T h e . e f f e c t o f IBM not having i n t r o d u c e d a 3 - 1 1 2 i n c h d r i v e

computer is t h a t t h e r e i s p r a c t i c a l l y no market for 3-112
Langer , T r

.

inch disk drives.

2418-19.

600.

I f IBM enters t h e market w i t h a 3-112 i n c h c o m p u t e r , it i s

l i k e l y t h a t o t h e r OEMs would follow w i t h 3-112

inch machines.

Langer,

T r . 2442.

601.

C

Sony's 3-112.inch

disk d r i v e has a

C

L a n g e r , T r . 2425-29.

C
602.

According t o Mr. S o l l m a n , d i s k d r i v e s have become more l i k p

commodity items, where p r i c i n g p l a y s a g r e a t e r role t h a n i t d i d f i v e y e a r s

ago.

Sollman, T r . 310.
603.

Although evaluation o f a d i s k d r i v e by an OEM n o r m a l l y takes

from t h r e e t o s i x months, i f t h e OEM is u s i n g a s t a n d a r d t y p e d r i v e ,
evaluation may not even b e n e c e s s a r y .
604.

Sollman, Tr.

249-50.

A "marketing window" e x i s t s when an OEM i s i n t h e p r o c e s s o f

d e s i g n i n g a new computer system.

The window i s open whcn v e n d o r s a r e b a i n g

c o n s i d e r e d and r h c n d r i v e s a r e b r i n g e v a l u a t e d and t e s t e d .
c h o s e n , t h e m a r k e t i n g window is g e n e r a l l y c l o s e d .
605.

Once a vendor i s

Abraham, T r .

1056-58.

Once a vendor is c h o s e n , it is more d i f f i c u l t for a n o t h e r

vendor t o compete s u c c e s s f u l l y for f u t u r e b u s i n e s s b e c a u s e :

317

( 1 ) OEXs spend a substantial amount of tine and effort t o

evaluate a vendor's product from technical and marketing
I

standpoints.
(2) The effort and axpense needed to change the product
support, including training of personnel and custome:s,

sales

manuals, software, and spare parts-, substantially prohibits an
OEM

from changing vendors.

( 3 ) Economies

of scale suggests that it is in the interest of

the OEM to enter a long term relationship with a vendor because
the price is generally lower for larger quantities purchased.
(4) Vendor loyalty frequently influences an OEM to maintain a

,

relationship with a particular vendor whose service has been
sat isf actory.
Abraham,

CX

714, at 3-4.

606.

For a customer to 'switch suppliers, the economic reasons for

switching must be stronger than the four reasons (FF 605) a customer has not
to switch.

Abraham, Tr. 1106-07.

607.

The marketing window would open if the selected vendor could

not deliver the drives.
be

Reasons for not supplying a drive to a customer would

non-payment by the customer, or Customer dissatisfaction with the vendor

caused by quality problems with the disk drives or delivery problems by the
vendor.

Abraham, Tr. 1060-62.

608.

The marketing window for double-sided 3-1/2 inch disk drivas is

currently wide open.

Abraham, Tr. 1067.

609.
5-1/4

The inarketing window for d o u b l e - s i d e d , h i g h e r cspaci'y

i n c h d i s k d r i v e s is wide open w i t h r p s p p c t t o mid t o l a t e 1985.

Abraham. T r .

610.

1067.
The computer Systems sold by OEMs a r e e v o l v i n g r a p i d l y , and t o

remain c o m p e t i t i v e , an OEM producer

.?IUS&

b r i n g i n t o t h e market a new sys*rm

w i t h t h e l a t e s t a d v a n c e s as soon as p o s s i b l e , or r i s k f a l l i n g behind.
Abrsham, T r .

611.

1109-10.

For a d i s k d r i v e t o be c o n s i d e r e d a v i a b l e economic S U b S r i t ' J t e

and a s e c o n d s u p p l y s o u r c e , i t n u s t meet t h e t e c h n i c a l s p e c i f i c a t i o n s o f the
p r i m a r y s o u r c e d i s k d r i v e as well as l o o k l i k e t h e p r i m a r y source d r i v e .
H a l d i , CX 7 1 1 , a t 52.

e

.

6 1 U . Costs a s s o c i a t e d w i t h s w i t c h i n g d i s k d r i v e s u p p l i e r s i n c l u d e
r e - v a l u a t i n g d i s k d r i v e s , r e s t o c k i n g inventory, and c h a n g i n g product s u p p o r t
a n d software.

Abraham, T t .

1 1 0 3 ; Abraham, CX 7 1 4 , at 3;

T j o n , T r . 2033.

611B. Although OEMs g e n e r a l l y cannot r e a d i l y i n t e r c h a n g e f l o p p y d i s k
d r i v e s from d i f f e r e n t manufacturers d u r i n g p r o d u c t i o n , OEMs can r e a d i l y
s u b s t i t u t e d r i v e s of o t h e r m a n u f a c t u r e r s d u r i n g t h e d e s i g n and w a l u a L i o n
p h a s e s of producing a new computer model.

Haldi, Tr.

1 3 0 4 - 0 5 ; H a l d i , CX 7 1 1 ,

a t 75-86.

.

319

.

.

VI.

A.

ECONOYIC AND

EFFICIENT OPERATION

Tandon--General
612.

-

In 1982, Tandon became the largest independent (i.e.,

noncaptive) manufacturer of floppy disk drives sold to O E M s .

Haldi, CX 7 1 1 ,

at 39.
613.

In early 1985, Tandon was

thi.

world's largest manufacturer in

the market of random access disk drives for micro-computer systems.

SRX 1 7 2 ,

Tandon Response to Admission No. 86 (FeS. 1 2 , 1 9 9 5 ) .
614.

In early 1985, Tandon was the w o r l d ' s largest producer in the

narket for floppy disk drives.

SRX 1 7 2 , Tandon Response to Admission No. 97

(Feb. 12, 1985).
,

615.

Tandon's net income and growth rate of net income arc as

follows :

Fiscal Year

Net Income

%

Increase over Previous Ye'ar

C

1981

$

%

C

1982

s

%

C

1983

$

%

C

1984

s

%

H a l d i , CX 711, at 39.

615A. After bzing initially funded by its founders and private
investors, Tandon received proceeds of public Sales of sccurities amounting to:

C
C

Date
-

Amount

2/81

f

11/81
11/82

C

!4itcheLl,

CX

836, at 13.

320

6158.

.

on its 8 inch double-sided floppy disk

615C. Tandon
drive.

Hucncmeier, Tr. 3636-37.
615D. In 1984, Tandon

C

drives.
C

Huenemeier, Tr. 3636.

on its 5-114 inch full-height disk

Huenemeier, Tr. 3637.
615E. In 1983 and 1984, Tandon

half-height disk drives.

in its 5-114 inch

In 1983, the half-height 5 114 inch product would

have Seen the TM 50 and TM 55 models, which were sold in small quantities as
an introduction of the product line.

.

the TM 65s are
616.

The new half-height 5-114 inch drives,
Huencmeier, Tr. 3636-38.

"Tandon's product philosophy of maximum vertical integration

has paid off handsomely, by providing some of the lowest costs in the industry
and a high lcvcl of control over the firm's ability to grow with demand."
CX

678, at PlFGR-11 (Dec. 1983).
617.

For full-height disk drives, Tandon had obtained and retained

major accounts for companies with advanced technological knowlcdge and high
performance requirements, including IBM, AT&T, and Tandy.

For example, in

fiscal year 1984, IBY accountrd for approximately 58 percent of Tandon's net
sales.

IBM has followed the practice of placing ordcrs providing for

deliveries over periods not exceeding six months.

32 1

As of August.1985, Tandon

C

was not selling production quantities of double-sided disk drives to
Haldi, CX 711, at 39; Cx 666, at 8; Tandon Response to Nitsubishi Requests for
Admissions, Response No. 126.
618.

Tandon tests all raw materials and components prior to

manufacture and runs mechanical, integrity, and reliability tests on completed
floppy disk drives.
619.

Haldi, CX 711, at 43.

Tandon's research and development expenditures as a percentage

FY 1980

of net sales for the last five fiscal years are as follows:
FY 1981

-

5.3%; FY 1982

-

4.0%:

FY 1983

-

1.5%; and FY 1984

-

4.1%.

-

4.2%;

CX 666,

at 20; Haldi, CX 711, at 43.
620.

Approximately $7.5 million of the $16.3 million spent by T.andon

in fiscal year 1984 for research and development is attributable to research
I

and development on floppy disk drivps.
621.

C

Haldi, Tr. 1223:

Tandon has expended approximately

$

- CX 666, at 29,
sce

to

on the

$

research and development of the TM 300 series floppy disk drive.

Huenrmeier,

Tr. 294.
622.

c

For fiscal year 1982 through fiscal year 1984, Tandon spent

on marketing and sales for all its products.

$

Haldi, CX 711, at

43-44 ,
623.

Since 1982, Tandon has participated in the followinq major

industry expxitions:

June 1982

-

National Computer Conference (NCC);

- Peripheral Equipment Expo: November 1982 - Comdex: April
1983 - Comdzx; Yay 1983 - NCC; November 1983 - Comdex: July 1984 - NCC; and
November 1984 - Comdex. Haldi, CX 711, at 44.
September 1982

322

624.

Tandon employees are eligible for disability insurance undat

the state plan administered by the State of California.
625.

CX 670.

Tandon provides its full-time employees with Term 'Life

Insurance equal to one year's adjusted pay, Dental Expense Insurance (no cost
for employee but contribution required for dependent coverage), and Accidental
Death and Dismemberment Insurance.
626.

CX 671.-

Tandon provides its full-time employees the opportunity to join

the Performance Plus Savings Plan whereby they may have up to six percent of
their pre-tax waqes deducted from their paychecks and invested in the plan.
Such investments are matched by Tandon (100 percent up to four percent of
pre-tax wages, then 50 percent thereafter to six percent) and will vest with
the employee at a rate of 2 5 percent after two years of service, 50 percent
after three years, 7 5 percent after four years, and 100 percent after five
years.

CX 672.
627.

Tandon employees have the option of participating in the

following health care plans:

Kaiser Foundation Health Plan: INA Health Plan

of California: and Maxicare Health Plan,

CX 673: CX 674: CX 675.

627A. Tandon provides education expense reimbursement programs for all

employees,

B.

Huenemeier, Tr. 3692.

Tandon-Business
628.

Structure

Tandon contracts vith various companie's in India for the

assembly or purchase of components used by Tandon in its final products or for
the purchase of complete half-height 48 TPI 5-1/4

cx

666, at 11.

323

inch flexible disk drives.

629.

The Indian companies include Tandon Xagnetics (India) P v t . ,

Ltd. ( T M I ) , which assembles recording heads and certain labor-intensive disk
drive sub-assemblies; Tandon Motors Pvt., Ltd. (TMM), which manufactures
precision stepper motors used in Tandon's flexible and rigid disk drives;
Barnala Electronics (Barnala), which 3anufactures harness assemblies for

use

in Tandon's disk drives; Tancom Electronics (Tancom), which inanufactures rigid
disk drive recording heads; and Eastern Peripherals Pvt., Ltd. (Eastern
Peripherals), which manufactures completed half-height 48 TPI 5-1/4
flexible disk drives.

inch

CX 6 6 6 , at 11.

629A. Of the Indian companies, only Eastern Peripherals, Inc.

assembles Tandon's 5-1/4
630.
I

inch half-height disk drives.

MPRX S4C,

at 34.'

--

Tandnn believes that the termination of its present

relationship with any of the Indian companies would result in increased costs
Of procurement or manufacture of the component parts and finished drives they
supply.

CX 666,

631.

at 1 3 .

The contract assembly and purchase transactions between Tandon

and the Indian companies are coordinated and effected through Tandon
Associates, Inc.,

which acts on behalf of the various Indian companies.

Tandon Associates directly invoices Tandon Corporation for the products and
services of the Indian companies at prices reflecting a mark-up for the
services of Tandon Associates.

CX 666, at 12.

63U. Tandon Associates coordinates all the movement of material from

the United Staten t o India and the material back from India to the United
States, coordinates the technical interface between Tandon Corporation and
Eastern Peripheral, and pays all the duties and freight for products imported
from India.

J. Tandon Dep.,

HRPX 54C, at 39.

324

631B. The t l i p i c a l s c q u z n c e

C

beg ins by Tandon

t h e n issues i t s own p u r c h a s e o r d e r . f o r t h e

.

drives

J . Tandon Dep.,

PlRPX 54C,

a t 69.

631C. After r e c e i v i n g a

issues p u r c h a s e o r d e r s to
for whatever components i t w i l l not p r o c u r e d i r e c t l y .

then

t y p i c a l l y issues i t s p u r c h a s e o r d e r for these p a r t s t o Tandon.

J. Tandon

Dep., MRPX 54C, a t 69-70.

C

631D.

C

C
I

C
J . Tandon Dep.,

C

54C, a t 4 7 - 4 8 1

C

C

5 1 , 54, 70-721 8 1 , 83.

631E. Fewer t h a n

parts book.

MRPX

Tandon employees maintain Tandon's

purchase

Tandon, Response to M i t s u b i s h i R e q u e s t s for A d m i s s i o n s , No. 5 9 .

itself procures

631F. When

,

C
C

i t i n p o s s s a service c h a r g e of

.

T h i s c h a r g e is i n c l u d e d i n t h e f i n i s h e d

.

J. Tandon ~ e p . , :-lPRX 54C, a t 8 1 - 8 2 .

disk drive price

C
C

63l.G.

.

C
.*lPRx 54c, a t 97.

325

J. Tandon Dep.,

C

procures sone raw materials and subparts,

631H.

such as b a l l bearings, connectors, p i n s , wires, and motors, Prom SourCPS
C

outsida t h e United States.

C

n a t a r i a l or subparts a t
miiking i t s purchasing decision.

compares the c o s t ' o f the
r e l a t i v e t o foreign sourcing before
J. Tandon Dep., :4PRX 54C, a t 9 8 .

6 3 1 1 . After Eastern Per ipharals produces d i s k d r i v e s , Tandon

Associates buys the drives from Eastern Peripherals and then s e l l s tham t o
Tandon a t a higher price

.

J. Tandon

Dep., !mPX 54C, a t 46-48, 5 1 , 57, 72, 78-80,
I.

6315. Tandon AssociatPs employs

C

drives as they a r r i v e from India.

persons who i n s p e c t Tandon's

J. Tandon Dep.,

MRPX 54C, a t 5 9 .

631K. Required rework of drives assernbled by

C
C

dona sometimes by

C

sometimes by

.

C

, sometimes

.

I f the rework is done by

and

by

,

it charges

Rework c o s t s i n t h e U n i t e d S t a t e s for d i s k drives assembled by

C

a r e absorbed by

C

because

and arb not b i l l p d t o
regulations do not allow a

t o charge for rework c o s t s .

C

is

58-59.

326

J. Tandon Dep., MRPX 54C, a t

632.

Tandon Associat+s.is separate from Tandon Corporation and

provides the service of being the reprPs+ntative for all of the contract
facilitips in India.

Tandon Corporation personnel therefore only deal with

one entity in the United States, and do not coordinate the activities of the
separate companies in India.

Huenrmeier, Tr. 442.

632A. The principal purpose of purchasing disk drives throuqh Tandon

C

Associates is

C
C

.

C

J. Tandon Dep., YPRX 54C, a t 38-39.

Sirlang La1 Tandon is the Prrsident, and a dirrctor and

633.

principal shareholder, of Tandon Corporation.
634.

.

CX 6 6 6 , at 1 2 .

Tandon Associatzs is a California corporation owned by Jawahar

La1 Tandon, a brother of Sirjang La1 Tandon.
635.

CX 6 6 6 , at 12.

A l l of the Indian companies are owned and controlled directly

or indirectly by the family of Manohar La1 Tandon, who is a brother of Sirjang
La1 Tandon.

CX 666, at 12.

636.

Sirjang La1 Tandon is not a shareholder, officer, or director

of Tandon Associates or any of the Indian companies.

C.

CX 6 6 6 , a t 12.

Tandon--Quality and Delivery
637.

Quality and product support are important factors in a

company's ability to sell disk drives and naintain an OEY as a customer.
Haldi, Tr. 1 2 2 0 ; Nuenemeier, Tr. 734.

327

638.

Since

the

marketplace for computers is very competitive,

quality problems with computers can harm an OElYs business.
639.

Abraham, Tr. 1107.

Quality or delivery problems can overcome any existing

advantage a disk drive producer has by virtue of being the existing OEX
supplier and cause the

OEM

to seek another supplier.

Abraham, Tr. 1029,

1061-62, 1071-72.
639A. The relative percentage of product returned by customers affects
that customer's opinion of a floppy disk drive supplier.

Foster, Tr. 4057-50.

639B. According to Dr. Malmgren, some customers that left Tandon due
to quality problems will not go back to Tandon.

Malmqren, Tr. 5044-45.

It is vital to an OEM that the supplier of disk drives keep to

640.

the delivery schedule, otherwise the OEM may have difficulty remaining
#

competitive.
640A.

Abraham, Tr. 1109-10.
Tandon commenced production of the TM 5 0 , a half-height 5-1/4

inch floppy disk drive in the fall of 1982.

The TM 50 is a low-cost,

low-performance, belt-dr iven drive intended for the home computer market.

The

TM 55 is a high performance belt-driven disk drive aimed at the higher
performance personal computer market.

Abraham, MRx lltC, at 1-2.

6408. During the fall of 1982, Tandon experienced production problems
with the TM 50 and TM 55.

In view of these problems, Tandon decided to

initiate a total new design incorporating a direct-drive motor to reduce cost

and improve the half-height product in its manufacturability;

Abraham,

MRX llfC, at 2.

4

328

640C. Tandon became aware of the need for a half-height direct-drive
5-1/4 inch disk drive around September or October of 1982.

At that tine and

continuing into 1983, the window of opportunity was wide open for that
product, Abraham Dep., MRPX 49C, at 110, 112-13; Abraham, MRX 117C, at 11.
640D. The customers that did not state a strong preference for
dircct-drive floppy disk drives were in the minority in September 1982.

By

December 1982, even thesa customers insisted on direct-drive floppy disk
drives.

Abraham Dep., MRPX 49C, at 1 1 3 ;

-

s e e MRX

59, Tandon's Rcsponses to

Request for Admissions, No. 42 at 16.
640E. Tandon expected to have a new direct-drive available for

production in February or March of 1983.

Abraham, M R X 117C, at 2.

640F. Tandon lost a year in lead time in production of its half-height

direct-drive floppy disk drives.

I .

The Tandon TM 55A dircct-drive was expected

to go into production in MayIJune 1983, but the replacement direct-drive
half-height, the TH 6 5 , did not start into large scale production until mid to
late 1984.

Barmache, MRX l21C, at 32.

640G. The Tandon TM 55D dircct-drive was available in September 1983.
However, it was not available in any substantial quantity and had a very
limited ability t o penetrate the market.

Abraham Dcp.,

MRPX

49C, Vol. 3, at

127.
640H. During 1982, 1983, and into 1984, Tandon was unable to deliver
specified quantities of functioning half-height drives to many of its existing
Customers due to groduction problems.
C

cancellations.

Tandon attributes

$

As a result, Tandon suffered many order
million in losscs to its inability to

2cliver specified quantities of functioning half-height disk drives to

329

C

Customers.

Tandon attributed a loss of

$

million in prospective business

opportunities to its inability to deliver functioning disk drives to custorwrs

-

Abraham, M R X 117C, at 4-6, 8-9; see MRX 48C, at 27701,

on a tiinely basis.

26092; MRX 49CI at 441076, 41031, 41095, 40968, 40970-71, 40974, 41041-43,
41039, 41103, 41109.
6401. The marketing window for half-height floppy disk drives began to
close in 1983 and was substantially closed by mid-1984, if not sooner.
Abraham, MRX 117C, at 11.
6405. Prior to the introduction of the TM 65, Tandon tried to retain
customers with its TIY 50 and TH 55 disk drives and the promise of a future
improved product.

c
I .

Because the TM 55 did not work adequately and the TN 65 was

far behind in development, some customers were lost, including
J. Tandon Dep., MPRX 53C, at 426-27.

C

640K. By August 1984, when the TM 65 was available to the customer,

c

approximately

to

percent of the original customer base for direct-drive

half-height drives that Tandon had perceived in September 1982 was available.
However, due to possibilities of being a second source or a replacement
source, t h e customer base available to Tandon in the 12 months following
August 1984 was probably in excess of this

to

percent estimate.

Abraham

Dep., MRPX 49c, VOl. 3, at 128-31.
640L. The TM 65 was not selected by several

OEM

manufacturers because

by thz tine it was available, competing half-height drives had already been
evaluated and qualified and were being procured by such nanufacturers.
5 9 , TmdOn'S ReSpOnSzS to Request for Admissions, NO.

330

39, at 15.

MRX

640?!. The inability of Tandon to deliver ccmmeccial quanticiPs of

functioning halE-height drives 'during 1982 and into 1934 seriously 3 a m g e d
Tandon's reputation.

Abraham,

N U

117C, at 9.

640N. Tandon sold 16,904 double-sided half-height 5-1/4 inch disk
drives in 1984.

Huenemeiec, CX 835, at 3.

640P. During the period October 1984 through June 1985, Tandon shipsad
13,315 T!4 6 5 - 2 units (excluding shipments.of 2,950 units to Tsndon CmbH (West

Germany) which have not been sold), of which 392 or less than 3 percent have
Seen returned for repair through July 31, 1985.

Huenemeier,

CX

835, at 2 .

6404. As of December 1984, Tandon believed that "future" sales of the
TM 65 had been lost to Tandy, Converqent Technologies, Olivetti, and Compaq,
because of these customers' perception that Tandon would not be able to
respond quickly to production changes oc fast start-up production rates.

This

perception was basad on the absence of demonstrated production capacity at
Tandon, due to the late market entry of the T?YI 65 relative to other
Abraham, MRPX 49C, Vol. 1 1 1 , 99-101.

competitors.

640R. Tandon's poor image for quality has hampered its efforts to sell
and qualify the TM 65 in 1984-198s for sales to Exxon Office Systems, Telex
Computer Products, Scientific MicroSystems, Heath/Zanith, Apollo Computer, and
MR.. L O X , at 53504: MRX 49C, at 41097, 41062; MRX 48C, at

Sperry Univac.

41702, 41720-22, 26481; MRX 103C, at 52719.
640s.
early 1985,

ATbT i s

AThT

considering Tandon's double-sidcd floppy disk drive.

In

visited the Bombay facility of Tandon's contract assembler,

Eastern Peripherals, and delivered to Tandon its evaluation report as a result

of that visit.

Huencmeier, Tr. 5190-92; CX 766.

331

64OT. T ~ P

C

c

categories by

,

f a c i l i t y was rated "adequatr" i n nine
w i t h r a t i n g s o f "adequate w i t h rrcornnended change"

"marginal" i n three categories.

c

The one marginal r a t i n g t e l a t d t o the

documentation o f quality c o n t r o l .
,

o v e r a l l r a t i n g o f adequate.
640U. Accordinq t o

C

or

f a c i l i t y received a n

The

CX 766, a t 3.

