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Optical/IP

Corvis Having a Rough Week

The long history of acrimony between Corvis Corp. (Nasdaq: CORV) and archrival Ciena Corp. (Nasdaq: CIEN) has taken a new twist. Yesterday a federal jury said Corvis has wrongly used a patent owned by Ciena (see Jury Sides With Ciena Against Corvis and Corvis 'Disappointed' by Patent Verdict).

Ironically enough, Corvis founder David Huber is one of the inventors listed on the patent, which covers a technology named "WDM optical communication system with remodulators" (Patent 5504609). But here's the lowdown: Though Huber founded both Ciena and Corvis, he did not have a license for 5504609 when he left Ciena to start Corvis.

This patent feud began in July 2000, when Ciena sued Corvis for allegedly infringing on four of its patents, including:
  • Patent 5557439 -- expandable wavelength division multiplexed optical communications systems;
  • Patent 5784184 -- WDM optical communication systems with remodulators and remodulating channel selectors; and
  • Patent 5938309 -- Bit-rate transparent WDM optical communication system with remodulators.
Last month, a federal jury found that Corvis did not infringe on two of the patents listed in the Ciena complaint. However, Corvis's inverse multiplexing transceiver product was found to infringe the Ciena patent on bit-rate transparent devices.

The federal jury's findings on Monday were even more serious because at issue is a system patent rather than a patent on a very specific technology application. Working without an application technology patent could be likened to driving a car with a misaligned front end -- it's uncomfortable, but definitely doable. Working without certain technologies covered by system patents, however, would be like trying to drive a car with no tires.

"The jury has ruled on a patent that affects virtually all of [Corvis's] WDM systems," says Ciena spokesman Glenn Jasper. Corvis did not immediately return calls seeking comment.

Now that the jury has reached a verdict, the judge will hear post-trial motions for several months. Following that, unless a settlement is reached beforehand, the trial moves on to the point of deciding what damages will be awarded to Ciena.

Besides being beaten in court, Corvis is also having a rocky week on Wall Street. The company reported a net loss of $47 million, or 12 cents a share, on revenues of $1.5 million for its fiscal first quarter ended March 29, 2003 (see Corvis Posts $47M Q1 Loss).

Corvis's first-quarter revenues were down some 83 percent from its year-ago quarter and the company is expecting even lower revenues during its second fiscal quarter.

The company also confirmed today that it has begun yet another round of layoffs that will take its headcount below 350 over the next few months; and it may even shut down its subsidiary in France. Corvis employed as many as 1,625 people just two years ago.

Despite its troubles, Corvis sits atop the pile of cash it made at the height of the telecom bubble. Its cash and investments totaled $448.6 million as of March 29. Meanwhile, shareholders have watched the company that once had a market capitalization of $36 billion sink to abysmal depths. The company is worth about $301 million today, meaning investors might get more for their buck if Corvis were shut down and sold for parts than if it stayed in business another day.

— Phil Harvey, Senior Editor, Light Reading

puddnhead_wilson 12/5/2012 | 12:05:58 AM
re: Corvis Having a Rough Week >There needs to be a mechanism by which the person who develops the technology has portability rights. Huber started developing his ideas at General Instrument. He developed them further at Ciena, and further still at Corvis. He's the guy with the ideas, he's the guy who figured it all out. Ciena won the lawsuit simply because that's where Huber parked his butt prior to Corvis.

Ciena owns the patent because he was an employee and elected officer of Ciena at the time and to allow a person rather than a corporation to own a patent would be to allow a person to steal the intellectual property owned by public shareholders of Ciena.

This is corporate law/capitalism 101 -- isn't this obvious?
PastTense 12/5/2012 | 12:06:11 AM
re: Corvis Having a Rough Week There needs to be a mechanism by which the person who develops the technology has portability rights. Huber started developing his ideas at General Instrument. He developed them further at Ciena, and further still at Corvis. He's the guy with the ideas, he's the guy who figured it all out. Ciena won the lawsuit simply because that's where Huber parked his butt prior to Corvis.

When you leave a company that gave you a 401k and contrinuted to it, you are allowed portability of those accounts. Patents should be the handled same way.

Huber is a sucky salesman but a brilliant technologist. He (and his shareholders) shouldn't have to pay Ciena one red cent.
dave77777 12/5/2012 | 12:06:19 AM
re: Corvis Having a Rough Week Thank for proving my point about clueless pundits lilgatsby.

>>What's "Funny" is that you don't consider a $1.5m Qtr (2nd in row) as a "meaningful" signal.
Anyone who's not blind who invested in the last year had to EXPECT a 1.5M qtr. Why do you think the company sells at a discount to cash? Do your homework!

>>I'd like to know in what business cycle is Corvis operating?
ULH/LH optical network systems. You really shouldn't have to ask this question.

>>they must have a sellable or desired product...not the case, ol' sport.
When this company went public, they couldn't make product fast enough to fill orders. They have the products; they are simply waiting for a re-emergence of ULH/LH capex, "ol' sport".

I'm not bitter; Corvis is trading right about where I own it. If you bought at $20 - $100, you shouldn't be bitter; you just shouldn't be allowed to handle your own money.



lilgatsby 12/5/2012 | 12:07:27 AM
re: Corvis Having a Rough Week What's "Funny" is that you don't consider a $1.5m Qtr (2nd in row) as a "meaningful" signal. You may dismiss the verdict, but rest assured it will cost this penny-stock company in many ways.

I'd like to know in what business cycle is Corvis operating? Please explain why any investor would not be bitter after the recent shrouded CIII moves, much less the lackluster revenue, questionable business partnerships and sketchy business plan? In order for Corvis to have competitors, they must have a sellable or desired product...not the case, ol' sport.

The criticism on this board is not unwarranted, if anything it's overdue.

lg
dave77777 12/5/2012 | 12:07:30 AM
re: Corvis Having a Rough Week how a relatively meaningless verdict (unless you're a Ciena spokesman) brings out all the bitter ex-employees, all the bitter ex-investors, all the competitors who want to see Corvis' OOO switch gone, telco pundits who even after the buble's collapse don't understand that business moves in cycles, and of course the bitter non-advertising-revenue-from-Corvis-receiving editors.

Go to it guys. Give 'em heck!
single mode figure 12/5/2012 | 12:08:32 AM
re: Corvis Having a Rough Week Bo Pedersen is well regarded in the optical space, he told me personally that Dave always tweaks IP, that was said in conjunction with me joining Bo at a Corvis funded, remember the optical capital group, startup.

I think it is clear that Ciena/Corvis has bad blood. And Corvis sued Corvia to change it's name, does it sound that Corvis it a bit intolerant when the shoe is on the other foot.

Corvis worked the piss out of it's employees...
lickmeyster 12/5/2012 | 12:08:33 AM
re: Corvis Having a Rough Week Lightwoman,
I agree with gzkom. You are trying to isolate the value the shareholders are placing on future earnings potential. You are saying that they (the investor community) beleive Corvis will continue to lose money.

The Corvis supporters like Sparxe are saying the opposite and that now represents a buying opportunity since the stock is undervalued.

Unless your point is that the investment community is correct when they say that Corvis will continue to lose money.

I agree with the point that the market price for Corvis stock is correct and the predicted downward spiral toward bankruptcy is inevitable.
gzkom 12/5/2012 | 12:08:34 AM
re: Corvis Having a Rough Week Hello, Lightwoman,

As you quoted, in investors' expectation, Corvis is worth a negative $150 million.

Unfortunately, the investors's expectation, sometimes, is deadly wrong - just like 3 years ago. At that time, the investor's expectation to Corvis was $36 billions.

Do you need me to remind you?

Regards
lickmeyster 12/5/2012 | 12:08:34 AM
re: Corvis Having a Rough Week Opticalphaggot,
Stop posting, please.
opticalphaggot 12/5/2012 | 12:08:38 AM
re: Corvis Having a Rough Week I don't know about the 609 patent, but I do know that if you remove the zero, it leaves a good number. Something like one in one hundred engineers ever come across that one in their daily routine.
erbiumfiber 12/5/2012 | 12:08:39 AM
re: Corvis Having a Rough Week Not to horn in on your discussion, but I think I can answer that question for you. The patent claims are interpreted in light of the patent disclosure and anything that the applicant's attorney argued to the patent office to try to get the claims allowed.

Very often, parties are not guilty of producing an "identical product" (known as "literal infringement") but instead are found to have infringed under the "doctrine of equivalents" by producing a product "equivalent" to that in the patent claims. For this latter form of infringement, claim interpretation is key and one or more outside patent attorneys are ususally hired to determine the scope of the issued patents claims, what would or would not be considered an equivalent, and whether or not a company's products fall within the scope of a particular patent's claims. This is both common and prudent practice, not something evil or immoral. It is part of a prudent course of business to ensure that you are steering clear of any competitor's patents. I have no idea whether the '609 patent was held to be literally infringed or infringed under DOE (doctrine of equivalents).