Xr. Huenemeier ,

has a t h r e e r a t i n g system,

w i t h "adequate" b e i n g the h i g h e s t , "marginal" b e i n g the second h i g h e s t , and

"inadequate' or " u n a c c e p t a b l e " being the lowest r a t i n g .
640V. According t o D f .

Huenemeier, T r .

5193.

:ilalmgrm, producers who have gone t o a h i g h

degree of autonation, suck as J a p a n , and those heading i n t h a t direction seen

t o be h a v i n g b e t t e r r e s u l t s w i t h quality t h a n those who r e l y on heavy l a b o r .
Malmgren Dep.,
I

CPX 5 6 , a t 90-92;

Malmgren, T r . a t 5053-54.

640W. A c c o r d i n g t o A l a n S h u g a r t , founder o f Shugart Associates,

keeping production i n t h e U n i t e d S t a t e s by automating i s not f e a s i b l e because

p r o d u c t l i f e c y c l e s are too short t o j u s t i f y investing i n t h e equipment.
TRX 105-DI a t 44.
640X. Lower l a b o r costs a r e one reason for manufacturing abroad.

But

lower component p r i c e s abroad are more important, since there is o n l y about
h a l f an hour of labor i n v o l v e d i n assembling each d r i v e .
641.

TRX 1 0 5 - E I a t 1 1 9 .

Convergent Technologies buys components, d i s k d r i v e s , and h i g h

technology t h i n g s , i n order t o i n t e g r a t e t h e m into computer systems for r e s a l e

t o OEMs.

T j o n , Tr.
642.

2026.

In 1 9 8 2 , Conv*rgent designed a new computer system, the "next

generation" or N-GEN.

Tandon was o r i g i n a l l y intended t o source the

3ouble-sided f l o ? p y d i s k d r i v e s for t h i s system because o f t h e p r i c e and

a v a i l a b i l i t y of the d r i v e .

T j o n , Tr. 2027-28.

332

643.

Convergent ultimately did not use Tandon drives because it

found that the Tandon drive did not meet the requirements and allow Convergent

to ship the quality levels it wanted.

Some of the problems Convergent had

with Tandon's drives originated with Convergent rather than Tandon.

On August

21, 1985, Convergent was not purchasing commercial quantities or evaluating
Tandon double-sided disk drives.

Tjon, Tr.' 2037-39; Tandon Responses to

Mitsubishi Requests for Admissions Nos. 135-36.
644.

Kaypro specializes in test instrumentation.

Anjard, Tr. 1977.

In the fall of 1982, Kaypro developed a transportable computer called the
It had two floppy drives that were 5-1/4 inch sinqle-sided, 48

Kaypro-2.
TPI.

645.
4

.

Anjard, Tr. 1978.

Kaypro purchased the drives for the Kaypro-2 and the Kaypro-4,

which used a full-height 5-1/4

inch double-sided floppy disk drive, from

Tandon primarily because of availability and price.
646.

drives.

.

Anjard, Tr. 1978.

Kaypro began encountering field problems with the Tandon

It received complaints from end users as well as dealers.

Anjard,

The complaints received concerned the failure of the drive to

Tr. 1979.

function when the disk is put into the drive and general read-write faults.
Anjard, Tr. 1979-80.

Tandon advised Kaypro that the problems arose because

Kaypro did not know how to interface the drive in the computer.

Anjard,

Tr. 1981.
647.

Kaypro-10.

In the spring of 1983, Kaypro 9enerated.a new computer, the

The new system was to have a half-height double-side? drive.

Kaypro decided to use a Tandon drive primarily because of cost and
availability.
Kaypro's 2.5

Anjard, Tr. 1982-83.

Tandon assured Kaypro that. it could meet

percent maximum reject rate.

333

Anjard, Tr. 1985.

648.

In the summer of 1983, Kaypro axperienced.major reject prob'lms

with the Tandon drives.

In addition, Kaypro received reports of a 50 percent failure in

production.
the field.

Kaypro claims a fallout rate of 60 percent going into

Anjard, Tr. 1986# 1990.

Kaypro's dealers #informed Kaypro that if

it continued to supply Tandon drives, their affiliation with Kaypro would be
terminated,

Anjard, T r . 1991.

649.

In January 1984, Kaypro terminated its purchases from Tandon.

Anjard, Tr. 1992.

In April 1985, Kaypro had four suppliers:

(Matsushita); Mitsubishi; and Epson.

Toshiba; Shuqart

Anjard, Tr. .1693. The total reject rate

for these vendors is under two percent,

As of August 21, 1985, Kaypro was not

purchasing commercial quantities or evaluating Tandon double-sided disk

.-

Anjard, Tt. 2001; Tandon Responses to Mitsubishi Requests for

drives.
I

'

Admissions Nos. 120-21.
650.

Environmental conditions were endemic at Kaypro.

develop clean areas.

Anjard, Tt. 2002.

It failed to

Also, one or two million dollars of

inventory was lost and never accounted for because of lack of an in-out
control system.
651.

Anjard, Tr. 2004.
An article in the July 9, 1984, edition of the Computer Systems

News quotes Donald Sinsabaugh, managing director of Swergold, Chefitz

L

Sinsabaugh, as follows:

.

MRX 26,

...

.The company [Tandonl has a lot of work to do over the next 12
months to recover from its problems.
Number one, they are
suffering a loss of market share in floppies to the Japanese, and number two, they have had manufacturing problems that have
led to a lower-quality product. The quality issue is important
because it has led, in some cases, to a return of product to
Tandon and the buildup of excessively high inventory levels.
They have got to solve those major problems before they can
be a long-term, viable competitor."
at 501254.

334

652- A n a r t i c l e i n t h e J u l y 9 , 1984, e d r t i o d of

t h e Ccmpucer S y s t c n s

News q u o t e s Xichart1 Yurphy of t h e C a l i f o r n i a Technology stock L e t t c r a s

follows :
"At some p o i n t , J a p a n e s e v m d o r s w i l l come i n w i t h low-cost,
high-quality products
Tandon has t h e low c o s t ; t h e y have t o
g e t t h e i r q u a l i t y up. T h e i r i n c r e a s i n g use o f overseas m a n u f a c t u r i n g
is a b i g p l u s for t h e m , b e c a u s e t h e y save a b u n d l e of money s o u r c i n g
components o f f s h o r e , and t h e y can a f f o r d to throw a whole l o t of
b o d i e s a t improving q u a l i t y , if t h e y need to.
They p a i d a l l t h e i r
d u e s i n terms o f d e s i g n work and n a n u f a c t u r i n g from a Cost s i d e , and
now t h e y ' l l p r o b a b l y g e t t h e q u a l i t y improving fron h e r e . "

....

!4RX 26, a t 501254.

653.

A Tandon memo d a t e d J a n u a r y

1 0 , 1984, summarizes d i s c u s s i o n s

h e l d between Tandon and Tandy Advanced.

The d i s c u s s i o n c e n t e r e d on t h e

TM 50-1 and TM 55-2 f l o p p y d i s k d r i v e s .

"The major problem her+ is t h a t

Tandon has l o s t C r e d i b i l i t y b e c a u s e we h a w c o n t i n u e d t o f a l l far short o f t h e
promised s h i p m e n t s .

Tandy has i n d i c a t e d t h a t i f w e a r e a b l e t o s h i p i n t h e

area o f 1 5 , 0 0 0 d r i v e s p e r month, we c o u l d restore t h a t c r e d i b i l i t y . "
MRX 2 5 . 3 ,

a t 027814; TRX 398.
654.-655.
656.

C

I n t e n t i o n a l l y L e f t Blank.

A Tandon

Customer Contact R e p o r t w i t h L a n i e r B u s i n e s s P r o d u c t s
.

.

Inc. for F e b r u a r y 24, 1 9 8 4 , i n d i c a t e d t h a t i n t h e p a s t , "

C
C
C

."

C
C

L a n i e r t h e TX 252.

The report c o n c l u d e d t h a t Tandon c o u l d p o s s i b l y s e l l
A s o f August

21, 1985,

.

C
MRX

25.2, a t 0263U7; Tandon Responses t o Y i t s u b i s h i Requests for A d m i s s i o n s

Nos. 1 3 8 - 3 9 .

335

657.

A letter

ft'om Convergent Technologies dated %arch 3 0 , 1 9 8 4 ,

C

.

C

c

.

658.

a t 041654.

MRX 2 5 . 2 ,

A Tandon t e l e x d a t e d A p r i l 2 , 1 3 8 4 , s t a t e s t h a t Tandon had

C
C
TRX 43E.

C

659.

C

A Tandon t e l e x d a t r d A p r i l 6 , 1 9 8 4 , s t a t e s t h a t

"

C
C

C
1-

C

e"

AS O f

August 2 1 , 1 9 8 5 ,

.

C

026288; TRX 43D; Tandon

RqmI8cS

MRX 2 5 . 3 ,

at

to n i t s u b i s h i RcqUeSt8 for Admissions Nos.

255-56.

660.

A Tandon memo dated A p r i l 2 6 , 1 9 8 4 , summarizes a v i s i t by

?#ndon t o S e l l Labs for the purpose of v a l i d a t i n g t h e s h i f t i n g of alignment

c

during a 4 5 m i n u t e heat up of d r i v e s a f t e r a cold s t a r t .

C
C
C
C

o n

TRX 44B.

336

,

661.

A Tandon memo d a t e d June 4 ,

between Tandon and S p e r r y Univac.

2

not d i s c u s s the TM 65-4,

TM 252.

MRX 2 5 . 3 ,
662.

C

.

TM 5 0 3 , an? TM 703
S p c r r y Univac d i d d i s c u s s Tandon's

a t 026481; TRX 43C.

A Tandon Customer Contact R e p o r t w i t h Engram Assoc. for

June 2 8 , 1 9 8 4 , d e t a i l s
TM 848-2.

w i t h the

TRX 438.

663.
C

The memo i n d i c a t e s t h a t S p e r r y Univac would

TX 848E-2,

C

1 9 8 4 , sunmarizes d i s c u s s i o n s held

A Tandon Customer

Contact R e p o r t w i t h S.C.I.

for September 4 ,

1984, i n d i c a t e d t h a t S.C.I.

. Qume

C

d a v c l o p e d p r o b l e m s , so S.C.I.

went to Mitsubishi.

a

C
d-

c
C

C

C

.

C

MRX 25.2,

a t 026472; Tandon R e s p o n s e s t o M i t s u b i s h i Requests for

A d m i s s i o n s Nos. 103-04.
663A.

Mr. S e l l e r s e x p e r i e n c e d q u a l i t y and d e l i v e r y problems w i t h

Tandon's d o u b l e - s i d e d

floppy d i s k d r i v e s d u r i n g 1982-1984 w h i l e g e n e r a l

b u s i n e s s manager of Tandy B u s i n e s s P r o d u c t s .

P r o b l e m s were e n c o s n t e r e d w i t h

head a l i g n m e n t , b a s i c mechanics, and severe noise.

D e s p i t e these p r o b l e m s ,

Tandy had a lot of a l l e g i a n c e t o Tandon due to i t s p r i c e c o m p e t i t i v e n e s s and

t h z p e r c e p t i o n t h a t Tandon was working hard t o s o l w t h e problems.
Tr.

4940-47.

337

.

Sellers,

663B. In the spring of 1,983, Tandy solicited bids for 5-1/4

inch

half-height double-sided disk drives to be used in its Tandy 2000 computer.
Tandy Is engineering department recommended three suppliers , including
Mitsubishi and TEAC.

Tandon's drive was not included on the list because it

did not meet certain design parameters.

However, Tandon got the order based

on its representations that it could fix the design problems over time, one
problem being that the drive was belt-driven.
priced than the TEAC or Mitsubishi drives.

Tandon's disk drive was lower

Sellers, Tr. 4947-50.

663C. Tandy had problems with interference between the first shipment
of 500 to 1,000 Tandon disk drives and the video monitor.

This problem was

never solved, and Tandy subsequently purchased disk drives from Mitsubishi at

a slightly higher price.

The reject rate for Mitsubishi disk drives was less

0

than one percent.

Sellers, Tr. 4950-53, 4962, 4995.

6630. The Tandy 2000 computer was still using the Mitsubishi disk
drive when M r . Sellers left Tandy' for Compaq in April 1984.
currently the vice president of aanufacturing at Compaq.
4953

Mr. Sellers i s

S e l l e r s , Tr. 4933,

.

663E. While at Tandy, Mr. Sellers never had any involvement evaluating
the Tandon T M 65 disk drive.

Sellers, TI. 5001-02.

663F. When he transferred to Compaq in April 1984, Hr. Sellers
recommended to the quality and purchasing people that they change to the
Mitsubishi disk drive.

Compaq currently uses a Hitsubishi half-height, 5-1/4

inch double-sided disk drive.

Sellers, Tt. 4954.

6636. Tandon i s not currently a qualified disk drive supplier for

Compaq.

Sellers, Tr. 4954.

338

I

663H. !?r.

JablonsKr is Vies Presrdar.? of Traduction Engrneerinq and

Quality Control at Cornpucorp.

Jablonski, T K . 3477-70.

6631. In 1980, Compucorp chose Tandon as a source of 5-114 inch,
double-sided disk drives (TM 100-4) for its 600 series computer, T h e Tandon
disk drive was cnosen because o f availability.
6633. The Tandon disk drive did not: perform adequately in the 600
series computer, with a reject rate of ovex 50 percent.

Compucorp also

experienced problems in the field with Tandon d i s k drives.

Jablonski,

Tr. 3479-86.
663K. In early 1983, Compucorp introduced its series 300 computer into
the market and chose S-1/4

inch disk drives from Xicro Peripherals Inc.

Jablonski, Tr. 3486-87.
663t. Because the M P X disk drives performed very poorly, Compucorp
quickly qualified Tandon's new TH 101-4 and the Mitsubishi 5-1/4 inch disk
drive in the summer of 1983.

ZaSlonski, Tr. 3486-87.

663M. Compucorp purchased disk drives from both Mitsubishi and
Tandon.

The Nitsubishi disk drives 2erformed well but Compucorp experienced

delivery and quality problems with Tandon disk drives in 1983.

Tr. 3487-95;

XRX

Jablonski,

107C; YRX 108C.

663N, In February 1984, Compucorp issued an engineering chanqe request
which related to existing Tandon 101-4 disk drives in Compucorp SySteXS.
Because of media wear problems with Tandon disk drives-in systems in certain
regions, this request required the tasting and raworkinq of Tandon drives.
Jablonski, Tr. 3495-3500; MRX 109C; MRX llOC.

339

663P. I n D+ccmber 1 9 8 3 , Compucorp s t o p p e d purchas,inq d i s k d r i v r s from
Tandon d u e t o q u a l i t y problems w i t h Tandon d i s k d r i v e s t h a t Compucorp was not
having with M i t s u b i s h i d i s k d r i v e s .

664.

Jablonski, Tr.

3498, 3500.

I n a document e n t i t l e d " S t r a t e g i c P r o f i l e , Tandon C o r p o r a t i o n ,

5-114" Floppy Drives, TM 100/65/50," a u t h o r e d b y B i l l Williams on J u l y 2 3 ,

1984, Mr. Williams l i s t s t h e areas which need a t t e n t i o n a t Tandon as follows:

.

c
C
C

C
C

.*

C
1

c

Mr. Williams l i s t s T a n d o n ' s s t r e n g t h s as

fQllows:

C
C

."

C

SRX 115,

at 039272;

-see i d . ,

at

0392'74

665.

T h r perception o f C o n t r o l Data C o r p o r a t i o n i n t h e summer a n d

f a l l of 1984 as t o T a n d o n ' s r e p u t a t i o n for q u a l i t y was t h a t Tandon had t r o u b l e
with t h e i r half-hcight

drives.

By t h e summer o f 1 9 8 4 , h o w e v e r , CDC b e l i e v e d

t h a t Tandon was g e t t i n g t o w h e r e t h e y n e t d e d t o be

business.

Ousley, T r .

666.

for

for t h e h a l f - h e i g h t d r i v e

659-60.

CDC had t h r same p e r c e p t i o n w i t h r e s p e c t t o T a n d o n ' s

q u a l i t y i n Tandon's

f u l l - b r i g h t d r i v e s i n 1983.

reputation

CDC b e l i e v e d t h a t by

early 1 9 8 4 , Tandon had s o l v e d i t s g r o b l z m w i t h i t s f u l l - h e i g h t d r i v e .
Tr.

660.

340

.

Ousley,

666A. The reputation of a disk drive supplier for providing a reliable
and uninterrupted delivery of a product is a primary concern in an OEM's
selection of a supplier.

Foster, MRX 41C, 1 8.

.666B. One reason that the reputation is very important is that the
drives must often be customized to accommodate the unique specifications of a
particular OEM customer.

Foster, MRX 41C, 1 8.

Customizing a drive to suit a

particular OEM often ties the OEM to a particular drive supplier and requires
an investment in time and preparation on the part of the OEM and/or the
supplier.

Foster, Tt. 2929, 2932.

666C. In addition to the customizing which is done to the exterior of
a disk drive in order to suit a particular OEM, OEMs frequently have specific
performance requirements which further limit the selection of available disk
drive suppliers.

MRX 41C, 1 9.

6660. Selection of a particular disk drive supplier frequently follows
an evaluation period which may extend over a period of six months.

Drives

that are not qualified by an OEM during this period are generally eliminated
from consideration by the OEM for use in the computer system for which the
evaluation was conducted.

From these remaining qualified suppliers, the OEM

selects a primary source of the disk drives.

It is not unusual for there to

be only one supplier of the disk drives qualified for a particular computer
system (Foster, MRx 41C, 1 lo), though an OEM often qualifies more than one
disk drive manufacturer (Foster, Tr. 2934).
source for their drives.

Some OEMs have a second supply

Foster, T r . 2934.

666E. The evaluation of disk drives by an OEM normally takes three to
six months.

If the disk drive is a "commodity-type" disk drive,, an evaluation

may not even be necessary.

Sollman, T r . 251-53.

341

..'

666F. In view of the evaluation procedure and the customization
undertaken by the OEM and the disk drive supplier, the ability of the supp1ir.r
I

to deliver the product on time and without significant interruption
primary concern of the OEM.

1s

a

Foster, M R X 41Cf 1 1 1 .

6666. Implicit in the selection of a supplier for a customized drive
is the fact that the OEM frequently cannot substitute "standard" disk drives
of another supplier in the event the supply of disk drives is interrupted.

Foster, MRX 41C, !I 11.

D.

Tandon--Licensing

Policy

6668. Tandon presently has license agreements relatinq to its floppy
disk drives under the '573 patent with the following companies: Shugart
'

(July 1, 1980); Hewlctt Packard Co.

(February 1, 1980); Xicroperipherals, Inc.

(October 29, 1982); CDC (September 30, 1984); Nagnetic Peripherals, Inc.
(subsidiary o f CDC) (September 3 0 , 1984);
(February 1985); TEAC; and Sony.
CX

CX

IBM (January 1 , 1984): Hatsushita

616-19: CX 696; CX 767; Huenemtier,

722, at 12: Order No. 25 (Oct. 2, 1985); Order

NO.

20 (July 19, 1985).

6661. In 1983, because of its inability to manufacture cost-effective
half-height disk drives, Shugart entered into a purchase agreement for
half-height drives with Matsushita.
drives, the! S A 4 5 5 and SA-465.
C

These products were 5-114 half-height

Sollman, T r . 96-97.

6665. In Deccmber 1984, approximately

double-sided disk dr ivcs

were produced by Hatsushita for sale by Shuqart in the United States.
sales would have been licensed under the Tandon patent.
Tr. 3403.

342

CX 863;

Nlrun,

These

-

was q u o t i n g a d e l i v e r e d p r k * o f

666K. I n January 1985,

for i t s 5 - 1 / 4

3

t o a p r i c e of $

i n c h 48 T P I d i s k d r i v e ( f o r sa1i.s t o ASAlTandy), compared

for t h e

lowest p r i c e was $ 7 7 . 5 0

I n t h e sane month, M i t d u b i s h i ' s

drive.

for s a l e s of i t s 48 T P I d r i v e t o Compaq.

TRX 66;

C X 872; CX 5 3 4 .

666L. A t t h e end o f February 1985, a portion of t h e S h u g a r t b a s i n e s s
was s o l d t o M a t s u s h i t a .

Neun, T t .

3408.

666:4. I n F e b r u a r y 1985, Tandon and N a t s u s h i t a e n t e r e d into a license
agreement g i v i n g M a t s u s h i t a t h e r i g h t t o nake, have n a d r , use and sell
f l o p p y d i s k d r i v e s i n c o r p o r a t i n g t h e '573 p a t e n t anywhrrr i n t h e

double-sided

C

world.

Tandon r c c p i v e d $

million i

g r a n t i n g t h e license t o M a t s u s h i t a .

)

for

CX 696.

666N. I n Harch 1985, an i n t e r n a l Tandy memorandum re€err+d t o

.

..

.

P r i c e s fro3

and

At

were $

TRY 69.

6663. Tandy d e c i d e d t o

C:

that time,

C

C
TRX 7 0 .

343

and S

, respectively.

C

6664.

?rice abjrctives presented t3 Xitsubishi in Octobrr 1984

C

(for 1985 purchases) ranged from

C

quarter of 1985 for

C

1985 for

units.

per drive (f.0.b.

$

units, to

Japan) for the first

per drive for the foxrt-h quarter of

$

These prices related to the M4851 5-114 inch

half-height drive (0.5 megabyte).

Cx 856, at 5199939; Foster Tr. 4873.

66613. MELCO told ,MELA National Sales Manager, Mr. Foster, that XELCO'S
C

costs would not permit it to

meat

pr ice ob]cctives.

Foster, Tr

.

4909-11, 4920-21.
C

its TN 6 5 - 2 , a 5-114

6665. In November 1984, Tandon off*red

C

inch half-height disk drive (48 TPI) for

C

price was S

.

$

below the market price.

MRX

According to Tandon, that

103, at 27775.

666T. Today, XatsushitalPanasonic supplies Wang's flexible disk drive
requirements: previously, Shugart supplied Wang.

for Nodel 4853

666U. In Xay-June 1985, Mitsubishi's price! to

C
C

(5-114 half-helght, 96 T P I ) drives ranged from

C

that Xatsushita quoted

C

8

$

to

.

$

for the same requirement ranged from

The price
$

to

Foster, Tr. 4780-82; CX 534, at 527219.

C

C

Foster, Tr. 4762.

666V. According to Mr. Foster, the price reduction to

from

$

to

$

between Hay and June 1985 was due to a buildup of drives

in MELA's inventory. The inventory buildup resulted from MELA's importation
of drives in the first half of 1985 based on projected requirements given by

in early 1985, which never materialized.
inventory had a unique PC board specifically fo:

Secause the drives in

,

the drives

would have had to have Seen retrofitted for re-sale to other custoners.

1s MELA'S fourth largest Customer.

CX 535, 3t 530799; Foster, Tr. 4771-73,

4856.

344

666W.

According to Mr. Foster,

told .%LA

business, had quoted a price

with whom MELA had Seen sharing the
of

$

,

Of $

and that Mitsubishi had to

in the order for about
666X.

that Matsushita,

drives.

be

competitive to' participate

Foster, Tr. 4771-72.

In May 1 9 8 4 , Mitsubishi's quoted price to

was

$

higher than prices of competitors (believed to be Shugart by Mr. Foster) for
the 1.0 inegabyte 5-114 inch half-height drive (M4853-1).
C

Mitsubishi's price ranged from
July-September 1984 purchases.
CX 8 5 5 ,

I

that tine,

(ex-go-down-Tokyo) for

$

CX 8 5 5 , at 5 1 7 7 7 9 ; Foster, Tr. at 4 8 0 5 ;

at 5 1 7 7 8 5 , 517814.
666Y.

C

to

$

At

In A u g u s t 1 9 8 4 , Mitsubishi's price to

for the M4853-2

C

(a lower cost version of the M4853) was adjusted to

C

S

C

stated in September 1 9 8 4 that they would have to reduce the price to

c

remain competitive, and in N0vcmbi.r 1984 accepted a price to

U.S.

delivered), based on a Shugart f.0.b.

1 9 8 5 sales.

CX 855,

6662. A s
C

drives to

C

to

(cx-go-down-Tokyo,

$

price of

$

.

Mitsubishi

of

to

$

$

for

at 5 1 7 8 4 9 , 517854, 5 1 7 8 8 8 , 517925; Foster, Tr. 4776.

of September 1 9 8 4 , two companies were offering 1.6 megabyte

for

$

and

.

$

At that time, Hitsubishi's price

for its 1 . 6 megabyte drive ( X 4 8 5 4 S ) was $

Foster, Tr. 4811-12;

C x 855, at 517864.

C

666AA.

In November 1 9 8 4 , Mitsubishi's price of S

for its 1 . 6

megabyte drive was higher than prices offered by TEAC, Toshiba, YE Data, and
Matsushita.

C X 8 5 5 , at 517889.

345

C

666BB. In !larch 19851 prices to

for the 5-114 inch, 1.6 megabyte,

, with

C

disk drives (including Mitsubishi) had declined t o

C

companies offer ing dr ives to

C

market price for 0.5 megabyte disk drives had declined t o

$

one of the
I

517925, 517927; Foster Tr.,

at this price being Matsushita.
$

.

The

CX 855, at

at 4843-14.

666CC. In July 19851 Mitsubishi's price schedule for its MA854-3S (a
C

lower cost 1.6 megabyte) was offered t o

C

Tokyo,

C

drive was

1.

, delivered

$

(ex-go-down-Tokyo,

$

for

$

(ex-go-down

Thc?' price schedule for the 0.5 megabyte

, delivered

$

1.

cx 849:

Foster, Tr. 4776.
66600.

C

reduced the price of floppy disk drives offered to

Tandy because of excess inventory.
#-

c

Chidambaram, Tr. 1728-29.

is MELA's largest customer, currently representing

666EE.

percent or more of Mitsubishi's total U.S. sales.
666FF. MELA is currently supplying

C

Foster, Tr. 4737.
with two 5-114 inch

half-height disk drives, the M4851 (0.5 megabyte) and the M4854 (1.5 megabyte,
96 TPI).

Matsushita is the only other vendor that has been qualified by

t o provide it with 48 TPI, 0.5 megabyte disk drives.

C

is

currently in the process of evaluating disk drives from other suppliers.
Foster
C

Tr

4738-39.

is currently evaluating Tandon double-sided disk drives.

666GG.

MRX 59, Tandon's Response to Request t o Request for Admissions No. 130, at 50:
Edvards, Tr. at 3726.
C
C

666".

.

Mitsubishi lost

Mitsubishi's prices by
Foster, Tr. 4762, 4872;

$

to

as a customer when Shugart undercut
$

see a l s o ,
--

a drive to salvage its excess inventory.
Neun, Tr. 3473.

346

.

6 6 6 1 1 . The license agreement between H e u l e t t - P a c k a r d

(H-PI and Tandon

g a v e H-P the r i g h t t o make, have made ( e x c e p t by S h u g a r t ) , use, and s e l l
double-sided d i s k d r i v e s u t i l i z i n g t h e '573 patent.
6 6 6 5 5 . H-P
single-sided

CX 6 1 7 , a t 3 .

informed Tandon t h a t i t d e c i d e d t o incorporate a 3-1/2

d r i v e , r a t h e r t h a n a 5-1/4

i n c h d r i v e , i n a new computer model,

and t h a t it planned t o p r o c u r e s u c h d r i v e s -from Sony.
1 9 8 5 , H-P has been p u r c h a s i n g d o u b l e - s i d e d
T h e s e are l i c e n s e d sales.

inch

3-1/2

S i n c e t h e baqinning o f

i n c h d i s k d r i v e s from Sony.

Abraham, CX 7 1 4 , a t 1 2 ; CX 617.

666KK. Pursuant t o t h e Tandon-IBM L i c e n s e Agreement, Tandon g a v e IBH
the r i g h t t o make, have made, use, l e a s e , s e l l and otherwise t r a n s f e r Tandon
Licensed Products.

CX 6 2 1 ,

a t 7-8.

666LL. MELCO Japan has r e c e n t l y d i s c l o s e d that it has a contract to
s u p p l y IBM w i t h 2 5 0 , 0 0 0 3-1/2

inch floppy d i s k d r i v e s , with production to

b e g i n i n t h e s p r i n g of 1986.

T h e s e are l i c e n s e d sales.

E.

CX 877; C x 621.'

Texas Peripherals
666MM. T e x a s P e r i p h e r a l s (TP) is j o i n t l y owned and o p e r a t e d by Tandon

and Tandy C o r w r a t i o n .
666".

CX 6 6 6 , a t 14: CX 619.

T e x a s P e r i p h e r a l s was a l l o w e d to s e l l d i s k d r i v e s only to

Tandon and Tandy unless otherwise a g r e e d t o by Tandon and Tandy.

CX 6 6 6 ,

at

14
666PP. TP's employees r e c e i v e wage r a t e s competitive w i t h those p a i d i n
t h e F t . Worth area, and i n a d d i t i o n , a package o f f r i n g e b e n e f i t s i d e n t i c a l t o

those of Tandy C o r p o r a t i o n , w h i c h i n c l u d e p a r t i a l l y p a i d m e d i c a l insurance, a
l i f e insurance p l a n , a retirement p l a n , and a p a r t i a l l y p a i d stock p u r c h a s e
plan.

H a l d i , C X 7 1 1 , a t 45.

347

667.
5-114

A Product Evaluation RequestIRcport

on TP's h a l f - h e i g h t

i n c h d o u b l e - s i d e d disk d r i v e was r e c e i v e d by TP from t h e Computrr

P r o d u c t E n g i n e e r i n g d i v i s i o n o f Tandy i n r a r l y O c t o b a r 1 9 8 5 .
d a t e d August 1 9 , 1 9 0 4 , and O c t o b e r 3 , 1 9 8 4 . )
d r i v e is equal or b e t t e r t h a n t h e TEAC Drive.

Hochman, T r .

1655-59;

IS

T h i s report c o n c l u d z d , " T h i s
I t w i l l hold alignment l o n g e r ,

and h a n d l e s h i p p i n g S e t t e r due t o t h e cast chassis.
acceptable."

(The r r a o r t

...

This drive is

CX 7 2 7 , a t B a t e s No. 0 2 8 5 9 9 - 6 0 4 .

667A. P u r c h a s e o r d e r s from Tandon and Tandy werir o n l y for one rnontn's
Supply a t a time, w h i c h made it d i f f i c u l t t o n e q o t i a t e f a v o r a b l e p r i c i n g for

materials.
C

Huenemeier , T r

667B.

.

327.

I n December 1 9 8 4 , d i s k d r i v e p a r t s

C

TRX 72.

C
C

667C.

.

C
C

Hochman, T r . 1648.

6671). As o f December 1 9 8 4 ,

C
C

C
C

.

C

.

Hochinan, Tr. 1 6 4 6 ; TRX 72.
667E.
C

I n Decembzr 1 9 8 4 , t h e r e j e c t r a t e a t TP for head a s s e m b l i e s

r e c r i v r d from Tandon was

percent.

TRX 72.

348

.

I

667F. In January 1985, TP

TRX 74; TRX 75; TRX 76.
667G. In its fourth trial production shipment to

C

TRX 77.

C

F.

Shugart
668.

In 1983, Shugart was the second largest floppjt disk drive

manufacturer in the world behind Tandon.

Sollnan, Tr. 100-01.

668A. Annual sales at Shugart at the end of 1983 were approximatrly
$240 million.

Sollman, Tr. 100-01.

6688. In 1983, Shugart abandoned its program to develop half-height
,

5-114 inch double-sided disk drives.

It turned to its Japanese licensee,

Matsushita, and entered into a purchase agreement for half-height double sided
disk drives.

Sollman, Tr. 93-97.

668C. Shugart's double-sided floppy disk drive lines had experienced
continued and sustained profits throughout the entire history of the floppy
disk drive division until the end of the second quarter of 1984 when the 3-112
inch floppy disk drive business had deteriorated substantially and pricing had
dropped significantly in the marketplace with respect to 5-114 inch
double-sided disk drives.
668D. According to

Neun, CX 8 2 1 , at 10; Sollman, Tr. 101.
W.

Neun, as of December 6, 1984, Shugart-had an

employee benefit package which included life insurance, health insurance,
dental insurance, vision care, and pension and bonus plans.
9-10: Neun, ~ r .3411: CX 865.

349

Neun, Cx 8 2 1 , at

668E.

C

t h e i n d u s t r y norm.

6688.

C

-

percentile of

N e u n , CX 8 2 1 , a t 10.

S h u g a r t expended a p p r o x i m a t e l y

i t s research and d e v c l o p a e n t program.

p e r c e n t of i t s g r o s s s a l e s on

N e u n , CX 821, a t 11.

I n 1 9 8 3 , CDC had a p p r o x i m a t e l y a 2 0 p e r c e n t share of t h e

669.
full-height

to

S h u g a r t p a i d wages t h a t v a r i e d from t h e

5-114

the h a l f - h e i g h t

i n c h f l o p p y d i s k d r i v e b u s i n e s s and a m i n i m a l p e r c e n t a g e o f

5-114

i n c h disk d r i v e business.

I n 1 9 8 4 , CDC had

a p p r o x i m a t e l y a 20 p e r c e n t share of the f u l l - h e i g h t

i n c h floppy d i s k

5-114

d r i v e b u s i n e s s and a 10 p e r c e n t share o f t h e h a l f - h e i g h t

5-114

inch disk.drivc

A t t h e p r e s e n t time, CDC has i n c r e a s e d its share of t h e f u l l - h e i g h t

business.

b u s i n e s s , b u t o n l y has a 2 p e r c e n t share of the h a l f - h e i g h t

business.

Ouslry,

T r . 633-34.
669A.

During t h e p e r i o d 1 9 8 0 t o 1 9 8 3 , CDC r e a l i z e d p r o f i t s e a c h y e a r

from t h e f l o p p y d i s k d r i v e b u s i n e s s .
6698.

C

O u s l e y , CX 820,

I n 1 9 8 4 , CDC expended a p p r o x i m a t e l y $

a t 8.
million for research

and development for f l o p p y d i s k d r i v e , i n c l u d i n g RLD for i t s 5-114
megabyte d r i v e and i t s 3-112

inch drives.

i n c h 1.6

All of s u c h RLD took p l a c e i n the

U n i t e d S t a t e s and v i r t u a l l y a l l of s u c h RLD r e l a t e d t o d o u b l e - s i d e d d i s k
drives.

O u l s e y , C x 8 2 0 , a t 4.
669C.

I n 1 9 8 4 CDC’decided t o move the m a j o r i t y of i t s - f l o p p y d i s k

d r i v e p r o d u c t i o n offshore, b e c a u s e CDC c o u l d produce d r i v e s i n t h e Far E a s t a t
C

approxinately t

/ u n i t less t h a n i n t h e U n i t e d S t a t e s .

350

Ousley, Tr.

665-66.

I

669D.

Zn '!r.

3US:ey's

opinion, CDC's amplaye;.

2nd

f r i n g e 3enPf:TS

for

its employaes in tna floppy disk drive a r a a ara at l a a s t comnansurate w i t n
those which are customarily provided by computer peripheral companies to their
employees.

H.

ousleyl CX 820, at 8 -

IBM
669E. IBM, on an ongoing basisl engages in research and development at

its Boulder, Colorado, facility in connection with the products i t
nanufacturss €or the aurposes of designing new products and inproving the
designs and features of its current products.

Such ressarch and development

activities have included research and development activities with respect to
e

.

ISM'S 5-1/4 inch double-sided floppy disk drives and the components used in
such drives, including the head assemblies.

Fensteraaker, CX 859, at 4.

669P. The IBM employee benefits program provides protection, securityl

and opportunity, and is one of the finest in the industry.

IBM

intends to

maintain an average level of pay that is higher than the average level for
similar skills in other companies with which IBM competes for employees and
with which it competes in the marketplace, thus assuring that IBM rates will
be competitive.

IBM management believes that its wage rates have been

competitive to date.

Fenstetmaker, CX 859, at 4-5.

351

VII.

A.

INJURY

General
670.

Sales of double-sided floppy disk drives increased steadily

from 350,000 units in 1980 to 3,951,000 units in 1983.

The growth was most

significant for sales of f-1/4 inch double-sided disk drives, which increased
from 804,000 drives in 1982 to 3,496,000 drives in 1983.
671.

CX

711, at 27.

In mid-1981, Mr. Sollnan of Shugart was informed by its license

agreement partner Matsushita that a major contract award for floppy disk
drives would be made by Nippon Telephone and Telegraph ( N T T ) .

672.

Sollman, Tr. 78

Xn mid-1981, NTT informed the vendor community in Japan about a

potential request for quote (RFQ) of between 100,000 and 5 0 0 t O O 0 half-hciqht
I

double-sided disk drives.
outside an IBM order.
673.

This would have been the largest order in the world

Sollman, Tr. 78-79.

Pifteen to 20 Japanese companies were requested by N T T to bid

on this contract, and at that time only TEAC? Matsushita, and Nitsubishi had
floppy disk drive production capacity.

The other companies were newcomers.

No United States companies were requested to quote.

674.

The WQ required the successful recipients to demonstrate a

production capacity of some magnitude.
675.

Sollman, Tr. 79-80.

Sollman, Tr. 79.

Matsushita warned Shugart that the result of the NTT request

for quote would be to generate excess capacity in the Japanes? market and
Sales of Japanese disk drives in the United States.
676.

Sollman, Tr; 80.

Shugart was also informed by Xatsushita that MITI had decided

in 1981 that computer peripherals, including floppy disk drives, would be an
important area of endeavor for Japan in the 1980s.

352

Sollman, T r . 84-85.

c

677.

Shugart firstfaced pricc cornpetition from five ar six Japan+sP

companies in Europe in mid-l983--TEAC and Mitsubishi rere predominant.

Prize

competition in the United States was not that severe at that time, although
price competition from Japan became more intense at the end of 1983, when
Sollman, Tr. 94-95.

prices closed at $117.
678.

According to a. Sollman of Shugart, price declines contributed

substantially to Shugart's deteriorating profits in 1993.
679.

Sollman, Tr. 269-71.

In January 1985, a TCA gross profit report showed that TCA was

selling floppy disk drives to A&A International (the international purchasing

c

arm of Tandy (TRX 28, at 2)) at a unit price of

C

$

.

Cx

C

and a unit cost of

16, at 252250.

680.
I

$

In a Tandy memo, TEAC was quoted as saying that their August

1984 selling price of

$

delivered was a "rockbottom

price which barely

covered their cost of production, and TEAC wo.?d be able to shade prices no
further until the introduction of their "VA" ~ - r s i o ndisk drive.

CX

741, at

2986.
681.
profit.

Mr. Brehme of TCA believed that Mitsubishi is not making a

The basis for this belief is the reported existence of an oversupply

of Mitsubishi disk drives in Japan.

Brehme, Tr. 2754-55, 2766, 2768-69.

68lA. In reaching his conclusion concerning the oversupply of
Mitsubishi disk drives, MI. Brehme relied on Mr. Osawa's witness statement.
Hodever, Mr. Osawa in his witness statement referred to Matsushita, not
Mitsubishi, as having an oversupply of 50,000 drives in the United States a s
of Xarch 1985.

Brchme, Tr. 2754-55; Osawa, TRX 28, at 8.

353

i n v e n t o r i e s o f M a t s u p h i f a d r i v e s as o f

681B. The! value of S h u g a r t ' s

million.

c

December 1 9 8 4 e x c e e d e d $

c

by S h u g a r t i n December 1 9 8 4 were
SA-465s.

Quantities of Matsushita d i s k d r i v e s held

to

S A - 4 5 5 ~ ~and

Neun, Tr. 3438-39.
681C. I n 1 9 8 5 , S h u g a r t began s e l l i n g M a t s u s h i t a d i s k d r i v e s for

whatever t h e market would b r i n g .
682.

Neun, T r . 3473-74.

498,800 d r i v e s i n 1982 to 1 , 0 8 4 , 6 0 0 d r i v e s i n 1983.
DT13-13;

CX 6 7 9 , a t DT12-11,

683.

S h u g a r t ' s sales of d o u b l e - s i d e d d i s k d r i v e s i n c r e a s e d from

CX 6 7 9 , a t DT12-11,

684.

CDC's

CX 6 7 9 , a t D T U - 1 1 ,

CX 6 7 8 , a t DT11-11,

sales of d o u b l e - s i d e d d i s k d r i v e s i n c r e a s e d from 8 1 , 6 0 0
CX 6 7 8 ,

a t DTl1-11, DTl3-13;

DT14-15.

Micro P e r i p h e r a l ' s sales of d o u b l c - s i d e d d i s k d r i v e s i n c r e a s e d

from 6 5 , 9 0 0 d r i v e s i n 1 9 8 2 t o 4 0 1 , 2 0 0 d r i v e s i n 1983.
DT13-13;

CX 6 7 9 ,

686.

3.1
Of

CX 6 7 8 ,

a t DTl1-11,

a t DT12-11, DT14-15.

I n 1 9 8 2 , Tandon and i t s p r e s e n t licensees h e l d 76.0 p e r c e n t of

t h e U n i t e d S t a t e s OEM market for 5-114
drives.

DT13-13;

DT14-15.

d r i v e s i n 1982 t o 4 2 1 , 8 0 0 d r i v e s i n 1983.

685.

CX 6 7 8 , a t DTl1-11,

DT14-15.

7 8 , 9 0 0 d r i v e s i n 1982 to 215,900 d r i v e s i n 1983.

I

P

Tandon's sales of d o u b l e - s i d e d d i s k d r i v e s i n c r e a s e d from

i n c h and 8 i n c h d o u b l e - s i d e d

disk

T h e M i t s u b i s h i r e s p o n d e n t s h e l d 11.5 p e r c e n t of t h e 8 i n c h market and

p c r c r n t of t h e 5-114

the 5-114

i n c h market.

i n c h market o n l y .

The TEAC r e s p o n d e n t s h e l d 2.4

CX 6 7 8 ,

percent

a t DT11-11, DT13-13.

354

t

587.

I n 1 9 8 3 , Tandon and i t s p r e s e n t licensees h e l d 5 5 . 0

p e r c e n t or'

t h e U n i t e d S t a t e s OEM narket for 5-114 i n c h a n d 8 i n c h d o u b l e - s i d e d d i s k
drives.

T h e N i t s u b i s h i r e s p o n d e n t s h e l d 11.2 p e r c e n t of t h e 8 i n c h market and

1 2 . 2 p e r c e n t of t h e 5-114 i n c h market.

The TEAC r e s p o n d e n t s h e l d 9 . 3 p e r c e n t

of t h e 5-114 i n c h market o n l y .

a t DT12-11, DT14-15.

688.

CX 6 7 9 ,

I n A p r i l 1 9 8 5 , t h e U n i t e d S t a t e s m a r k e t s h a r e of TEAC,

M i t s u b i s h i , and Sony was e s t i m a t e d t o b e between 18 percent and 19 p e r c e n t for

a l l double-sided d i s k d r i v e s .

Abraham, T r .

1123-26.

688A. M i t s u b i s h i ' s c u r r a n t market s h a r e for d o u b l e - s i d e d d i s k d r i v e s
C

is e s t i m a t e d t o be

percent.

Foster, Tr. 4929.

688B. MELA's l a r g e s t customers i n t h e U n i t e d S t a t e s d u r i n g 1 9 8 4 , .
C

a c c o u n t i n g for a b o u t

p e r c e n t of i t s s a l e s , were

C

Foster, T r . 4 7 3 2 .

C

688C. I n January-June

1 9 8 5 , b a s e d on sales r e v e n u e for its p e r i p h e r a l

d i v i s i o n , !ELA's l a r g e s t customers were

.
C

T h e s e customers a c c o u n t e d for

p e r c e n t of MELA p e r i p h e r a l sales i n January-June

609.

1985.

CX 535.

I n 1 9 8 2 , Tandon and i t s licensees held 8 1 . 6 gercent of t h e

U n i t e d S t a t e s OEM market for 5-114

i n c h d o u b l e - s i d e d d i s k d r i v e s , while!

r e s p o n d e n t s M i t s u b i s h i and TEAC combined h e l d 5 . 5 percent o f t h i s - m a r k e t .
Cx 6 7 8 , a t DT13-13.

355

I n 1 9 8 3 , Tandon and i t s licensees h e l d 55.6 p e r c e n t of t h c

690.

U n i t e d S t a t P s OEM market for 5-114

i n c h double-sided

disk drives.

The

f l i t s u b i s h i r e s p o n d e n t s h e l d 1 2 . 2 p e r c e n t o f t h i s market and the TEAC
r e s p o n d e n t s h e l d 9.3

percent.

-411 of t h e 2 6 . 0 p e r c e n t a g e ?oint d r o p i n

Tandon's and i t s licensees' market s h a r e between 1 9 8 2 and 1 9 8 3 was a t t h e
e x p e n s e of Tandon, w h i l e Tandon's

licensees expanded t h e i r market share.

CX 6 7 8 , a t ~ T 1 3 - 1 3 ; Cx 6 7 9 , a t DT14-15.

I n 1 9 8 3 , Tandon was t h e l e a d i n g 5 - 1 1 4

690A.
C

manufacturer.

C

or
drives.

T h a t i s , Tandon s o l d

5-114 i n c h d o u b l e - s i d e d d r i v e s

,

of t h e market, v i r t u a l l y a l l of w h i c h were f u l l - h e i g h t
Huencmeier, CX 835, a t 2-3.
From 1 9 8 2 t o 1 9 8 3 , t h e h a l f - h e i g h t

691.
d.

inch full-height

worldwide s h a r e of t h e 5-114
p e r c e n t t o 54.7

percent.

disk d r i v e increased its

i n c h d o u b l e - s i d e d d i s k d r i v e market from 24.8

T o t a l world OEM s a l e s of t h e 5-114

i n c h double-sided

d i s k d r i v e i n c r e a s e d from 1 , 2 6 9 , 4 0 0 u n i t s i n 1 9 8 2 t o 5 , 6 7 9 , 8 0 0 u n i t s i n 1 9 8 3 ,
w i t h most of t h i s increase a t t r i b u t a b l e t o h a l f - h e i g h t d r i v e s .
DT13-11;

CX 6 7 9 ,

units.

floppy d i s k d r i v e s increased'from

Non-U.S.

inch half-height

314,300 u n i t s to 3,107,000

s u p p l i e r s (Japan a c c o u n t i n g for a b o u t 9 0 p e r c e n t of non-U.S.

s u p p l i e r s of f u l l and h a l f - h e i g h t
p e r c e n t of t h i s increase w h i l e U.S.

c o n t r a s t , u.S.

at

a t DT14-13.

691A. From 1 9 8 2 t o 1 9 8 3 world market sales o f 5-114
double-sided

CX 6 7 8 ,

5-114

i n c h d r i v e s ) captured approxinately 83

s u p p l i e r s captured 16 percent.

By

s u p p l i e r s c a p t u r e d 96 p e r c e n t of t h e t h e 1 , 6 1 7 , 4 0 0 u n i t

increase i n 5-114 i n c h f u l l - h e i g h t d o u b l e - s i d e d d i s k d r i v e s h i p m e n t s o v e r t h e
same pried.

CX 6 7 8 , a t DT13-11,

DT 1 3 - 1 3 ; CX 6 7 9 , a t DT 6 7 9 , a t DT14-13,

DT14-15.

356

.

.

6918. The year 1982 was the last year full-size,drives held the
majority of unit shipments.

In 1983, half-height drives accounted for 57.6
CX

percent of 1983 worldwide unit shipments,

679, at DT 14-6.

691C. In 1984, approximately 4.8 million units of double-sided
5-1/4 inch double-sided floppy disk drives were sold in the North American
market.

MRX 51, at 20.
691D. In 1984, there were still sales of full-height 5-1/4 inch

double-sided disk drives in the United States for use in, for example, the IBM

PC and XT computers.

cx 679, at DT 1 4 - 5 ,

14-6,

MRX

51, at 23.

691E. In 1984, 5 3 percent of the North American flexible disk drive
business was attributed to sales of 5-1/4

inch double-sided drive.

MRX’5l;at

9.

691F. The 5-1/4

inch flexible disk drive market is characterized by

extreme production overcapacity, especially in Japan.

In this market, 5 0

Suppliers provide more than 400 models, while eight to ten of these suppliers
could satisfy world demand.

M R X 51,

at 22.

691G. Domestic producers estimate that there exists 20 to 35 Japanese
companies competing in the U.S.

floppy disk drive industry.

MRPX S 2 C , Vol I V ,

at 325; Ousley, TI. 712; Edwards, Tr. 3747-48.
691H. The record establishes that these nonrespondtnt companies have
imported and sold the following models into the United States:

357

-

Canon
Epson

5-114"
Model MDD 211
5-1/4" -. Model S D 521
Model SND 140
3-112"
5-114"
Model HFD505B
Model HFD305D
3"
5-114"
Model MDP-2
5-114"
Model FD1055
5-114"
Model GM330511
5-114"
Model X3132
5-114"
Model 142
3"
Model FDC355-Da
5-114"
Model FDASZOOB
5-114"
Model FB-503
5-114"
Model PDD5401E
Model FDD-212--504
5-114"
5-114"
Model YD-380

-

---

Hi tach1
Hi tach i
JVC
NEC
Okidata
Phillips
Qume
Sankyo
Sum i tomo
TEC
Toshi ba
World Storage Tech
YE Data

---

6911. Business and technology trends indicate that price erosion in
the 5-114 inch flexible disk drive market will continue into the $60 to $70
range on large contracts.

-

MRX 51, at 23; see Edwards, Tr. 3747-48.

I

6915. The 1985 Dataquest Report concludes that pricing on the flexible

disk drive market is based on lorest-cost producers economies of scale and
that offshore manufacturing is essential for all United States' producers.

691K. In .March 1985, Shugart was offering disk drives at prices of
C

si

C

customers.

C

to

.

s

in order to move product and maintain contact with their
The price offered by competitors at this time was in the

New, Tr. 3408-09.

691L. In April 1985, disk drive prices were expected to fall an
additional 15 to 20 percent over the following year.
C

c

691M. According to Mr. Neun, a price of
quoted today to such major accounts as

358

$

Brehme, Tr. 2703.
is actively being

.

Ncun, Tr. 3409.

6

692.
5-114

A c c o r d i n g t o Tandon, it was l a t e i n e n t e r i n g t h e h a l f - h e i g h t

i n c h floppy d i s k d r i v e market i n p a r t due t o t h e t h e f t of t r a d e secrets

by i t s own employees.

Iialdi, Tr.

1302-03.

692A. The floppy d i s k d r i v e market i s c h a r a c t e r i z e d by short p r o d u c t
Malmgrcn Dttp., a t 1 3 , 86.

life cycles.

692B. The t r e n d i n f l o p p y d i s k d r i v e market demand can be b r o a d l y
c h a r a c t e r i z e d as toward smaller and h i g h e r c a p a c i t y f l o p p y d i s k d r i v p s .
CX 6 6 7 , a t 1 2 ; CX 6 7 9 , a t SUM-16.

693.

S h u g a r t endeavored t o d e v e l o p 5-1/4

inch half-height disk

d r i v e s (Models A and B), b u t i n 1 9 8 3 d e c i d e d t o market M a t s u s h i t a - p r o d u c e d
5-114

i n c h h a l f - h e i g h t d i s k d r i v e s ( X o d e l s SA-455,

SA-465)

i n the U n i t e d

S t a t e s b e c a u s e the p r i c e from M a t s u s h i t a was lower t h a n S h u g a r t ' s own
e s t i m a t e d cost of p r o d u c t i o n .

1.

694.

S o l l n a n , Tr.

82-83,

268-69.

C D C ' s estimate of t h e p r e v a i l i n g market p r i c e s for f u l l - h e i g h t

i n c h d o u b l e - s i d e d d i s k d r i v e s ranged from $

to $

per u n i t i n

C

5-114

C

mid-1983;

C

between $

to 3

per u n i t .

I n A p r i l 1 9 8 5 , p r i c e s on normal b i d s ranged

C

between $

to $

per u n i t .

O u s l e y , Tr. 652-53.

for mid-1984, between 3

695.
5-114

and $

per u n i t :

for t h e end of 1 9 8 4 ,

CDC's estimate of t h e p r e v a i l i n g market p r i c e s for h a l f - h e i g h t

i n c h d o u b l e - s i d e d floppy d i s k d r i v e s for t h e summer of 1 9 8 4 r a n g e d from
..

to $

per u n i t :

for the f a l l of 1 9 8 4 , under

C

$

C

of 1 9 8 4 ,

C

p r o c u r e n r n t were i n t h e $

per u n i t .

$

696.
mid-1984.
C

$

p e r u n i t : a t t h e end

I n A p r i l 1 9 8 5 , p r i c e s for any s u b s t a n t i a l new

per u n i t range.

Ousley, Tr.

653-54.

.

The f l o p p y d i s k d r i v e n a r k e t was r e l a t i v e l y s t a b l e u n t i l

A t t h a t time t h e market became u n s t a b l e ? and p r i c e s dropped

average of 3

.

pcr u n i t per month.

Dusley, Tr.

359

666-67.

an

696A. A c c o r d i n g t o Tandon's f i n a n c i a l statement, Tandon was a b l e ' t o

lower i t s m a n u f a c t u r i n g costs i n 1 9 8 3 due i n l a r g e p a r t t o i t s n a n u f a c t u r i n g
o p e r a t i o n s i n S i n g a p o r e and I n d i a .

for l o w - p r i c e d d i s k d r i v e s .
697.

T h i s e n a b l e d it t o meet t h e market demand

CX 6 6 5 , a t 1 3 .

A c c o r d i n g t o Tandon's

f i n a n c i a l statements, f l o ? p y d i s k p r i c z

d e c l i n e s i n f i s c a l 1 9 8 4 ware a t t r i b u t a b l e t o a t l e a s t three f a c t o r s :
( 1 ) intense p r i c e c o m p e t i t i o n i n t h e p e r s o n a l computer i n d u s t r y and
c o r r e s p o n d i n g p r i c e p r e s s u r e on d i s k d r i v e s u p p l i e r s ;

( 2 ) t h e emergence o f

nunerous f o r e i g n nanufacturcrs i n Japan and elsewhere; and ( 3 ) a r a p i d and
broad-based i n d u s t r y t r e n d toward ( l o d e r - p r i c e d ) h a l f - h e i g h t
disk drives.
698.

C

c o s t (f.0.b.
699.

40 p e r c e n t .

i n c h floppy

CX 6 6 6 , a t 2 2 ; CX 6 6 7 , a t 12.
TCA t r i e s to s e l l a t a p r i c e t h a t is
Japan p r i c e , f r e i g h t , and customs).

p e r c e n t above i t s b a s e

Brehme, Tr. 2 7 1 5 .

I n 1 9 8 4 , TEAC Japan dropped i t s d i s k d r i v e p r i c e s t o TCA three

times, and TCA's U n i t e d S t a t e s p r i c e dropped a c c o r d i n g l y .
700.

5-114

Brehme, T r . 2715-16.

S i n c e December 1 9 8 4 , TEAC p r i c e s h a v e d e c r e a s e d by from 30 t o

Brehme, T r . 2711.

700A. I n 1 9 8 5 , Matsushita, TEC, E p s o n , TEAC, M i t s u b i s h i , and A l p s have

c

q u o t e d f a c t o r y p r i c e s i n Japan r a n g i n q from the h i g h $

c

5-114

inch half-height

double-sided d r i v e s i n t h e

8

t o t h e mid-$
q u a n t i t y range.

for
The

amount t o be added t o these p r i c e s t o o b t a i n a d e l i v e r e d U n i t e d S t a t e s p r i c e

c

would be r o u g h l y 6

or less.

Chidambaram, T r .

360

1713-16.

B.

Shuqart
701.

Shugart Associates, a subsidiary of Xerox Corporation, is

located at 475 Oakmead Parkway, Sunnyvale, California 94086.
licensee of Tandon's
July 1, 1980.

U.S.

Shugart is a

Letters Patent No. 4,151,573 (the '573 patent) as of

Complaint, 1 59; CX 616.

Shugart was formed in the mid-1970s by Allen shugart and
..
several key employees who had worked together at IBM and Memorex on disk drive
702.

designs.

Sollman, Tr. 36-40.

In 1976, Shuqart had 50 to 60 employees.

Sollman, Tr. 39.
703.

By January 1976, Shugart was a single-product company with

sales of $1.5 million to $3.0 million in 1975 and projected sales of $6.0
million for 1976.

Actual 1976 sales were $9.0 million.

-

The single product

was an 8 inch single-sided floppy disk drive selling for $400 to $500.
Sollman, Tr. 37-38, 42.
704.

By the end of 1981, Shugart employed 2,700 individuals and had

annual sales of approximately $198 million.

The company was located in

Sunnyvale and Roseville, California, and Nogales, Mexico (300 employees).
Sollman, Tr. 75-76.
705.

In 1981, Shuqart announced a full-height 5-1/4 inch

double-track density version and double-sided version of its own design.
After Shuqart began to sell these products, it began to notice some pricing
competition from Tandon, Control Data, and Japanese _companies. S-hugart was
principally concerned about the competition from Control Data and secondarily,
from Tandon.

Sollman, Tr. 76-77.
...

361

706- A t t h e s p r i n g 1982 N a t i o n a l Computer conference, S h u g a r t was
the o n l y company t h a t d i s p l a y e d a h a l f - h e i g h t

A t t h e f a l l 1982

product.

.

Comdex show, S h u g a r t , Tandon, and Control Data showed h a l f - h e i g h t d o u b l e - s i d e d
floppy d i s k d r i v e s .

Twelve t o fifteen J a p a n e s e s u p p l i e r s also showed their

products.

half-height

707.

Sollman, Tr.

I n A p r i l 1 9 8 3 , S h u g a r t a s s e s s e d the market c o n d i t i o n s i n Europe

a t key and v i t a l accounts from five or s i x

and saw extreme p r i c e c o m p e t i t i o n
J a p a n e s e manufacturers.

i n t h e United

S h u g a r t a l s o saw lower p r i c e b i d d i n g

S t a t e s from Japanese h a l f - h e i g h t
708.

87.

products.

As 1983 progressed,

p r i c e s down into t h e $120 range.

Sollman, Tr.

93-95.

p r i c e erosion i n h a l f - h e i g h t d r i v e s brought
Sollman, Tr.

93-95.

S h u g a r t t u r n e d tp

J a p a n e s e licensee, Matsushita, and e n t e r e d into a p u r c h a s e agreement
I

h a l f - h e i g h t double-sided

account.

S o l l m a n , Tr.

I n 1 9 8 3 , S h u g a r t found i t s e l f i n head-to-head

Japanese products

for

f l o p p y d i s k d r i v e s w i t h p r i c e s r a n g i n g 'from $124 t-o

under $100 depending upon t h e q u a n t i t y o r d e r e d .
709.

its

97.

competition w i t h

a t v i r t u a l l y e v e r y major U n i t e d S t a t e s and European

Sollman, T r . 97-98.

"The outcome vas that we had t o a d j u s t a l l of

our p r i c i n g s u b s t a n t i a l l y downward y e t a g a i n w i t h severe p r i c e erosions and
t h e n p r o f i t erosions t h a t had t o n a t u r a l l y follow.'
710.
$112.

The

Shugart lost

a NCR b i d to

TEAC; S h u g a r t b i d $ 1 2 5 ,

contract was for 2 0 0 , 0 0 0 u n i t s per y e a r .

711.

S o l l m a n , Tr.

Sollman, Tr.

98.

TEAC b i d
98.

S h u g a r t lost a Convergent T e c h n o l o g i e s b i d t o M i t s u b i s h i for

1 0 0 , 0 0 0 d r i v e s per y e a r .

Sollman, Tr.

98-99.

...

362

911A. Mr. NeUn stated that Shugart l o s t the

C

account t o Mitsubishi for 250,000 96 t p i double-sided drives per year during
the second and t h i r d quarters of 1984.
C

Shugart s a l e s personnel.werc informed

t h a t no natter how aggressive Shugart's p r i c i n g was over t h i s

by

t i n e period, M i t s u b i s h i ' s pricing was always lower.
t o l a n d t h i s account, Shugart failed.

After repeated attempts

According t o Mr. Neun, p r i c i n g was a

New, CX 821, a t 11.

key reason.

9118. I n June 1983, MELA and Shugart competed for s a l e s o f floppy disk
C

.

drives t o the

MELA

obtained the account.

Foster Dep.,

CX 447, a t 319.

711C. Mr. Neun stated that Shugart l o s t the

C
C

second quarter of 1984 t o M i t s u b i s h i .
30,000 d i s k drives per year.
reason.

The

account was for 20,000 t o

According t o Mr. Neun, pricing was a key

Neun, CX 821, a t 12.

2 0 , 0 0 0 t o 3 0 , 0 0 0 d i s k drives per year t o : . l i t s u b i s h i

1984.

i n the second quarter o f

According t o M r . Neun, p r i c i n g was a key reason.

Neun,

(Shugatt began s e l l i n g a 1.6 megabyte! product, the SA-475, t o
beginning of 1985.

C

account for

911D. Mr. Neun stated that Shugart lost the

C

C

account i n the

711E. The

CX

821, a t 12.
a t the

Neun, Tr. 3429.)
account, where Shugart a l s o had had 1 0 0 percent

of the business as l a t e as April-May o f 1984, started purchasing drives from
C

Mitsubishi.

According t o Mr. Neun,

used the M i t s u b i s h i low+r

prices as a lever t o drive the Shugart prices down.
C

S h u g a r t , by

Neun,

lovering i t s p r i c e s , was able to retain the

Neun, Tr. 3430-31.

363

CX

821, a t 12.

account.

711F. On A u g u s t 1 5 , 1981, a M i t s u b i s h i account/prospcct review noted
t h a t MELA

t o obtain the 0 . 5

"

megabyte (Yl4851) floppy d i s k drive business from Corons Data Systems.

.'I

''

CX 5 4 6 , Bates

No. 526483.
V

..

711G. I n A u g u s t 1 9 8 4 , a MELA account/prospect review noted t h a t : G L A ' s
C

strategy should Sa

C

d i s k drive business from

.

C

C X 5 4 7 , Bates No. 524565.

for 96 t p i double-sided d i s k drives for approximately

d r i v e s per month t o M i t s q b i s h i .
I

t o obtain floppy

711H. I n the second quarter of 1 9 8 4 , S h u g a r t l o s t t h e

C
C

"

"

reason.

N c u n , CX 821, a t 11.
account for

the

drives i n the fall o f 1984.

712.

account

to

disk

According t o Mr. N c u n , price was a key
S h u g a r t l o s t a second s a l e t o M i t s u b i s h i for

to

48 t p i and 9 6 t p i half-height

Neun, Tr.

3412-13.

I n October 1 9 8 3 , Shugart experienced i t s f i r s t layoff.

Shugart

h a d grown t o 3 , 6 0 0 employees, a l l b u t 550 of whom were located i n t h e ! United

Statps.

The October l a y o f f equaled 7 - 1 1 2 percent of the work force.

Sollman,

Tr. 99.
713.

Shugart's annual s a l e s for 1 9 8 3 was $ 2 4 0 a i l l i o n dollars.

At

t h a t time, Shugart was the world's second l a r g e s t manufacturer of floppy d i s k

d r i v e s behind Tandon.
714.

Sollinan, T r .

100-01.

The +xtrerne competitive znvironaent a t the end o f 1983 caused -

Shugart's p r o f i t a b i l i t y t o erode s u b s t a n t i a l l y ,

354

S h u g a r t f i r s t Secane

profitable in July 1975.

The first time Shugart saw a' rapid prosion of its

profitability was in 1983.

In January 1984, it suffered an operating l a s s .

Sollnan, Tr. 101; Neun, CX 821, at 10.
715.

Shugart had charted the price dpclines of 1983 and concluded

that the decline had a very negative long-term impact.

Sollnan, Tr. 101.

Shugart considered several economic alternatives to recover from the erosion
in profits, including setting up an offshore production facility in either
Singapore, Taiwan, or South Korea.
716.

Sollman, Tr. 101-02.

Shugart task forces in mid to late 1982 recommended the

inmediate establishment of a production facility in Singapore.

Shugart,

however, was unable to receive management's approval for the cstablishaFnt of
this facility.

That is, Shugart needed the approval of Fuji-Xerox, a Japanese

joint venture owned by Shugart's parent corporation Xerox and Faji-Foto Films,

,

before any manufacturing could take place in that part of the world.
never received the approval of Fuji-Xerox.

Shugart

Sollman, Tr. 103-04.

716A. In the first quarter of 1984, with the Japanese competition
beginning to take its toll in the marketplace, Shugart sold everything it
C

could make and experienced a book to build ratio of

.

This was

due to Shugart's success over the years in obtaining ongoing contracts for
major OEMs and industry recognition of the quality of Shugart's doublt-sided
floppy disk drive products.

Neun,

CX

821, at 5.

716B. Over the next three quarters of 1984, the Shugart floppy disk
drive business was to change dranatically.

By the second quarter of 1984,

disk drive prices started to decrease due to a softening in the marketplace

365

and an increase in foreign competition, particularly from TEAC and Mitsubishi,
according to M r . Ncun.

Ptice-cutting became commonplace, with TEAC leading

the price-cutting during this timeframe.

Neun, CX 821, at 5.

716C. Sales personnel at Shugart were amazed at the pricing done by
TEAC and Mitsubishi.

Shugart simply could not compete, notwithstanding the

recognized quality of their product.

Shugart's margins declined and layoffs
r

continupd.

There were numerous layoffs in the second, third, and fourth

quarters of 1984.

Neun, CX 821, at 6.

716D. By the time the fourth quarter of 1984 began, Shugart's floppy
disk drive business was struggling.

The summer season had been soft, which

caused even further price-cutting by TEAC, Mitsubishi, and other foreign
competitors, according to Mr. Neun.

Neun, CX 821, at 6.

716E. Around December 6, 1984, TEAC and Mitsubishi prices, and those

I.

C

of other Japanese competitors, had been cut to the

$

to

$

range, which

Came close to Shugart's actual cost of production, according to Mr. Neun.

It

became c l e a r that Shugart could not continue to compete in that kind of
marketplace.
717.

Neun, CX 821, at 7.
On December 19, 1983, after examining studies regarding the

economic climate as well as what would be required to make the business fully
profitable, Xerox concluded that it could no longer support Shugart.

As

of

January 1, 1984, Shugart's annual reported sales for fiscal year 1983 was $240
million.

Xerox concluded that even with substantial investments, there would

be no way to make Shugart profitable within the next 12 to 18 months.
Sollman, Tr. 104-06, 107.

366

718.

On January 15, 1984, Shugart employed 2,600 people in the

United States and 600 in Mexico and occupied about 490,000 square feet of
space at Roseville and Sunnyvale, California.

By December 6, 1984, Shugart

had experienced several more layoffs, and its employment force had been
reduced to 1,600 to 1,700 employees, 400 of whom were in Mexico.

Sollnan,

Tr. 109, 111-12.
719.

Shugart was still manufacturing double-sided floppy disk drives

in the United States on December 6, 1984, including 8 inch and 3-112 inch
pr,oducts. Sollman, Tr. 113.
720.

In January 1985, Xerox formally announced the closing of

Shugart's 5-114 inch and 3-112 inch floppy disk drive operation at a time when
it still employed 1,400 individuals.

1984 earning statement.

As

Its announcement coincided with Xerox'

for the assets of the Shugart floppy disk drive

business, the 5-114 inch business was sold to Matsushita in February 1985,
including the extensive inventory that had built up over the previous
quarters.

Neun, CX 821, at 8-9; Sollman, T r . 113.

72QA. Production of Shugart's 3-112 inch double-sided floppy disk

drive operation ceased in approximately February 1985, except for the
C
C

fulfillment of existing commitments to
double-sided units.
721.

for production of approximately

Neun, CX 821, at 9.

Xerox has already sold or is in the process of selling the

various parts of Shugart's domestic facilities.

367

Sollman, Tr. 113.

C.

Control Dati-1:drporation
722.

-:ha

i ' , - : ~ r * , '

Corporation (CDC) was granted a license on

September 3 0 , 1 3 6 4 , to mmafacture and sell disk drives under the ' 5 7 3
patent.

Complaint,
723.

0.2;

2 X 62Ca

Oushey, Tr. 6 2 9 , 6 3 2 - 3 3 .

Macjnctic Peripherals, Inc. (MPI), is a partially-owned
MPI was granted a license on

subsidiary of Control Data Corporation.

September 3 0 , 1 9 8 4 , to manufacture and sell disk drives under the ' 5 7 3
patent.

The license agreement resulted from a claim by Tandon that the drives

manufactured by W I were covered by the ' 5 7 3 patent.
CX 6 2 0 ;

see Ousley, Tr.
724.

Complaint, 1 1 5 9 , 6 2 ;

627-29, 632-33.

CDC's subsidiary MPI manufactures flexible disk drives.

a parent company of W I does not manufacture flexible disk drives.

' *

Tr. 691.

Some,

CDC.as

Ousley,

if not all, ~f the head aasambl.ies used by CDC in its

double-sided floppy disk drives produced in the United States are manufactured
by Lafe, which is located in Taiwan or Korea.
725.

Ousley, Tr. 6 9 8 .

CDC's industry position in 1 9 8 3 approxiaated 20 percent o f the

full-height floppy disk drive market and a minimal percentage of the
half-height floppy disk drive market.
726.

Ousley, Tr. 633.

CDC's industry position in 1984 approximated 20 percent of the

full-height floppy disk drive market and 10 percent of the half-height floppy
disk drive market.
727.

CDC's

Ousley, Tr. 6 3 3 .
current industry position approximates more than 20

percent of the full-height disk drive market and two percent of fhe
half-height floppy disk drive market.

Ouslny, Tr. 6 3 3 - 3 4 .

368

-

---

728.

CDC'S i n d u s t r y p o s i t i o n i n t h e t o t a l d i s k d r i v e a a r k e t , which

i n c l u d e s W i n c h e s t e r and f l o p p y d i s k d r i v e s , was 40 p e r c e n t for 1983 and

27 p e r c e n t for 1984.

CDC i n 1983 s h i p p e d $

C

729.

C

units.

C

730.

C

f l o p p y d i s k d r i v e s or

731.

o u s l p y , Tr. 634.
worth o f f l o p p y d i s k d r i v e s or

O u s l e y , Tr. 645, 647; CX 729-30.
worth o f

CDC by December 3 0 , 1984, had s h i p p e d $

units.

Ousley, Tr. 645-46, 648; C X 729-30.

CDC, as of December 30, 1984, had f i r m p u r c h a s e o r d e r s for 1985

of 79,000 f l o p p y d i s k d r i v e u n i t s and had p r o j e c t e d a h i g h p r o b a b i l i t y s a l e s
C

forecast for 1985 of

units.

A h i g h p r o b a b i l i t y o r d e r is d e f i n e d

o r d e r CDC can make a d e f i n i t e commitinent and order p a r t s .

new business a r e not r e f l e c t e d i n t h i s number.
732.

as an

N e w p r o s p e c t s and

O u s l e y , Tr. 648-49; CX 730.

The numbers r e c i t e d i n FF 725-31 c o v e r 5-114 i n c h f u l l - h e i g h t

a n d 5-114 i n c h h a l f - h e i g h t p r o d u c t s .

Of t h e 5-114 i n c h f u l l - h e i g h t p r o d u c t s ,

p e r c e n t p l u s a r e d o u b l e - s i d e d c o n f i g u r a t i o n s ; o f t h e 5-114 i n c h h a l f - h e i g h t
p r o d u c t s , almost a l l are d o u b l e - s i d e d c o n f i g u r a t i o n s .

percent of t h e numbers.

c o n s t i t u t e maybe
733.

CDC's

as
Tr.

u n i t s and 1985 requirements as

units.

floppy d i s k d r i v e s
Ousley,

I n A p r i l 1985, CDC was c o m m i t t c d - t o h i v e i t s o f f s h o r q s u p p l i e r
f l o p p y d i s k d r i v e s , b u t o n l y had o r d e r s for

bu i I d

nunbzr.
C

inch half-height

650-51; CX 731.

734.
C

O u s l e y , T r . 649-50.

f i v e - y e a r m a n u f a c t u r i n g p l a n p r e p a r e d i n l a t e 1983

f o r e c a s t e d i t s 1984 c c q u i r e n e n t s for 5-1/4
C

The o l d 8 i n c h products

A t t h a t time, CDC was p r o j e c t i n g

units.

O u s l e y , Tr. 652, 709-10.

369

p e r c e n t of- t h a t

salrs i n 1985 on t h e o r d e r of

734A. CDC is obligated to pay for the offshore assembly of
a ppr ox imat ely

Over

floppy disk drives over the remainder of 1985, of which

percent a r e double-sided 5-114 inch half-heiqht floppy d'isk' drives.

CDC must pay between 3

and

for these disk drives.

$

Ouslcy, Tr.

671, 709; Ousley, CX 820, at 3.
7348. The

C

approximately

C

units are to be delivered at the rate of
units per month over the remainder of 1985.

CDC is

obligated to accept delivery of these units whether or not it has orders from
OEX

customers for their resale.
735.

Ouslcy, Tr. 3388; Ouslcy, CX 820, at 3.

CDC's estimpte of the prevailing market prices for full-height

5-114 inch double-sided floppy disk drives for mid-1983 averaged between $150
to $200 per unit; for mid-1984, between $105 to t115 per unit; for the end of
,

1984, between $85 to $95 per unit.

In April 1985, prices on normal bids

ranged between $65 to $85 per unit, though CDC has heard a low bid of $52.

736.

CDC'S estimate of the prevailing market prices for half-height

5-114 inch double-sided floppy disk drives for the s u m m r of 1984 ranged from
$125 to $135 per unit: the fall of 1984, under $100 per unit: end of 1984, $85
per unit.

Current prices for any substantial new procurement are in the! $60

per unit range.

Ousley, Tr. 653-54.
. -

737.

In late 1983, CDC based on the existing market conditions

projected that the 1984 prices for its Model Nos. 9298 and 9299 half-height.
C

5-114 inch doubls-sided floppy disk drives would be

C

unit, respectively, and the 1985 prices, 3

respectively.

Ousley, Tr. 656-57; CX 732.

370

$

per unit and S

per unit and 3

per unit,

per-

738-

half-height

On A p r i l 4 , 1 9 8 4 , CDC d e f i n e d i t s major c o m p e t i t i o n i n t h e

5-114

i n c h double-sided

f l o p p y d i s k d r i v e a a r k c t as follows:

Shugart

C

C

C
C
C

Jap3nt?SQ

C
C
C
C
C
C
C
C

C
C
Tandon

C
C
C

cx

733.

nid-1984.

739.

The f l o p p y d i s k d r i v e market was r e l a t i v e l y s t a b l e u n t i l

A t t h a t t i n e the market became u n s t a b l e and p r i c e s dropped

average of $ 1 0 p e r u n i t per month.

c

an

B a s e d ugon C D C ' s cost of p r o d u c t i o n i n t h e

U n i t e d S t a t e s , CDC i n the t h i r d q u a r t e r of 1 9 8 4
and made t h e d e c i s i o n to move p r o d u c t i o n of d r i v e s

C

offshore.

Ousley, Tr.
740.

approxinately

666-68.

A s of A p r i l 1 9 8 5 , CDC c o n t i n u e d to a s s e m b l e and test

to

p e r c e n t of its requirements for h a l f - h e i g h t

d o u b l e - s i d e d f l o p p y d i s k d r i v e s a t its Oklahoma C i t y f a c i l i t y .

Tr. 668.

371

5-114

Ouslsy,

inch

741.
C

As

of April 1985, the estimated maximun production capacity at

drives per year, or approximately

CDC's Oklahoma City facility was
to

C

units a month.
The

produce at this level.
Off

It would take CDC at least

necessary tooling is in place, but CDC has laid

or furloughed a nunber of its personnel.
742.

months to

Ousley, Tr. 669.

was and is a CDC OEN custoner for some flexible and

nunerous rigid drives.

CDC has an ongoing business relationship with

and is trying to keep that business.

CDC ceased being a vendor for

half-height product in the mid or third quarter 1984; "we were not

able

to

give them a price that they felt they could live with due to other competitive
prices."

C

CDC thinks that Mitsubishi received

business at this time.

Ouq1py, Tr. 671-72.

C

,

743.

CDC has attempted to gain back

C

double-sided floppy disk drive business.

C

prices as low as

C

business.

to

$

Sefore April 1985, CDC quoted

per unit, but was unable to secure

CDC believes that Mitsubishi is currently supplying

this product.
744.

C

$

with

Ousley, T r . 673, 727-29.
In 1984, CDC supplied

approximately 50,000 to

full-height floppy disk drives at a cost of

C

half-height

$

per unit.

Prices for

half-height floppy disk drives forced CDC to reduce i t s prices for full-height

, however,

elected to switch from full-height to

C

drives.

C

half-height drives and canceled its business with CDC.

now

-

obtains half-height floppy disk drives from Panasonic (i.e., Natsushita).
OUSlZy,

Tr. 674-75.

3 72

-

745.

In the third quarter of 1 9 8 4 , CDC attempted to solicit from
its business for half-height floppy disk drives.

C
C

this time was quoting prices for half-height drives at

to

$

CDC at

per unit.

$ .

CDC was unsuccessful in its bid for this business and is unsure who finally
. .

received this order, but was told that there were thrite or four vendors whose
.

C

price bids ranged from

$

to

pet unit.

$

.

CDC was informed within two weeks
. .

of the hearing on temp0rar.y relief in this investigation that to obtain
business, it would have to bid less than

C

C

$

per unit.

,

that several vendors could quote such prices to

CDC was told

.

including

Ousley, TT. 675-76.
746.

C
C

.

CDC has a national agreement with two distributors,

CDC distributed through these companies alinost all of its disk
CDC's contracts with its distributors are for a

products and tape products.

,.

and

short time period and the distributors have the privilege of returning
C

products to CDC if they are unablr to sell them.

and

compete in

a market where there are 10 to 15 major domestic distributors.
Very price sensitive.
C

distributors at

$

This narket is

In April 1985, CDC sold its half-height product to its

per unit.

Other distributors purchased drives in the

$

per unit range, and CDC was under pressure to reduce its prices to obtain
business.
C

In April 1985, a aajor national distribution competitor Of
which was offered prices for floppy disk drives in the

range, used a TEAC drive.
747.

Ousley, Tr. 676-77.

per unit

.

In April 1 9 8 5 , CDC was operating its 5-114 inch floppy disk

drive business at a loss of
748.

$

$

CDC experienced

e

a

disk drive business last w a r of

OUSlCy, Tt. 6 8 2 - 8 3 .

writedown and opzrating loss in its flexible

.

$

373

OUS~CV.T c .

683.

749.

Based upon monthly analyses beginning in the fourth quarter of

1984, CDC in its February 1985 financial review decided that unless market

c

conditions improved,
OUSley, Tr. 603.

C

749A. AS a result of CDC'S inability to offer prices sufficiently
competitive with those being offered by the Japanese competitors, CDC
c

c

continued to lose market share to the Japanese competitors and

C
C

.

.

Ousley, Cx 820, at 2.
750.

The closing of CDC's Oklahoma City facility has been ongoing

since the third quarter of 1904.

'In October 1984, CDC laid off 450

individuals from its Oklahoma City facility.
I

,

In February 1985, CDC made its

final announcenent with respect to the termination of employees at its
Oklahoma City facility.

"The final termination of the employees in Oklahoma

City associated with flexible [disk drives1 will take! place within the next
Ousley, Tr. 683-84, 692 (Apr. 10, 1985).

few weeks."
751.

As of April 1985, the total production of CDC floppy disk

drives has moved offshore.

Ousley, Tr. 684 (Apt. 1 0 , 1985).

The only

activity that continues in the United States is engineering, ongoing tests,
product support, and any limited customer-unique specification work.
Approximately 75 CDC employees will be associated with this group after April
15, 1985.

CDC needed to lay off an additional 150 employees in order to reach

the 7 5 person level.

Ousley, Tr. 684-85,

723.

The decision to begin moving

CDC'S production facilities offshore was made in September 1984.
TC. 691-92.

374

Ouslry,

751A.

AS

a result of CDC’s decision in February 1985, approximately

150 CDC employees at the Oklahoma City floppy disk drive facility were
terminated on April 15, 1985, leaving 75 employees.
752.

Ousltty, CX 8 2 0 , at 2-3.

After the termination of employees by CDC, the production line

at the Oklahoma City facility will be effectively phased down.
attempt either to
sell the line.
possible.

use

CDC w i l l

the production line at other locations within CDC or to

CDC hopes to dispose of the production line as quickly as

Ousley, TI. 688-89 (Apr. 10, 1985).

C

753.

CDC has made the decision to

C

based on current market conditions.

“If those market conditions were

to reverse rapidly, then we have the plant,>tha people and tho process in
place to stay in the business.

...

I think given that the foreign

C

competition that we have seen is the mgjor reason

C

if that were to stop, then we would have an opportunity to

C

I

.

Ousley, T r . 689-90.
754.

The only reason that CDC would go into domestic production at

this time is if there was an increased demand over its current contracts with

FF 734, 749.

foreign suppliers.

While there would still remain a price

differential with respect to the production of floppy disk drives in the
United States vis-a-vis the contract supplier, should an exclusdon order be
issued in this case, the price differential would not be that great.. CDC
would be expected to manufacture wherever the cost would
corporation:

“‘de

would

be

. . . start up most likely our 1.6

lowest for the
[megabyte.

half-height 5-114 inch floppy disk drivel and potentially 3-112 inch line in
Oklahoma City.

And there again

. . . at sone point in time transfer that over

to the Far East, if the cost were s t i l l less.”

375

Ouslry, Tr. 710-11.

755.
board is that

"Our [CDC'sl stated corporate position from the chalrrnan of our
we

would prefer to manufacture donestically.
cost

in time if that

So at Some 2oint

difference nakes it such that we aren't prudent

businPssncn, we would go offshore, but that is not strictly dollars and
cents.''

Ousley, Tr. 711-12.
756.

There are currently 30 to 3 5 foreign manufacturers for

double-sided floppy disk drives.

TEAC is a very formidable

Ousley, Tr. 712.

comp;.titor and ranks in the top five of these foreign nanufacturers.
not

see

CDC does

Mitsubishi in as many places as it does TEAC, but Mitsubishi is

spmewhere in the top ten of the foreign manufacturers.

"Sony

we

do not see

yefy often other than as it relates to 3-112 inch, which is all futures
basically at this point in time."
757.-758.

6.

759.
C

Ousley, Tr. 715-16, 717.

Intentionally Left Blank.

CDC's domestic cost for the manufacture of the Xcdels 9428 and

9429 in late 1984 and 1985 was

$

to over

$

.

And as of August 1985, CDC's

cost of manufacturing double-sided half-height 5-114 inch floppy disk drives
offshore is higher than the selling prices prevailing in the market.

Ousley,

Tr. 3358-60.
759A. Since April 1985, CDC has continued its efforts to market floppy
disk drives.

In its recent marketing activities, CDC has encountered greater

difficulty in obtaining orders than in the past because of the lower prices
being offered by Japanese disk drive manufacturers.

Ousley, CX 820, at 5.

7593. CDC has been informed with increasing frequency by potential
C

custoxcrs that they would require pricrs of $

considered as a

S O L X C ~ ,based

nanufactures at thoae prices.

or 3

in order for CDC to be

upon thc availability of drives from other
Ousley, CX 820, at 5.

376

c

-

_
I
-

759C. CDC has been forced by current market conditions to r e d u w its

c

prices on new contracts to the

c

current inventory.

c

would have to sell its drives at
Tr.

$

to

range in order to liquidate its

$

In order for CDC to realize a

percent prof it it

percent above t h e

$

price.

Ousley,

3365, 3357, 3388-89; Ouslcy, CX 820, at 5.

C

759D. CDC is currently selling and dplivering approximately

C

double-sided drives per month, and the rate of sales of CDC's
double-sided floppy disk drives is continuing to decline.

to

Ousley, CX 820, at

3-4.

7592. At present, CDC is still suffering significant operating loss*s
in regard to its floppy disk drive business.

Ousley, CX 820, at 4 .

If CDC

does not resuie floppy disk drive production at its Oklahoma City facility,

.

C
Tr.

Ousley,

3361.
759F. In order to make a reasonable profit, and therefore reconsider

, CDC

C
C
C

C

gross profit in the range of
percent higher than

$

percent.

would have to realize a

Prices would have to be at least

for CDC t o stay in the floppjr disk drive business,

assuming that CDC today could make such drives at a cost of

$

Ousley,

Tr. 3364-66.

7596. I f there is no improvement in market conditions, CDC

.

CDC'S decision

is bas+d upon the fact that it docs not appear that

377

C

CDC can

at a profit despite its efforts to take all

steps to reduce Costs sufficiently to enable it to compete at a profit.
Ousley, Cx 820, at 8.
759H. CDC has invested

C

drive business.

of dollars in its floppi disk

This includes its investment in its Oklahoma City facility

and research and development and engineering at that facility, but does not
include marketing or advertising costs.

CDC has lost or will lose virtually

C

OUSleyr Cx 820, at 4 ; OUSlCy, Tr. 3363.

C

7591. In Mr. Ousley's opinion, CDC would reconsider its decision

C

if market conditions chanqqd

C

sufficiently so that it appeared that CDC could realize a reasonable profit by

'c

.

continuing to

D.

Ousley, CX 820, at 4-5.

Texas Peripherals
760.

Texas Peripherals (TP) is a joint venture owned equally by

Tandy Corporation and Tandon.

Tandon became a nember of this joint venture in

January 1984, and supplied its licensed technology to TP.

761.

CX

619: Huenemeier,

T P was formed for the purpose of manufacturing disk drives in

the United States for sale either to Tandy or Tandon.

-

Huenemeier, CX 722, at

7-8; see Huenemeier, Tr. 303, 304; Hochman, Tr. 1691; CX 619, Art. IX, S 9.01.

378

762.

As of December 1984, TP manufactured at its facilities in Fort

Worth, Texas, the TM 100-1, a full-height single-sided floppy disk drive, t h e
TM 65-1, a half-height 5-1/4 inch singlc-sided disk drive, and the TM 65-2, a
half-height 5-1/4 inch double-sided disk drive.
CX

-

Hochman, Tr. 1631-32; see

666, at 14.
763.

Tandon.

TP purchases all of its head assemblies for the TM 65-2 from

Hochman, Tr. 1633.
764.

On April 25, 1984, the projected production of TP floppy disk

dzives for October 1984 was 27,117; for November 1984, 43,450; and for
December 1984, 39,430.

Of those drives planned for production in October

1984, 1,000 would be half-height double-sided floppy disk drives; in N o v e m e r
1984, 32,350 would be half-height double-sided floppy disk drives; and in
December 1984, 28,230 would be half-height double-sided floppy disk drives.
TP forecasted continued growth of its floppy disk drive production such that
by February-March-April 1985, TP planned to ship 68,652 drives a month, 50,052
of which would be half-height double-sided floppy disk drives.
Bates No. 028560.

CX

727, at

This projection was based upon the forecasted requirements

of Tandy and Tandon (though in this forecast the Tandon-required drives were

-

Huenemeier, Tr. 312-14, 319-20; see, e.g.,

minimal).

CX

727, at Bates Nos.

028549-50.
765.

On A p r i l 25, 1984, the projected average selling price for TP's

half-height double-sided floppy disk drive was $86 per unit.

Tr. 315-16;

CX

727, at Bates No. 028560.

Huenemeier,

In spring 1984, TP submitted bids

\

for this product to the various Tandy divisions.

Huenemeier, Tr. 316-17.

this time, $86 per unit was considered a competitive bid for this type of
product.

--

Huenemeier, Tr. 317; see id.,

Tr. 308.

379

At

766.

In the spring of 1984, the joint venture'cornmittec authorized

$300,000 for tooling in which to sat up TP.

767.

Huencrneier, Tr. 321; CX 706, at 2.

On Nay 15, 1984, TP delivered working samples of the TM 65-2 to

various Tandy divisions, including Tandy Advanced Products, Tandy Home
Computer, Tandy Computer Assy., Tandy Systems Design, and CPE (Computer
Product Engineering).

Huenemeier, Tr. 317-18; CX 727, at Bates No. 028549.

This drive was assembled at TP from a k i t supplied by Tandon and did not
incorporate any components procured or tooled by TP.

Huenemeier, Tr. 318;

Hochman, Tr. 1644-45.
768.

On June 15, June 16, and July 15, 1984, TP scheduled the

delivery of preproduction samples of the T H 65-2 to Tandy Home Computer, T G d y
Computer Assy., Tandy Systems Design, and Tandy Advanced Products.
0

Only some

of these preproduction samples were later delivered to the various Tandy
divisions in late June, July, or August 1984.

.

The preproduction samples were

more representative of TP's production units and contained some degree of TP'S
configurations.
769.

Huenemeier, Tr. 318-19; CX 727, at Bates

NO.

028549.

TP's profit plan for fiscal year 1985 indicated that production

of the half-height 5-1/4 inch double-sided disk drive was scheduled to begin
October 1984.

By May 23, 1985, production of this floppy disk drive was

expected to reach 30,000 units per month.

This level of production was less.

than originally anticipated (see FF 764) because Tandy had decided to continue

to use the full-height product in its model 4 computer instead of switching to
a half-height product.

Huenemeiar, Tr. 305, 322-24; CX 727, at iatas.

No. 028572.

380

As

770.

->

of September 1904, $264,300 of the budget for tooling had

*

been committea-to vendors to fabricate the tooling for the TY 65 product (see
.&>$
.
'.*.'. . -.
TE-$l&ned
n..
,..-

FF 766).

.

?.y,

T

./

to have its tooling in place by December 1984.

The

*-<--*&;>+
<$&*
commitments to-.vendors for

tooling were made in expectation of volume business

for the TM 65 from Tandy.

Huenemeier, Tr. 321-22;

1

.:-a.

CX

-

706, at 2; see

CX

727,

at Bates No. 028568.
771.

As

of September 19, 1984, TP's production line was capable of

producing the quantities needed to achieve its financial objectives (see
FF 764).

.The plant capacity was shown to range from 30,000 drives per month

in December [19841 to better than 50,000 as we approach March [1985l.

We

-

are

CX 727, at Bates Nos. 028566, 028568; see Huenemeict,

not Capacity United.'

L

Tr. 324-25.

I

772.

The minutes of the September 19, 1984, joint venture committee. ''.

meeting indicate

7

thrt

Tandy, Tandon, and +,?
floppy disk drive.

a major topic of discussion was the strategy by which
would be able to ccnpete in the marketplace with the new

.The TEAC $77 drive has been the driving force by which we

...

seem to be measuring all of our future pricing.

Steve Huenerneier

[representing Tandonl has been looking at these costs together with Texas
Peripherals and felt that the ultimate objective should be a drive with a
material cost under $50.

If this goal

is met, then

tes No. 028569;

we should easily be able

Hucnemeier, Tr. 325-27;

ber 19, 1984, volume buying was consideredla

_drive.

_

eve the reduced costs for the TP floppy disk

'Jim Mortensen [representing Tandyl will

be

exploring t.he avenues to
r-

3 81

An order of 30,000

encourage Tandy to make these types of commitments [sic]."

units per month was considered necessary to procure material in the volumes
required to gat a $50 per unit material cost.

Cx

727, at Bates Nos. 028569,

.

029571; Huenemcicr, Tr. 327.
A

774.

Product Evaluation Request/Report on TP's half-height

5-114 inch double-sided disk drive was received by TP from the Computer
Product Engineering division of Tandy in Farly October 1984.
datzd August 19, 1984, and October 3, 1984.)
drive is equal or better than the TEAC Drive.

(The report is

This report concluded, "This
It will hold alignment longer,

and handle shipping better due to the cast chassis.

...

This drive is

Hochman, Tr. 1655-59; CX 727, at Bates No. 028599-604.

acceptaSle."
775.

,

TP on October 9, 1984, received an order for 6,000 units of the

TM 65-2 floppy disk drives from Tandy Home Computers, a division of Tandy.
The order was scheduled €or delivery as follows: 1,000 by November 15, 1984:
2,000 by December 15, 1984; and 3,000 by January 15, 1985.
1616, 1659;
C

CX

776.

727, at Bates No. 028608;

- Huenemeicr., Tr.
see

Hochman, Tr. 1614,
361-62.

TP
: T P delivered the first 50

C

units for qualification testing in November 1984.

TP's next delivery of 400

units did not take place until the first days of January 1985.

T P hoped that

the units would become qualified at that time and that it could pick up
production quickly and complete the orders by February and March 1985.

-

Hochman, Tr. 1614-15; see Huenemeicr, Tr. 363-65.

382

777.

TP only delivered

of the

floppy disk drives requested

by Tandy Home Computers for November 1981 because of problems encountered with
the drives.

TP decided that it would be best to deliver only

units in

order to identify problems, make modifications, and allow customer evaluation

of the drives.

TP could then correct these problems for future shipments.

“[Tlhe slippage in schedule was agreed upon by the customer on the basis that
4

C

he was qetting sufficient drives from

to support his operations.

But we

knew there would come a tine when we had to get this thing going, to get it
delivered, and that time was going to be somewhere in the Nay-June tine
frame.”

Hochman, Tr. 1647.
778.

The units delivered by TP to Tandy Home Computer were no$

qua1ifii.d because the customer considered the product as not meeting its
qualifications and its expectations as to quality.
C

first

The initial report on the

drives sent to Tandy Home Computer in November 1984 gave a breakdown

On the quality issues and the technical problems the customer found in the
C

drive.

Some of the problems identified were due to

I

C

.

C

These problems associated with the drive were

corrected in the next group sent.

Tandy Home Computer found additional

problems with the second group of drives with respect to two areas:
incoming quality: and ( 2 ) reliability.

id.,

-

Hochman, Tr. 1615-17, 1660-67: see

Tr. 1648-50; CX 727, at Bates Nos. 028586-87.

779.
C

(1)

As

of February 1985, TP had progresscd in solving many of the

quality problems associated with its Elo2pjr disk drives.

C

383

”

." Hochman,
TF. 1618-19; see id., Tr. 1666-67.
- 7

780.

The only major problem that remainad as to TP's floppy disk
A

drives concerned a soft error problem.
takes the c0mputi.r to recover data.
p i t s manufactured by TP were in

soft error increases the time it

The soft error rate displayed by the
of what TP's competition was

CXCPSS

displaying under the same circumstances.

Hochman, Tr. 1619; Huenemeier,

-

T r . 365-68; CX 727, at Bates No. 028591; s e e Patterson, T r . 1751.
C

781.

TP would have been able to solve

I

C
C

.

C

Hochman, Tr. 1623, 1624;

id.,
-see

T r . 1618-21; tiuencmeier,

Tr. 368, 369.
C

782.

To date,

.

C

783.

Hochman, T r . 1650 (Apr. 15, 1985).

At the February 1985 joint venture committee meeting, the

discussion as to the quality p r o b l e m with T P ' s disk drive units was
considered secondary to the main

issue

of whether TP had the ability to

COmp*te in the market in terms of the cost of its product.
Tr. 1622-23, 1625-26; Cx 727, at Bates Nos. 028591-92;

Tr. 369-70.

384

Hochman,

- Huenrmeier,
see

784.

c

TP's cost of production at the time it st.o?ped its half-heiqht

double-sided floppy disk drive program was

.

$

"The cost on that unit has to

be qualified because those units came from kits that were supplird from
Tandon

. . . ." Hochman, Tr. 1613.
785.

TP was not able to obtain the cost reductions necessary within

the! time frame required by Tandy Corporation.
periodic basis

....

"Tandy issues orders on a

We bid, as do other outside vendors, and as such when

our bid goes in if it is not competitive,
purchase from outside sources."

. . . Tandy reserves

the

right to

TP has not been competitive in its bid for

Tandy's orders of a half-height double-sided floppy disk drive product.
Hochman, Tr. 1610-11.
786.

c

TP's selling price at the time it halted production of its

half-height double-sided floppy disk drive program was
787.

.

$

Hochnan, Tr. 1613.

Tandy Home computers indicated in October 1984, when it first

placed its order with TP for half-height 5 - 1 1 4 inch double-sided disk dtives,
that there would be follow up orders at
qualified.

c

per unit if TP could get its drive

Hochman, Tr. 1624-25.

788.

C

$

TP's TM 65-2 units, TP

If Tandy Home Computers

planned to reduced the sales price per unit from

$

to

$

Hochman,

Tr. 1617.

789.
C

of

By February 1985, TP needed to qualify its product at a price

per unit in order to get a purchase order from Tandy Hone Computers.

$

"[We

had received written notice that the present version at that moment in

c

tine was 3

c

$

and change and that there was another versian coming on board for

an3 change.''

Both TEAC and

competed with TP for the Tandy Home

335

C

Computers' business.

TEAC had proposed a modified version of its doable-sided

floppy disk drive for

$

CX 740;

see CX
790.

C

per unit.

727, at Bates
As

NO.

Hochman, Tr. 1611, 1625-28, 1676-83;

028591; Huenrmeier, TK. 370-71.

of February 12, 1985, the lowest projccted total cost for

the TM 65 was somewhere in the

$

to

price range for an order of

$

total full-height and half-height floppy disk drives per month.
TP. 1671-73, 1675-76; CX 727, at Bates No. 028596.

Hochman,

At this price, TP's

profits on the sale of floppy disk drives would be between

and

percent, with an average end of the year net profit before taxes of less than
percent.

Hochman, Tr. 1673, 1683-84; CX 727, at Bates Nos. 028591,

-

028598; see Huenemeier,

Tr.

372-73.

"It was also noted that even this

optimistic figure would require that Texas Peripherals still s e l l at
1-

c

above the TEAC price assuming the
028591.

unit to be real."

$

$

CX 727, at Bates No.

Such a profit level was unacceptable with respect to the letter of

the joint venture agreement, which stated that TP had to produce to the
C

competitive market price or no less than cost plus

percent.

Hochnan,

1673-74; CX 619, Art. I X , S 9.01.
791.
C

C

C

The recommendation was made at the February 1985 joint venture

committee meeting that

.

Hochman, T r . 1634, 1682-83.

"Texas Peripherals' low volume cannot

compete with producers of high volune.

Everyone agreed that intangible

benefit of proximity to the customer base may no longer be a viable condition
for naintaininq a nanufacturing facility devoted to the Slinline [half-height]

386

C

drive.

C

.I'

CX 727, at Bates No.

-

029592; see Huenemeier, Tr. 371-73, 3751 376-77, 379.
792.

i

If TP had b+en price competitive with respect to the other

floppy disk drive vendors, the qualification process for its drives would have
Patterson, Tr. 1753, 1760-61.

continued.

793.
C

It becane apparent as of February 1985, that Tandy

Cornp'Jters' planned to cancel its order with TP for
floppy disk drive.

units of the.TM 65-2

The order was finally cancelled in March 1985.

Tr. 1617-18, 1634-35.
C

Iiome

Hochman,

Tandy Home Computers has awarded some of its

double-sided floppy disk drive business to

.

--

Hochman, Tr. 1636; see id.,

Tr. 1636-38.
794.

C

1.

TP planned to

.

C

-

c

795.

Hochman, Tr. 1608; Hueneneier, Tr. 389.

.

TP

TP cannot

supply the product at the required cost: "We are not competitive with outside
SOU~CCS."

Hochman, Tr. 1608, 1610.

TP is unable to sell products to any

customer other than Tandy or Tandon unless the two venturers agree to such a

sale.

CX

619, Att.
796.

C

disk drives.
C

IX, S

-

9.01; Huenemeier, CX 722, at 7-8; see FF 761.

TP assembled in its plant approximately

TM 65-2 floppy

TP never produced a "production quantity" of the TX 65-2, that
drives a month of any one type.

is, an order of

Hochman, Tr. 1614,

1628.
C

797.

As

of December 1984, TP had produced approximately

to

C

units of the TM 100, a full-height single-sided floppy disk drive, and

n
L

units of the T!4 65-1, a half-height 5-114 inch single-sided disk

3 87

'

C

drive.

c

T23 100s and

AS

of A p r i l 15, 1985, TP had outstanding purchase ordzrs for
TM 65-1s.
TY

parts of the

Except for the head assenbly, the mechanical

65-1 are the same as those found in the Tf.1 65-2.'

Iiochman,

Tt. 1632-33, 1669.
C

798.
floppy

disk

TP could produce on double shift

drives a month.

799.

AS

TM 65-2 double-sided

Hochman, Tt. 1628; FF 764.

of February 25, 1985, TP's shutdown schedule for March 1985

provides as follows:
C
C
C
C
C
C

'C
C

C

c

SX 6 ( C ) , No. 1031.

800.

As

of February 25, 1985, TP's shutdown schedule for May 1985

provides as follows:
C
C
C
C

c

C

c
SX 6 ( L " ) ,

No. 1031.

388

801.

As

of February 2 5 , 1 9 8 5 , TP's shutdown schpdulp for J u l y 1985

provides as follows:
C

C

SX 6 ( C ) , No.

1031.

802.
C

As

of February 2 5 , 1 9 8 5 , TP's shutdown schedule for August

1985,

,

provides a s follows:

C
C

C
C
C
#-

c

C

SX 6 ( C ) ,

No. 1 0 3 1 .
803.

schedule.

TP for the most p a r t i s proceeding on time w i t h i t s shutdown

Hochman, TK. 1638-39.
804.

TP

received i t s l a s t order for production of the

full-height single-sided floppy disk drive, i n February 1 9 9 5 .
Tr.

5-114 i n c h single-sided d i s k drive, i n the two weeks prior t o the

hearing on temporary r e l i e f .

Hochman, Tt. 1640.

805.

C

Hochman,

C

Tr. 1693.
C

Hochman,

TP received i t s l a s t order for production o f the TM 6 5 - 1 , a

1639-40.

half-height

TM 1 0 0 , a

7"

65-1s

TP is scheduled t o complete production on

.

Hochman, Tr. 1 6 4 0 .

399

the

l a s t 0rdi.r for the

806.

A s o f A p r i l 15, 1985, TP employed 350 persons.

During the

month o f April 1985, TP planned t o lay o f f approximately 25 t o 50.employees.
I n May 1985, TP planned to lay off an additional 7 5 t o 1 0 0 employees.

employees l e f t a t

TP w i l l

Those

continue t o produce current orders o f the TM 65-1

u n t i l J u l y 1985, a t w h i c h time those remaining individuals were t o be l a i d

-

off.

Hochman, Tr. 1692-93; see Huenemeier, Tr. 388.
806A. TP has stopped production o f floppy d i s k drives and

.

Hochman, Tr. 1608, 1611, 1613.

806B. The Sales price o f the T P ' s TM 65-2 was $

.

per u n i t a t the time

Hochman, Tr. 1613.

806C. TP has not produced any commercial a u a n t i t i e s o f double-sided
d i s k drives 5-1/4 i n c h d i s k drives since the hearing on temporary r e l i e f .

Huenemeier, Tr. 3630,

cx

845.

806D. The Texas Peripherals Joint venture Committee recently concluded

that Texas Peripherals' production eauipment would be stored pending the
r u l i n g o f the Commission.

E.

Huenemeier,

CX 8 3 5 ,

a t 19-21.

Tandon
1.

General.
807.

Selected Tandon income statement data ( i n c l u d i n g subsidiary

operations) for each of the past five f i s c a l years ended September 2 8 , are as
follows :

390

I

.

F i v e Years E n d i n g September 28

-.

...-_

.

...-

.:-... ... ... ...

- <.,+?-..,-,\*

>,
.
.
L
'

Net Sales -.-:..
+&
F-~
Cost of Sales-.q...
Gross Profit i
Product Research 6
Development.
Sellinq, General h
Administrative Expenses.
Interest 6 Other Expenses
Interest Income
Income before provision
for income taxes.
Provision for Income Taxes.
-,.A,

~

1982

1983
-

-

S54,152
37 ,567
16 p 585

$150,490
105,262
45,228

$303,369
219,822
83 t 547

$400,792
3 1 1 ,106
89 ,686

960

2,870

6 ,042

1 3 ,7 4 1

16,269

2,124
228

5,735
707

13,798
289
(3,268)

36,830
1,262
(4,6441

30,113
2,568
(1,315)

28,367
1 2 ,6 3 2

36 358
12 ,700

,

42,051
12 615

1980
-

1981
-

822,761
16,617
6,144

. ... . ..
.
.
. . . . . . --... ,
......

Net Income

cx

(817)

2,832
1 325

8,090
3,585

1 SO7

1984

29.436

15.73$

r1,505

6 6 6 , a t 20.
a

-

c

For Tandon and its subsidiaries, t h e ratios of net income to n e t-

808.

sales for each of the f i s c a l y e a r s 1 9 8 0 through 1984 are as follows:

1980

. 7.6%

cx

1981

1982

1983

1984
-

0.3%

10.5%

7.8%

7.3%

.

-_
.

#

-:

'

- . .-

6 6 6 , a t 20.
A

809.

summary of Tandon's quarterly operating results for calendar

year 1 9 8 4 . a n d f i r s t quarter 1 9 8 5 is a8 f o l l w s :

March 3 0 ,
1984

Net Sales

l i , .

Gross Prof&

.
CX 6 6 6 , at

44:

.

. $105,672

._

June 29,
1984

$106,257
27,764

September 28,
1981

$95,808
8,838

December 2 8 ,

March 2 9 ,

$90,664
( 7 t 410 1

$61 t-126
(14 515)
(28,440)

1984

16,024

(4,349)

(21,963)

10,416

(724)

(15,374)

....I.

CX 6 6 7 , at 4.

39 1

1985

.

(19,910)

For Tapdon and its subsidiaries, the ratios of net income to

810.

net sales for each of

the

quarters in calendar year 1984 and the first quarter

of 1985 are as follows:
2Q 1 9 0 4

1Q 1984
( l o s s1

9.9%

9.8%

3Q 1984

4Q 1984

1Q 1985

(7.5%)

(17.0%)

(32.6%)

CX 666, at 44; CX 667, at 4.

811.

profitability.
812.
C

Price erosion is a factor in Tandon's decreasing
CX 666, at 22; Haldi, Tr. 1291-92.
In 1983, Tandon's sales volune of double-sided floppy disk

drives was
813.

CX 702.

units,

In 1984, Tandon's sales volume of doublr-sided floppy disk

1.

C

dr ives was
814.

C

units.

CX 702.

During 1984, Tandon's salrs of double-sided floppy disk drives
units in the first half of the year to

decrzased from

the second half of the year.

CX

units in

702.

814A. Tandon has not yet been able to penetrate the 5-114 inch

half-height floppy disk drive market to any significant degree.

During the

C

period from July 1, 1984, through June 30, 1985, Tandon sold only

C

TH 65-2Ls,

C

producing less than

TM 65-4s, and

TY 65-8s.

Tandon estimates that it will be

5-114 inch half-height double-sided floppy disk

drives during the months of September through DecemSer 1985.- Huencmcicr,.
CX 835, at 2-3, 5.
8140. For the fiscal year ended September 30, 1984, Tandon projcctcd

C

sales of

C

Tandon sold

half-height 5-114 inch double-sided floppy disk drives,
units during this period.

392

Huenemeict, CX 835, at 3-4.

814C. For the fiscal year ended Stptenbzr 30, 1985, Tandon originally

C

projected sales of $

C

drives, including proj+cted sales of
quarters.

A s a result

half-height 5-1/4 inch doubl+-sided floppy disk
units through the first three

of sales below projections, this figure was revised

c .

downward in February 1985 to

C

lower estimate, shipping approximately
quarters of fiscal year 1985.

units.

Tandon has failed to meet this
units in the first three

Huenemeier, CX 835, at 4.

814D. According to Mr. Edwards, since Nay 30, 1985, the T!4 65 has

passed evaluation and been qualified at the following users:

.
Mr. Sellers of Compaq stated that Tandon has not been qualified at Compaq.
The TIY 65 has also passed evaluation and b w n qualitied at the following
distributors:

.

Edwards, CX 818, at 2; Sellers, Tr. 4954.

814E. Since Xay 30, 1985,
have also requested evaluation units of the TM 65-8.

Edwards, CX 818,

at 2.
814F. Eastern Peripherals' current direct costs of producing the

TM 65-2, including materials and labor, is $

, which

yields a cost,

including freight and duty, landed in the United States of $
currently paying Tandon Associates

for such drives.

$

CX 835, at 7, 29-30.

393

Tandon is
Huencmeier,

815.

From fiscal year 1983 to fiscal year 1984, United States

employment at Tandon dropped from 3,300 persons to 1,605 persons.

Tsndon

attributes this decline primarily "to restructuring of its manufacturing
CX 666,

operations to emphasize offshore production of mature product lines."
at 18.

815A. In Tandon's flexible disk drive and head division, employment
declined from 1,782 persons in January 1984 to 549 persons in July 1984.
CX

870.
815B. In Tandon's flexible disk drive and head division, employment

declined from 549 persons in July 1984 to 165 persons in July 1985.

CX

815C. Tandon laid off 1,450 employees of the flogpy disk drive
division between January 1984 and January 1985.
CX

d.

870.

.

Huenemeier, Tr. 3614-15;

870.
815D. In December 1984 and January 1985, Tandon terminated 197 United

States employees:
Department

No. Terminated

Engineering
Pr oduct ion
Purchasing

C
C
C

Hucnemeier, C X 835, at 5.

The engineers were laid off because Tandon's

expenditures ware not appropriate for the amount of profits being generated.
Hueneineitr, Tr. 3684.
815E. From January 1985 through July 1985, Tandon laid off 167
employees in the flexible disk drive and head division.

Tandon's decrease in

personnel between January and July 1985 is attributable to erosion in the
dennand for Tandon floppy disk drives.

C X 870;

394

Huenemeier, Tr. 3701.

815F. In ?lay 1 9 8 5 , Tandon vacated and sublet its Building No. 1, which

square feet of space, in an effort to rrducp its operating losses.

C

had

C

At the Sane time and for the same reason, Tandon sublet Building' No. 2 with

C

square feet.

Tandon is currently in the process of closing it3

engineering building (Building No. 4 with
C

building (Building No. 5 with

C

(Building No. 6 with

square feet), its personnel

square feet), and its marketing building

square feet).

These buildings are bi.ing closed

because the employee layoffs have left Tandon with substantial excess space.
The operations in these buildings will be consolidated in Tandon's Building
C

No. 3, which has
816.

States 5-114

square feet of space.

Huenemeicr, C X 8 3 5 , at 6-7.

In 1 9 8 2 , Tandon had a 60.5 percent market share of the Llnited
incn double-sided disk drive market.

Mitsubishi and TEAC had a

combined market share of 5.5 percent, C X 6 7 8 , at DT13-13.
817.

In 1 9 8 3 , Tandon had a 30.5 percent market share of the United

States 5-114 inch double-sided disk drivz market.
combined market share of 21.5 percent.
818.

C X 6 7 9 , at DT14-15.

In 1 9 8 2 , Tandon had a 2 3 . 8 percent market share of the United

States 8 inch double-sided disk drive market.
market share.
819.

820.
C

States

Mitsubishi had a 11.5 percent

C X 6 7 8 , at DT11-11.

In 1 9 8 3 , Tandon had a 20.7 percent market share of the United

States 8 inch double-sided disk drive market.
market share.

Mitsubishi and TEAC had a

Mitsubishi had an 1 1 . 2 percent

C X 6 7 9 , at DT12-11.

In fiscal year 1 9 8 4 , Mitsubishi and TEAC sold in the United
and

disk drives, respectively.

395

C X 694; C X 690.

821.

C

In October-Decenber 1984, Mitsubishi and TEAC sold

disk drives, respectively.
821A.

C

’

and

CX 690; CX 694.

Tandon sold only evaluation units of its half-height drives to

IBM in fiscal year 1984. Huenemi’ier, Tr. 3629-30.

C
C

822.

for

AS

of April 1985, Tandon had reczived a purchase order from

T M 75s.

Prior to that order, Tandon had no major order for

half-height 5-114 inch disk drives.
822A.

C

Huencmeicr, Tr. 296; Haldi, Tr. 1269.

is currently evaluating the Tandon TM 75, and no purchase

orders had actually been placed with Tandon as of August 1985.

C

818, at 4 .

823.

C
C

Edwards, CX

, placed

In June 1984,

for double-sided disk drives with TEAC.

an order

was a prior customer of

T M 100s and had evaluated the T,vl 65-2 and TM 65-4 for a proposed purchase of

d

mininum units over 12 months.

C
C

Abraham, CX 7 1 4 , at 6.

, selected

824.

TEAC for a

C

double-sided floppy disk order.

C

and evaluated the TM 65, but decided to place its order with TEAC for
units over a 12-month period.

C
C

825.

was a prior Tandon TM 100 custoaer

Abraham, CX 714, at 6.

In November 1984,

placed an

-C

order with TEAC for

C

units pzr year starting November 1984.

to

to

double-sided 5-114 inch floppy disk drive
had evaluated the T M 65.

Abraham, CX 7 1 4 1 at 7.
C
C

, selected

826.

for

TM 65.

to

TEAC

as vendor

doublz-sided floppy disk drivi’s p+r yrar over Tandon’s

Abrahan, CX 715, at 7.

396

In June 1984,

827.

C

,

C

per year.
Shugar t

gave TEAC an order for

evaluated Tandon's TM 65-2L.

or der ed

to

I

double-sided floppy disk drives

Abraham, CX 714, at 5.
In October 1983,

830.

?

selected TEAC for aii order of approximately
drives per year.

Abraham, C X 714, at 5.

gave an order of

C
TEAC.

to

C

In June 1983,

832.

gave an order to TEAC for

C

Abraham, CX 714.

, gave

In September 1983,

833.

order to TEAC.

In October 1984,

an

gave TEAC an order for

double-sided floppy disk drives per month.
C

double-sided disk drives to

Abraham, CX 714, at 5-6.

double-sided floppy disk drives per year.
C

double sided floppy disk

In September 1983,

831.

C

C

Abraham, CX 714, at 7-8.

gave TEAC an o r d e r for approxinately

C

Tandon

In October 1982,

829.

per year.

,

I

double-sided floppy disk drives from TEAC.

had sought this business.

C

Abrahan, CX 714, at 7.

In 1983,

828.

C

floppy disk drives

Other competitors for this account included :4itssbishi and

.

C

to

Abraham, CX 714, at 8.

In November 1984,

834.

,

gave TEAC an order for

disk drives over three years.

doable-sidrd 5-114 inch flkppy

Abraharn, CX 714, at 8.

397

835.
approximately

In October 1984,

T M 65-2L disk drives after delivery of

awarded the balance of
835A.

canceled an order for
units and

drives to TEAC and Mitsubishi.

CX 714, at 5, 9.

had previously canceled an order for T:4 55s initially

issued on August 12, September 6, and November 1, 1983, with $

million of

product still on order from Tandon in October and November 1983.
canceled this order because Tandon was unable t o solve its production problems
and deliver a specified quantity of functioning half-height disk drives.
Abr'aham, MRX 117CI at 2-6.

, canceled

836.

C
C

July 29, 1983, order for T M 55s with $

C

Tandon and switched to Mitsubishi.
6

'

a

o f product still on Order from

Abraham, CX 714, at 9.

canceled this order because Tandon was unable to solve its

C

production problems and deliver a specified quantity of functioning
half-height disk drives.
837.

C

-

Abraham, MRX 117C, at 2-5; see MRX 48M.

In October 1983,

gave Nitsubishi an order for

C
drives.

doublc-sided floppy disk

Abraham, CX 714, at 9.
037A. In October 1982, Mitsubishi obtained p a r t of a sale of

C

.

doubla-sided floppy disk drives t o

Abraham, CX 714, at 5, 9.

Contra MRX 48555, at 026875, 027733-34.
83713.
C

In September, 1983, Mitsubishi obtained part o f - a sale of

.

double-sided floppy disk drives to
at 5, 9.

398

-

Abraham, CX 714,

-

838.

C

In April 1983,

, awarded

C

drives per year.
839.

Mitsubishi an order for

double-sided flo?py disk

Abraham, CX 714, at 10.

, selected

In October 1984,

Mitsubishi for an order of

double-sided floppy disk drives per year.

had evaluated Tandon's TM 65-8.

Other competitors included TEAC.

Abraham, CX 714, at 10.
840.

On October 1984,

selected Mitsubishi for an order of approximately
had evaluated Tandon's TM 65-2L.
included TEAC and Shugart.

drives per year.

Other competitors for this order

Abraham, CX 714, at 10-11.

Contra MRX 48BBB, at

026472.
I

841.

C

, gave

C

drives.
C

In Novenber 1983,
Mitsubishi an order for double-sided 5-114 inch floppy disk

Abraham, CX 714, at 10-11.
842.

In June 1983,

gave Mitsubishi an order for 5-114 inch double-sided disk drives.

Abraham,

CX 714, at 11.
843.

'Pandon bid on each of the orders contained in FF 823 to 842.

Abraham, Tr. 1142-43.
C

canceled an order for TM 50s

843A. In May 1983,

C

initially issued on January 3, 13, and 2 5 , 1983, with S_

C

still on order from Tandon.

%illion of product

canceled this order because Tandon was

unable to solve its production problems and deliver a specified quantity of
functioning half-height disk drives.

Abraham, MRX 1172, at 2-5,

399

8438.

c a n c e l e d an o r d e r f o r TM 50s

I n l a t e 1983,

i n i t i a l l y i s s u e d on September 3 0 , 1 9 8 3 , w i t h
o r d e r from Tandon.

3

million of prO3uct s t i l l on

c a n c e l e d t h i s o r d e r b e c a u s e Tandon was

d n a b l e t o solve i t s p r o d u c t i o n p r o b l e m s and d e l i v e r a s p e c i f i e d q u a n t i t y of
functioning half-height disk drives.

Abraham, MRX 1 1 7 C , a t 2-5.
c a n c e l e d an o r d e r

843C. I n A p r i l 1984,

i n i t i a l l y i s s u e d on July 21, 1 9 8 3 , w i t h 3

for

TX 65s

m i l l i o n o f p r o d u c t s t i l l on o r d e r

c a n c e l e d t h i s o r d e r b e c a u s e Tandon was u n a b l e t o

from Tandon.

Solve i t s p r o d u c t i o n p r o b l e m and d e l i v e r a s p e c i f i e d q u a n t i t y o f f u n c t i e n i n g
Abraham, MRX 1 1 7 C , a t 2-5.

half-height disk drives.

843D. I n Yay 1 9 8 4 ,

C

i n i t i a l l y i s s u e d on O c t o b e r 3 1 , 1 9 8 3 , w i t h 3

C
C

cancelrd

4.

o r d e r from Tandon.

an

xnillion

Qrder for T!4
0% product

55Ds

s t i l l on

c a n c e l e d t h i s o r d e r b e e a u r n Tandon v a s

u n a b l e t o solve i t s p r o d u c t i o n p r o b l e m s and d e l i v e r a s p e c i f i e d q u a n t i t y
functioning half-height

Abraham, MRX 1 1 7 C , a t 2-5.

843E. MELA, since March 1985, may have s h i p p e d a p p r o x i n a t e l y

C

C

disk drives.

1.6 megabyte Nodel H4854 f l o p p y d i s k d r i v e s t o

C

CX 5 7 4 , a t 2 6 4 - 6 5 .

C

TM 50s w i t h $

to

F o S t e K , Dep.,

had p r e v i o u s l y c a n c e l e d a March 18, 1993, order for

million gf p r o d u c t s t i l l on o r d e r from Tandon i n e a r l y 1984.

c a n c e l r d t h i s Order b e c a u s e Tandon was u n a b l e t o Solve i t s p r o c l u c t i o n

C

p r o b l e m s and d e l i v e r I s p e c i f i e d q c l a n t i t y of f u n c t i o n i n g h a l f - h e i g h t
drives.
C

Of

disk

Abraham, MRX 1 1 7 C , a t 2-5.
8 4 3 F . On or a b o u t June 2 9 , 1 9 8 3 ,

regucsted a

T!4 55s for d e l i v e r y over a two-year

C

quote from Tandon f o r

C

w h i c h Tandm quatrd a p r i c e of $

p e r d r i v e for a t o t a l of $

400

p e r i o d , for

. millian.

Tandon was unable t o land this business opportunity as a result of its
inability t o deliver functioning evaluation drives on a tinely basis and its
inability to drmonstrate that it could deliver large quantities o f TY 55s o n a
reliable basis.

Mr. Abrahan understood that TEAC and Mitsubishi ultimately

received this business.

Abraham, MRX 117C, at 6.

8436. In the spring of 1983,

TY 55-2s and

for

T M 55-4s for delivery over a two-year period,

for which Tandon quoted a price of $
a total of

$

million.

requested a quote from Tandon

, respectively,

and $

per drive for

Tandon was unable to lend this business opportunity

a s a result of its inability to deliver functioning evaluation drives on a
timely basis and its inability t o demonstrate that it could deliver large
quantities of TM 55s on a reliable basis.

Mr. Abraham was informed that

Toshiba obtained this business for the same price quoted by Tandon.

Abraham,

MRX 117C, at 6-7.
C

requested a quote from Tandon for

84311. In 1983,

T M 65s for delivery over a two-year period, for which Tandon qrtoted a price o f
C

$

per drive for a total of $

million.

Since t h e T M 65 was not available

and t h e customer desired a direct drive, this sale was not made.
was informed that a two-year contract for
Matsushita and Shugart for

$

per drive.

..

X r . Abraham

drives was given t o

Abraham, MRX 117C, at 7.

requested a quote from Tandon for

8431. In 1983,

T X 65s for delivery over a two-year period, forwwhich Tandon quoted a price o f
C

$

per drive for a total of $

million.

Since t h e TN 65 was not aya-ilable

soon enough and thc customer desired a direct drive, this sale was not nade.
C

Mr. Abraham understood that a two-year contract for
TEAC f o r $145 par drive.

Abraham, MRX 117C, at 7.

401

drives was given to

8 4 3 5 . I n the sunmer of 1 9 8 3 ,

C

requested a quote from Tandon for

TII 6 5 s for delivery over a one-year period, for w h i c h Tandon quoted a

C
C

p r i c e of 4;

per drive for a t o t a l of $

million.

problems w i t h the p r o d u c t , t h i s s a l e was not made.
C

Because of technical

Mr. Abraham was informed

drives from TEAC and b l i t s u b i s h i .

t h a t Acorn ordered

Abraham,

843K. I n 1 9 8 3 , fCL requested a quote from Tandon for

C
C

delivery over a one-year period, for w h i c h Tandon quoted

C

drive for a t o t a l of $

million.

TIY 6 5 s for

a price o f

per

$

Because Tandon could not deliver either

the TN 6 5 or the TM 55 as an interim product pending completion of the TX 6 5 ,
C

t h i s s a l e was not made.

C

from TEAC a t $

or der ed

drives

Abraham, MRX l l 7 C , a t 7 - 8 .

per drive.

843L. &%LA c u r r e n t l y s e l l s 1.0 megabyte, Modal M4853 f l o p p y d i s k

I

C

Mr. Abraham understood t h a t

i n very low quantities.

d r ives t o

Foster Dep., CX 5 7 4 ,

a t 292.

843M. t E L A competed w i t h Tandon for s a l e s of 5-114 i n c h d i s k drives t o

.

C

cx 5 7 3 , a t

Matsushita obtained the account.

Foster Drp.,

29.

843N. MELA competed w i t h Tandon for s a l e s of 8 i n c h f l o p p y d i s k drives
C

.

to

M i t s u b i s h i obtained the account a t a h i g h e r p r i c e per

u n i t t h a n Tandon charged.

Foster De?.,

CX 5 7 3 , a t 3 1 .

843P. MELA competed w i t h Tandon for sales of 5-114 i n c h f l o p p y d i s k
C

drives to
premium over Tandon's

.

?litsubishi obtained the accoant

price.

Foster Dcp.,

CX 5 7 3 ,

at-a

$

to

$

a t 31.

8 4 3 4 . HELA competed w i t h Tandon for s a l e s of 5-114 i n c h 1.0 megabyte
C

M i t s u b i s h i obtained the account.

floppy disk d r i v e s t o

Foster De?,, CX 3 4 7 , a t 3 1 1 ; Foster Dep., CX 5 7 4 , a t 234-35.

402

~

U.L..

843R. MELA currently is competing with Tandon for sales Of 1.6

negabyte floppy disk drives and possibly 0.5 negabyte and 1.0 megabyte floppy
C

.

disk drives to

A vendor has not yet been chosen.

price is lowrr than the Mitsubishi price.

Tandon's

Foster Dep., CX 574, at 268-69.

843s. In February 1984, Tandon and MELA competed for sales of

C

,a

5-1/4 inch half-height floppy disk drives t o
company in northern California.

Foster Dcp.,

computer

CX 447, at 323-24.

843T. In early 1984, MELA, Tandon, Shugart, CDC, Qume, Ricoh, and
C

.

Ph.illips competed for sales of floppy disk drives to

cx

Foster De?.,

447, at 321-25.

84313. Tandon has competed with MELA for sales of 1.6 megabyte,

C

half-height 5-114 inch double-sided floppy disk drives to

843V. Tandon has competed with .=LA,

C

sales of 5-114 inch floppy disk drives to

.

Foster

Shugart, TEC, TEAC, and W I for

.

Foster Dcp., CX 447, at

320.
8431. MELA competed for sales o f 0.5 megabyte floppy disk drives with
C

.

TEAC and Shugart at
time.

Tandon was the supplier at that

CX 5 4 6 , Bates No. 524635.

843X. MELA competed with Tandon, TEAC, and Shugart for sales of floppy

.

disk drived to
843Y.

Foster, Dep.,

CX 447, at 289.

In J u l y 1982, %ELA competed with Tandon and Shugart for sales of

floppy disk drives to

,a

subsidiary of

was experiencing delivery problems with Tandon at that time.
CX 4 4 7 , at 3 0 8 ; MRX 4811, at 027202.

403

.
Foster Dep.,

8 4 3 2 . XELA competed with Tandon, Shugart, and Alps in February 1 9 8 3

for sales

Of

.

floppy d i s k dtivrs to

Foster Dep., CX 4 4 7 , at 3 1 1 - 1 2 .

843AA. ,YELA competed with Shugart, TEAC, Tandon, Remex, and Seagate for

sales of floppy disk drives to
bankrupt.

later xent

Foster Dep., C x 4 4 7 , at 3 1 5 - 1 6 .

843I3B. In April 1 9 8 3 , MELA and Tandon competed for salrs of flo?py disk
C

,a

drives to

MELA obtained the

computer company in northern California.

Foster Dep., CX 4 4 7 , at 3 1 6 - 1 7 .

account.

843CC. NELA has competed with Tandon for sales of the 1.0 aegabyte

.

C

5-114

C

awarded the account because of its lower price.

inch floppy disk drive to

Tandon was initially
,

later

awarded the account to MELA because of quality deficiencies in Tandon's
I.

Foster Drp., CX 4 4 7 , at 2 7 0 - 7 2 .

product.

843DD. ?=LA has competed with Tandon for sales of 1.6 megabyte, floppy
C

.

disk drives to

MELA received

a premium price above that quoted by

other companies because of the performance af i t s product.
CX 5 7 4 ,

Poster Dep.,

at 2 3 7 - 4 0 .
8 4 3 E E . MELA has competed with Tandon, TEAC, NEC, and Hitachi for sales

C

of 5 - 1 1 4 inch floppy disk drives to

C

the area of $

.

.

MELA'S price was in

There were several companies offering prices bzlow what

FlELA's contract stated.

Foster Dep., CX 5 7 4 , at 2 3 3 - 3 5 .

8 4 3 F F . Through April 1 9 8 4 , Tandon suffered order canczl-lations in
C

excess of

$

;nillion as a result

problms 3nd di.liver
drives.

p

Qf

its inability to solve its production

specified quantity of functioning half-height disk

Abraham, YRX I I ' I c , a t 2 - 4 .

40 4

-

843GG. Based upon IYr. Abraham's knowledge and familiarity with Tandon's
business o2portunities in 1983 and continuing in 1984 with resprct to the
TM 50 and TN 55 as well as a half-height direct drive disk drive product,
Tandon lost over

$

million in business opportunities because of its

inability to deliver functioning products to potential customers on a timely
basis.

Abraham, :4RX 117C, at 6.
843".

TEAC sells disk drives to ALA Japan, the Japanese office of ALA

International, a purchasing arm of Tandy.

Osawa, TRX 28, at 2-3.

84311. AhA Japan acquires title in Japan to the drives and subsequently
exports them to the United States to ALA International.
sells drives to AhA Japan at the f.0.b.

Tokyo price.

Accordingly, TEAC

Osawa, TRX 28, at 3.

84355. Sometines drives are sold by TEAC's United States subsidiary,
TCA, to AhA International in the United States.

However, nearly all disk

drives which are sold directly to ALA Japan are from TEAC Japan.

OSa'da,

TRY 28, at 3.
843KK. As of April 1985, the lowest price offered by TEAC to ALA Japan
for the double-sided floppy disk drives being sought has been
Tokyo.
to

Osawa, TRX 28, at 7.

lower i t s quoted price of $

$

f.0.b.

Lately, AhA has applied further pressure on TEAC

.

Osawa, TRX 28, at 7.

843LL. Because Radio Shack is committed to purchasing douhlc-sided
floppy disk drives at

$

f.o.b.

California in June, AhA stated that TEAC's

failure to meet its competitor's price might result in no orders by ALA for
TEAC drives as of June and July 1985.

Osawa, TRX 28, at 8.

405

2.

Future Sales.
The period of time during which the marketing of a new product

844..

is most opportune is frequently referred to as the "marketing window."

This

- .
- L

,

window opens when a demand for a new product is identified.

Once an OEH h a s

selected its vendot(s1 for a particular product, the window of opportunity
associated with that product has substantially closed.

Abraham, C x 714, at 2;

Abraham, Tr. 1 0 5 7 - 5 8 .
844A. The marketing window

for 5-1/4

inch double-sided, half-height,

hiqh capacity floppy disk drives is currently open.

Abraham, Tr. 1067.

It is expected that several major computer OEMs will soon

8448.

announce next-generation computer products with 3-1/2

inch disk drives..

Haldi, CX 711, at 7 4 .
I

844C. The initial OEM orders for 3-1/2 inch disk drives will be

crucial in determining future market position among floppy disk drive
manufacturers.

Those floppy disk drive manufacturers that fail to achieve

initial OEM orders while the window is open will tend t o be relegated to a
niche position in the market, and could even be forced to leave the market
altogether.

Haldi, CX 711, at 74.

844D. The move by IBM to offer

double-sided 5-1/4

a computer with 1.6 megabyte,

inch disk drives has opened another important window of
k drive manufacturers.

Haldi, CX 711, at 74-75.

o introduce new computer models..by the fall of 1985

i

.

EMS

to place critical initial orders for.disk drivks

.

between May and J u l y 1985.

placement of such orders will cause important

windows of opportunities to close.

Haldi, CX 711, at 76.

406

844F. Yany important windows of opportunities that are now open could
begin closing as early as May, June, or July 1985. Haldi, cx 711, at 76-77.
845.

The marketing window can reopkn if the selected vendor can not

deliver the disk drive.
846.

Abraham, Tr. 1059-62.

Once an OEM selects a floppy disk drive vendor for one of the

OEM's products, there are certain factors which may weigh against changing the

vendor for the product.

For example, OEMs spend a substantial m o u n t of time

and effort t o evaluate a vendor and its product, and a change in vendors nay
requite retraining of personnel and customers and changes in sales manuals and
software.

Additionally, OEMs tend t o enter into long-term contracts.

Abraham, CX 714, at 2-4.
847.

Lost sales to a given OEM may be significant not only because

of the particular contract lost, but also because of potential Sales

,

opportunities for future business with that OEM.

Abraham, CX 714, at 4.

847A. Tandon renains in competition with Sony, TEAC, and Mitsubishi

for several major accounts which will be awarded during the next feu months.
Abraham, CX 714, 1 17.
i s scheduled t o select a vendor

848.

C

c

in Hay 1985 for an order of

C

per year.

3-112

Tandon is seeking to s e l l

inch doublc-sided floppy disk drives
its TM 304.

Abraham, CX 714, at 5:

Langer ~ep., CX 254, at 71-72.
C

849.

double-sided drive.

is also seeking a vendor on a 1.6 megabyte, 5-114 inch
Tandon is seeking to s e l l its T% 65-8 there and is in

hzad-to-head competition with TEAC an3 YitsuSishi.

407

Abrahan, CX 714, at 15.

849A. T h e

requested to
5-1’4

inch

-tu?ities are still pnding.

ha;

$riv$*(

+c

temperature chamber

“13s m e n

luation units with regard to the 1 . 6 meqabyte,

n1.

$ 1

Tandon

experienced an internal problem with its
+CY

w’iicn delayed the completion o€ testing.

Edwards, CX 818, at 3.

C

, is

850.

C

a vendor in August 1585 .fnr

disk driv+s.
driv+s and is

:+

Tandon is seeking
brad-eo-head

; c

850A. Tandon

c:

TI^

3 - 1 1 2 inch double-sided floppy

0

51-11 its TM 308 (1 MB) and TM 3 0 9 (1.6 Y 0 )

;e-:Laon

with

TEAC.

Abraham, CX 714, at 16.

is in competition dith Yitsubishi for an order with

regarding 1.6 megabyte, 5-114 inch drives.

C

scheduled to select

Foster Dep.,

CX 4 4 7 ,

Tr. 3 6 5 - 6 9 .
d-

c

8500. The

matter remains pending.

Additionally,

has

requested since the hearing on temporary relief that Tandon supply T!4 65-8s
The pending compztition is Mitsubishi and TEAC.

for evaluation.
C

believed to be in the magnitude of

C

period.

The order is

pieces over a 24-month

to

has given initial acceptacze of the first T M 65-8s evaluated

and has since ordered eight additional ones,

Edwards, CX 818, at 3-4;

Edwards, T r . 3 7 2 8 - 2 9 .
851.

Tandon was in head-to-head competition with TEAC and Mitsubishi

at

I

m?gabytP, 5-114 inch double-sided floppy disk &rives.

for an order for 1.0
Tandon was seeking to

sell its T N 65-8.

Abraham, CX 714, at 16.

is now completed.

Tandon has been selected as an alternative choice.

prinary chDice

‘was

The

either TEAC, ‘.litsubishi, or Toshiba.

qualification
The

Edwards, CX 818, at 4.

Tandon is in head-to-head comprtition with TEAC for an order

852.

c

,

from

Vendor selection is scheduled for April 1985 (1 MB) and October 1985

drives.
C

c

(1.6 MB).
,

1986.

The quantity of 1 megabyte drives involved is

per year by

Tandon is seeking to sell its TM 308 (developed to

for 1.0 MBI and TY 309 (1.6
CX

for 3-112 incn double-sided floppy disk

447, at 373-74.

sprcif ications

-

Abraham, CX 714, at 16; see Foster Dep.,

MB).

Selection of a 3-112 inch product appears to be on hold.

Edwards, CX 818, at 4.
C

, is

853

also seeking a vendor for 1.6

megabyte, 5-114 inch double-sided floppy disk drives, as a second source to
Tandon is in competition with Mitsubishi for a contract.

C

c
,

Approximately

units will be ordered and vendor selection is scheduled

for about July 1985.

Tandon is offering its TM 75-8.

Foster Dep.,
Stages.
C

854

Tandon's TM 75 is currently in the evaluation

CX 447, at 371-75.

Edwards, CX 818, at 4.

Abrahan, CX 714, at 17;

.

.

is seeking a vendor for

3-112 inch double-sided drives at s e w a1 lo ations and has a vendor selection
date of October 1985, for a quantity of
C

.

, operation
October 1985 for an order of

c

operation

TM 309 drives.

per year for its
Vendor selection is scheduled for

drives per year for its

.

Tandon is seeking to sell its T?I 304 and

Abraham, CX 714, at 16, 17.

40 9

#

,

855.

is seeking a vendor for a 1.0

megabyte, 5-114 inch double-sided floppy disk drive.

Tandon is in

head-to-head competition with Mitsubishi for an order of

drives per

year there starting June 1985 with vendor selection in Nay 1985.

Abraham,

CX 714, at 17, 18; Foster Dep., CX 4 4 7 , at 376.

855A. The 3-112 inch product is currently baing evaluated by

C

on

an ongoing basis.

With regard to the 5-114 inch product, the Tandon disk

drive is presently

vel1

axpccted.

along in the evaluation stage and qualification is

Vendor selection will occur in October 1985.

Qualification of the

TY 65 has occurred at all stages except shock and vibration, which is
currently ongoing.

Edwards, CX 818, at 4.

855B. Tandon initially quoted S

C

to

‘c

TM 65-4 units.

to

with respect to

Tandon was advised by

this quote was not even close to the competition.

that

Tandon was informed that

nitsubishi, TEAC, and Toshiba were all offering substantially lower prices.
C
C

Accordingly, on June 2 7 , 1985, Tandon quoted S

to $

for

to

and was advised that this quotation as wall was

units to

higher than the prices quoted by Mitsubishi, TEAC, and Toshiba.

Edwards,

cx 818, at 5.
856.

Tandon is in haad-to-head competition with TEAC and Hitsubishi

.

C

at

C

start date of August 1985 is schedule there for an order of
double-sided 3-112 inch and 5-114 inch floppy disk drives per year.

A vendor

Tandon i s

seeking to sell its TM 308 (1 M B ) , TM 65-8 (1.6 NB), and TM 64-2L (0.5 MB)
drives.

Abraham, CX 714, at 18; Foster Dzp., CX 4 1 7 , at 378-79$

410

856A. On January 2 5 , 1 9 8 5 , Tandon quoted $

C

for

C

disk drive, 1.6 megabyte.

C

to

Tandon also quoted

Tandon has bean informed by

offering prices lower than Tandon's.
C

currently supplying

to d

for

to

that its competition was
Mr. Edwards knows that Xitsubishi is

with doublc-sided floppy disk drives and

believes that TEAC is also.
8560.

C

$

units of its TM 6 5 - 2 , a 0.5 megabyte double-sided disk

to

drive.

to

units of its TM 6 5 - 8 ~ , a double-sided 5-114 inch floppy

C

C

to 8

Edwards, CX 8 1 8 , at 6 .

is currently talking to Tandon about long-range

-

Edwards, Tr. 3 7 3 2 - 3 5 ; see Edwards, CX 8 1 8 , at 5.

opportunities.

856C. Tandon is in competition with Mitsobishi for a contract offered
C

,

by
double-sided 3-112 inch floppy disk drives per year.
date is May 1985.
857.

for

The vendor selection

Langer Dep., CX 5 5 4 , Tr. 3 8 2 - 8 3 ; Abraham, CX 7 1 4 , a 1 7 .

A s of April 1985, MELA has had discussions the past six months

with Commodore concerning the potential sale of drives to that company.
Foster, Tr. 304.
858.

MELA continues to meet with Wang with the hope of doing

business with it.

Foster, Tr. 399.

858A. On June 2 5 , 1985, Tandon quoted $

C

to

C

of TM 65-2L double-sided floppy disk drive.

C

after Tandon was informed that Mitsubishi was quoting

C

Tandon's list price of

$

for

units

This quote was made to
a price below

for its comparable double-sided disk drive for this

quantity of units, but did not indicate how much lower Mitsubishi's quotir
was.

Sdvards,

CX 8 1 8 ,

at 5 ; Edward, Tr. 3 7 3 7 - 4 3 ;

411

- Foster, Tr. 4 7 4 2 . .
see

858B. Included in TEAC's customer list are the following compsnrps:

Apple Computer;

ALA

Consumer Pro. Laboratories; Billings Research

International; B u r r o d g h s Corp.; Control Data Corp.; Convergence; Dysan Corp.;
ID?!; Yagnetic Peripherals; !&vnorex; Micro Peripherals; Qume Corp.: S p r r y

UnlVaC; Tandy Advanced P r o d u c t s ; Tandy Home Computers: Texas Instrunents; :gang
Laboratories, Inc, CX 17.
858C. A number of mayor OEMs, including IBM, are thought to be in the

process of designing new Computer models which will incorporate 3-112 inch
C

micro-floppy disk drives.

is expected to

C

select a double-sided micro-floppy vendor in Nay 1985;

C

choose a supplier by August 1985; and the

is expectzd to

.

plant in

is

thought to have a vendor selection date set for April 1985 and October 1995.

flc

order is expected to be for

The

units per year, an8 the combined

orders are expected to be for

C

units per year.

Abraham,

CX 714, at 15-16.

858D. Tandon is seeking to sell its 3-112 inch double-sided floppy
C

CX

C

,c

.

disk drive to aajor OEM accounts such as

Abraham,

714.
858B ,

have solicited the sane accounts for which Tandon

has solicited 3-112 inch micro-floppy disk drive orders.
Brchme, CX 48, at 195-96, 305.
859.-861.

Intentionally Left Blank.

412

-

i

I n 1985, Matsushita, TEC, E p s o n , TEAC, M i t s u b i s h i , and A l p s

862.
C

quoted f a c t o r y p r i c e s i n Japan

r a n g i n g from t h e h i g h $

s t o the mid-3

for

half-height 5-114 i n c h double-sided drives i n the 1 0 0 , 0 0 0 quantity range.

The

amount t o be added t o these prices t o o b t a i n a delivered United S t a t e s price
would be r o u g h l y $9 or l e s s .
C
C

863.

Brehme, T r .

864.

1713-16.

I n a document dated January 11, 1985, TCA l i s t e d 30 ma-jor OEX

" t a r g e t accounts"

.

Chidambaram, T r .

for f i s c a l 1985, i n c l u d i n g
2709'; CX 18, a t 250927.

TEAC double-sided d i s k drives compete a g a i n s t those o f Tandon,

Texas Peripherals, Control Data Corporation, and S h u g a r t .

srehme, T r .

2715,

2766; CX 48, a t 185-90, 197-204.
865.
I

TEAC Japan's

u n i t s per month.

C

866.

TCA's

u n i t s per month.

867.

forecast for TCA's

CX 18,

s a l e s i n f i s c a l year 1985 was

a t 250925; Brehme, T r . 2707-08.

own f o r e c a s t for i t s s a l e s i n f i s c a l year 1985 was

CX 18, a t 250925; Brehme, T t .

2707-08.

Based on a September 1984 r e p o r t , TEAC has p l a n s for t o t a l

production of i t s FD-53/54/55 s e r i e s double-sided 5-114 i n c h d i s k drives o f

C

u n i t s were reserved for export,

u n i t s i n 1985, of w h i c h

C

u n i t s ( i n c l u d i n g s a l e s by TCA) were targeted for t h e U n i t e d

and
States.

CX 8,

a t Bates

NO.

251230; Beckerman Dep., CX 49, a t 103-08; H a l d i ,

CX 711, a t 57.

868.
drive s a l e s

TEAC i s presently competing for

a t major United S t a t e s OEMs.

413

3-112 i n c h double-sided d i s k

B r c h w , Tr. 2767.

869.

TEAC distributes disk drives in the United States in

c

approximately the following percentages:

C

type customers;

C

and

percent to the middle tier of industrial typc customers;

percent to large OEMs.

in the United States.
870.

percent to retail distribution

TCA

sells

to

percent of total TEAC sales

Brehme, Tr. 2772-74.

The OEM sales are the most important to TEAC because the retail

distribution sales are dependent to some extent on the OEM sales.

Also, sales

t o the retail distribution and industrial customers are somewhat cyclical and
unpredictable.

Brehme, Tr. 2772-73.

871.-882.

F.

Intentionally Left Blank.

Mitsubishi
1.

General.
882A. Mitsubishi officially introduced the 96 TPI, 1.0 aegabyte disk

drive in early 1982, and introduccd the 96 TPI, 1.6 megabyte disk drive in
August 1982.

These two products have constituted a significant portion of

Xitsubishi's computer peripheral business in the United states.

Foster, Tr.

4734.
8828. MELA secured just about every account for its 1.0 megabyte disk
drive in the 1983 time frame.

Mitsubishi was six to twelve months ahead of

all other disk drive manufacturers with the high capacity disk drive.
Initially, Mitsubishi lost busin6ss by not marketing a 4 8 TPJ disk drive,.
because that was where the greatest portion of the disk drive market was
shifting in 1982, due to IBM's announcement of a PC-type product.
4735.

414

-

Foster, Tr.

883.
C

Mitsubishi has production facilities in Japan w.ith a capacity

of approximately

CX 6 9 0 ,

products and carriage assemblies per month.

Interrogatory No. 11.
4

883A. MELCO's capacity to produce 3-112 inch floppy disk drives in
a

C

Japan is

drives per month.

1

Foster, Tr. 4 9 1 9 .

883B. Mitsubishi first sold 3-112 inch disk drives (MF 3 5 3 ) in the

United States during the period October 1 9 8 3 t o Xarch 1964.

During the period April 1984 to

quantity sold in that period was small.

C

However, the

December 1 9 8 4 , Mitsubishi sold approxinately

3-112 inch double-sided

disk drives in the United States, out of total double-sided disk drivr'sales
I

C
C

of about

thousand units.
883C.

CX 690, Interrogatory No. 7 , at 3.

MELA has issued purchase orders

for

Nodel 353.4 3-112 inch

This is a new model introduced by MELCO.

Some of

these disk drives will be shipped t o customers as evaluation w i t s .

Foster,

double-sided disk drives.

I

Tr. 4817, 4 8 2 5 - 2 6 ; MRX 112; MRX 113A.
883D.
C

c

8833.

C

c

Intentionally Left Blank.
Although MELA supports inquiries from

883F.

domesticglly,
r .

procures disk drives directly

also has a foreign buying office, and
from Japanese manufacturers.

C

.

Poster, Tr. 4918.

Orders had been placed by

directly with MELCO for 3-11?

.

inch double-sided disk drives for use by

The

volumes would be for 5,000 disk drives per year initially, and a best case of
C
C

C

to

disk drives purchased over a five or six year period.

purchases from Mitsubishi would be covered by the

--

Foster, Tr. 1 9 1 8 - 1 9 ; CX 6 2 1 , at 7 - 8 : see also, CX 5 3 7 , at 5 3 0 7 2 6 .

415

8836.

For t h e pried J u l y - D e c e m b e r

3 - 1 1 2 i n c h d i s k d r i v e s i n t h e Unit;.d

C

1985).

C

P r o p o s e d p r i c e s r a n g e d from $

for s a l e s t o

.
for s a l e s t o

to $

was MELA's l a r g e s t new account i n 1 9 8 5 , p u r c h a s i n g

3-112 inch double-sided

C

5,

CX 5 3 6 .

88311.

C

S t a t e s ( f o r e c a s t d a t e of July

o f t h e w sales were a c c o u n t e d for by

Approximately

C

Sun E l e c t r i c .

1 9 8 5 , MELA f o r e c a s t e d s a l e s o f

d i s k d r i v z s (MF 3 5 3 ) .

Foster, Tr.

4791.
8831.

1

For t h e p e r i o d A p r i l 1 9 8 5 t o S e p t e m b e r 1 9 8 5 , YELA h a d p r o p o s e d

C

p r i c i n g t o MELCO for t h e i4F 3 5 3 d i s k d r i v e o f $

C

$

C

S

i n July-September

.

I

Los A n g e l c s ) .

1985 and

T h e a c c e p t 4 p r i c e was

cx 5 5 7 .
8835.

C

1 9 8 5 (c.1.f.

i n April-!4ay

I n J u n e 1 9 8 5 , HELA l i s t e d

, as

a

s i g n i f i c a n t o p p o r t u n i t y for t h e MF 353A (new 3 - 1 1 2 i n c h d o u b l e - s i d z d ) ,
C

and

as s i g n i f i c a n t o p p o r t u n i t i e s for t h e t h e ?IF 3 5 3 ( 3 - 1 1 2 i n c h

and
double-sided).

883K.

CX 5 3 7 , a t 5 3 0 7 2 8 .

In

A u g u s t 1985, MELCO d i s c l o s e d t h a t it had a contract t o

s u p p l y IBM w i t h 2 5 0 , 0 0 0 3 - 1 1 2

inch floppy disk d r i v e s , with production to

b e g i n i n t h e s p r i n g of 1 9 8 6 .

T h i s d r i v e i s t h e NF 3 5 5 , a 2 . 0 m e g a b y t e d i s k

d r i v e , which Y i t s u b i s h i had announced a t t h e J u l y
Conference.

883L.

1985 National Computer

Cx 8 7 7 .

The t r a d p o f f b e t w e e n s h o r t term p r o f i t a n d m r k e t s h a r e is a

.

C
CX 537, a t 5 3 0 7 2 5 .

416

883M.

For the period January-June, 1986, Mitsubishi has forecasted

.

sales of 3-112 inch disk drives, with the largest customer being
CX 536.
884.

Mitsubishi's monthly production of doublc-sided disk drives

during fiscal year 1984 was approximately

units per month.

CX 690,

-

Interrogatory No. 11; see CX 690, Interrogatory No. 7, at 3.
885.

Nitsubishi's double-sided disk drives compete with Jouble-sided

disk drives sold by Tandon, Shugart, and Control Data Corporation.

Foster,

cx 447, at 308-27.
C

886.

percent surplus of production capacities at

There was a

Mitsubishi's Koriyana Works.
887.
I .

Mitsubishi's inventory of floppy disk drives at its Koriyama

C

Works in December 1984 was

C

5-114 inch disk drives.
CX

disk drives, of which

wer e

In Yarch 1984, the inventory level was

units.

690, at attachment 4.
888.

Intentionally Left Blank.

889.

In a report dated January 14, 1985, .WLA projected disk drive

C

sales of .$

C

$

C

drives, and $

in 1985, and

in 1986.

$

was for 5-114 inch disk drives, $

890.
C

CX 690, Interrogatory No. 11.

Of the 1985 forecast,

was for 3-112 inch disk

was for 8 inch disk drives. ' C X 470, at 512106,
With the exception of 8 inch double-sided disk drives,

Nitsubishi devotes

employees and

square met?rs to manufacture and

production of double-sided floppy disk drives,
Kotiyama Works in Japan.

This activity takes place in

Manufacture of 8 inch double-sided disk drives 1s

done under Mitsubishi's technical guidance in OA Research Institute, Ltd.,
which is a subcontract factory of Mitsubishi.

117

CX 690, Interrogatory No, 9.

891.

A l l research and development for Mitsubishi's double-sided

floppy disk drives is carried out in Japan.
CX 6 8 8 ,

Foster Dep.,

CX 4 4 7 ,

at 47;

Interrogatory No. 9.
892.

Mitsubishi is currently considering new double-sided disk drive

C

products for sale in the United States.

C

double-sided floppy disk drive with a

C

under discussion is a

C

additional models of a

One is a

inch

.

Also

inch doubla-sided disk drive and
inch double-sided disk drive.

Foster Dep.,

Cx 447, at 140-49.
C

893.

MELCO

devotes

cmpluyees and

square meters to research

and development of double-sided floppy disk drives.
in Japan.

CX 6 9 0 , Interrogatory No. 9.
894.

I.

Design engineering for MitsuSishi's doublc-sided floppy disk

drives occurs in Japan.
895.

896.

Foster Dep., CX 447, at 48.

Product engineering for Mitsubishi's doublc-sidzd floppy disk

drives occurs in Japan.

Foster Dcp., CX 4 4 7 , at 48.

Primary quality control for Mitsubishi's double-sided floppy

disk drives occurs in Japan.
C

This activity takqs place

897.

MELCO devotes

Foster Dap., CX 447, at 63-64.
employees and

square meters to marketing,

distribution, sales, and warehousing of doublc-sided floppy disk drives.
CX 690, Interrogatory No. 9.
897A.
C
m

L

Mitsubishi stated that with respect to the 3-112 inch floppjr

disk drive market,

. It- Dlanned
to
.

418

Mitsubishi believed that

C

in the market for

C

3-112 inch floppy disk drives.
898.

CX 856, at 520022.

In September 1984, SOXAM forecast sales in February 1985 of 800

inch disk drives, of which 480 were single-sided and 320 were

3-112

double-sided disk drives.
899.

Cx 240.

SONAM has placed with potential customers approximately 10

full-height OA-D33Ws, 80 half-height MP-F51Ws, and 50 half-height MP-F52Ws
evaluation units one megabyte, 3-112 inch disk drives.

CX 2 0 2 , Interrogatory
,

No. 7; CX 6 9 2 , at 4 ; Mergzntine Dep., CX 2 5 2 , Vol. I , at 119-20.
900. Intentionally Left Blank.
901.

Sony introduced a 5-114 inch plug-compatible version of its

3-112 inch double-sided floppy disk drive (OA-D33W), which was advertised as

being capable of replacing standard mini-floppy drives without any interfacing
problems.

The double-sided version was schedulird t o be available in early

1 9 8 5 , but was never produced in commercial quantities.

CX 2 5 2 , Vola I , at 119-200

Dep.8

902.-978.

2.

C

CX 210; Netgrntime

Intentionally Left Blank.

Mitsubishi Pricing Strategy.
979.

MELA is a customer of MELCO, and

C

Foster, Tr. 4899-4900.

4 19

I

980.

According t o ~ r .Foster of XELA,

:ELA'S

approach to pricing is

as follows:

.
981.

Foster, T r . 4784-89.

According to Dr. Yagrath, Mitsubishi is staying in the floppy

disk drive market at all costs, by pricing competitively an3 disregarding its
awn production costs, contrary to common business practice.

Dr. Yagrath

relied on CX 855 and CX 856 to support his theory concprninq Mitsubishi's
pricing policy.
982.
,.

Maqrath, Tr. 3990.
According to D r . Magrath, if over the long run a company is

uncompetitive in price in a certain product line, common business sense would
dictate that the company should drop thc product line.
983.

Magrath, Tr. 3988.

Exhibit CX 855 is a series of internal MELA/.WLtO letters

discussing Nitsubishi pricing during the ten month period en3ing in Yarch
C

1985, primarily for sales to

.

On seven occasions during this

period, Mitsubishi referenced the lower prices of competitors (including
C
C

)

strategy for

.

in analyzing its own pricing

cx 855, at 517778, 517779, 517793, 517796, 517797,

517849, 517864, 517889, 517927.
984.

Exhibit CX 856 is a series of internal !4ELA/,%LCO

C

concerning Yitsubishi pricing to certain U.S. CUStomeCs f

C

On

letters

-

1-

occasions, m L C 0 referenced its production c0s.t and/or profit margin

420

C

.

as
between production quantity and cost was also cited.

CX

The relationship
856, at 520011,

520019-21, 520026.
985.

Mitsubishi spent months qualifying to obtain a contract for

C

double-sided floppy disk drives from

C

qualified, MELA did not obtain any businpss from

C

meet

price requirements.

in mid to late 1984.

because AYELA could not

This was one account where a lower price

, due

requested

.

to cost constraints at

Foster, Tr. 4802-03, 4909-10, 4921-22; CX 856, at 519939.
986.

W . Foster estimates that AYELA has

.
,

Although

Foster, Tr.

4909-10.
987.

One specific instance where

for a sale to

.

This

was justified by the
which would result from the increase in

production volume.

Foster, Tt. 4912, 4919-20.

321

CONCLUSIONS OF LAW

. .
1.

The IY-.S? International Trade Commission has jurisdiction over unfair

- - '+
cmpct-ition and
.:.L".Y

I

8, b

3Ph>

methods of

*-

C..

unfair acts in the importation into or sale in the

.

United States of products the effect or tendency of which is to destroy or
substantially injure an industry, efficiently 'and economically operated, in
the United States.
2.

19 U.S.C.

S 1337.

The Commission has subject matter jurisdiction over the double-sided

flappy disk drives and components thereof at issue in this investigation that
have been imported into or sold in the United States.
3.
4.

U.S.

Letters Patent No. 4,151,573 is valid.

FF 1.
Opn.,

at 13-31.

.;--.-

..*.:

'

,

19 U.S.C.

5.

.'

.. . - .
Patent infringement is an unfair act or method of Competition under' .e.
; :.

S 1337.

In re Von Clemm, 108 U.S.P.Q.

371 (C.C.P.A.

19551.

.:

The double-sided floppy disk drives of the Mitsubishi respondents

a

:**

%**
- ,,
V
'

--- -

---a

.
*
.!

.'*

considered in this investigation do not infringe the claims of the '573
patent.
6.

Opn.,

at 31-46.

The Mitsubishi respondents have imported into and sold in the United

States certain 'double-sided floppy disk drives.

7.

Opn.,

at 47-40,

The domestic industry in this investigation is defined by the domestic

activities of the patentee and its licensees devoted to the manufacture,
development, . and. sale of 5-1/4 inch and 3-1/2 inch'
ives.

Opn.,

at 49-65.

ions of complainant and its licensees devoted to
on, research and development, and sale of 5-1/4
inch and 3-l/2 inch double-sided floppy disk drives constitute a domestic
industry for purposes of

§

337.

Opn.,

at 65-97.

422

c-

The domestic industry at issue in this investigation is efficiently

9.

and economically operated.
.4..

10.

%

The ull+d
- .
,

Opn.,

at 98-109.

.

..--. . .

unfair methods of competition and unfair acts of

,..

respondents in^’theimportat ion of double-sided floppy disk drive into t h e
United States, or in their sale, do not have the effect or tendency to
substantially injure the domestic industry -at issue in this investigation.
opn.,

at 110-48.

11.

There is no violation of S 337 of the Tariff Act of 1930, as amended,

in the importation of certain double-sided floppy disk drives and components
thereof, or in their sale, by reason of infringement of U.S. Letters Patent

%
:;

..*.’
..?

--..:a

No. 4,151,573, the effect

or tendency of which is to destroy or substa

injure an industry, efficiently and economically operated, in the Unit
States.

Conclusions of Law 3-10.
.

423

. ..

_

,

.. .

> .:+

.. ,

a-.'.4%

pA...

+
.L:
-*;&?+A

INITIAL DETERMINATION

.. _-.J-*.

,. .-.*
.-\yc

AND

ORDER

;1

I

-

.

-2,

E3asedl on the fqregoing opinion, findings of fact, conclusions o f l a w , and
_ I

khc recatd as a whole, and having considered all pleadings and arguments

88

well as proposed findinga of fact and conclubions of law, it is the
administrative law judge's INITIAL DETERMINATION that no violation of S 337
exists in the importation of certain double-sided floppy disk drives and
components thereof, or in their sale, by r c a m n of infringement of U.S.
7.

Letters. Patent No. 4,151,573, the affect or tendency of which i s to destroy or

-- .

substantially injure an industry, efficiently and economically operated,, in
the United States.

.

-

I

6

In accordance with Rule 210.44 (b), all material found to be confidential 5;the administrative law judge under Rule 210.6(a) is to be given in camera

-

-.

treatment for five years from the termination date of this investigation.
The Secretary i8 instructed to serve a public version of this Initial
Determination upon all parties of record and the confidential version upon
counsel for complainant Tandon Corporation and respondents Hitsubishi Electric
Corporation and Mit8ubirhi Electronics America, snc., vho ate riqnatories to
the protective order irsued by the administrative lav judge on January 30,
tigative attorney.

To expedite service of the

hereby ordered to serve on the administrative law

r 12, 1985, a copy of this Initial Petermination
with those sections considered by the party to be confidential bracketed in
-.

red i n k .

.--

424

-

T h i s 1nitial':Dctermination shall become the determination of the Commission
.; :,
.: ,.-.?,f:?.;
45 days a f t e r -..y,>':
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