David Huber is quite knowledgeable about patents, and as a co-inventor on the '609 patent, would have been in a good position to assist an attorney in claim interpretation. Attorneys will often ask technical experts about the meaning of technical terms in claims. Again, this behavior is seen as good business practice and is encouraged by the US patent system. It is perfectly legal and encouraged to ensure that a particular product has been "designed around" any US patent. So I am not sure how this is seen as "grazing" but it all depends which side you are on.
opticalphaggot 12/5/2012 | 12:08:39 AM
re: Corvis Having a Rough Week damn already down 10 cents on my 1 share of Corvis. HAHAHAHAHAH
opticalphaggot 12/5/2012 | 12:08:40 AM
re: Corvis Having a Rough Week Everyone at Ciena owes Huber not the other way around. As much as I question Huber's lack of selling skills, I commend him for taking his vision and standing by it even if it means going down with the ship. That's more than I can say for most of these half baked idiots collecting a paycheck for doing their routine. That goes for Gary, Pat, and gang. Where would you bankrollers be without Huber's genius? Huber will have a true legacy, whereas Ciena's brass will have their names plastered on some university wall somewhere for donating some money to help green card holders send some more jobs overseas because the idiots in this country continue to complain and whine. That's fair compensation to ya. Serves all you bickering fools right!
opticalphaggot 12/5/2012 | 12:08:40 AM
re: Corvis Having a Rough Week deal with the reality of middle managers trying to protect their jobs. Reminds me of the idiots from the 1930's except the difference this time is that there are Walmarts! Maybe Huber is right, but he won't get anywhere with these boneheads if he berates them, huh? Don't worry they can always go buy crap from Cisco or better yet buy it off auction at EBay. Now that's some premium gear! NOT! LOLOLOLOL
zettabit 12/5/2012 | 12:08:41 AM
re: Corvis Having a Rough Week SMF,

Can you explain what it means to tweak patents "for optimal grazing power"? I am not familiar with that expression.

What would be an example of what one would do to patent claims, or enforcement, when doing so?

Thanks
single mode figure 12/5/2012 | 12:08:43 AM
re: Corvis Having a Rough Week It should compensate Ciena, for this reason;

A director at Corvis once told me, after he spun off with Huber's blessing and funding, that they always tweaked patents for optimal grazing power.
Bo Pedersen, had left Tycom, before joining Corvis, then with the new venture tried to Huberize Tycom's terminal architecture, and got sued...bad habits tend to replicate from the top guy..
zettabit 12/5/2012 | 12:08:43 AM
re: Corvis Having a Rough Week I love the above line in the story!

Lower revenues than $1.5M! I guess just like Japanese interest rates, once you hit zero the downward trend will be over.

Let's see how the rest of 2003 stacks up for Corvis:

- AT&T ULH plans are on indefinite hold

- Sprint ULH plans are on indefinite hold

- Qwest's Q3 ULH plans are on indefinite hold, and previous Corvis contract commitments have finally been bought off and settled for peanuts.

- Level(3) is digesting Genuity

- 360Networks is digesting Dynegy

- Wiltel is working to a tight CAPEX budget, still has lots of extra capacity on some routes, and with Matt Bross gone, Corvis will have to EARN any new business. Has anybody at LR talked to Wiltel engineers as to their Corvis plans.

- Europe PTTs are not doing much, and ULH and Europe mix as well as blood and oil. And next-gen all-photonic networking architectures are still very much "under study".

So that leaves:

- Broadwing, the in-house customer

and .....

- Federal government GigBE !

Here is David Huber's financial guidance for next quarter's analyst call:

"Revenue will begin to stabilize as we begin converting Corvis cash balances into revenue through sales to Broadwing. Meanwhile, Corvis continues to target ultra-conservative and risk-averse customers such as the federal government given the short-term potential for one-time, support intensive, network build-outs. Corvis continues to offer industry-leading solutions, and I personally continue to berate key customers for their lack of vision in not adopting our industry-leading all-photonic network solutions"
Belzebutt 12/5/2012 | 12:08:46 AM
re: Corvis Having a Rough Week Times are hard enough at CORV without your fuzzy math...


Sparxe, if I cared enough I'd search through your old posts and see what you predicted the stock to be by today, and how many customers there would be.
Belzebutt 12/5/2012 | 12:08:46 AM
re: Corvis Having a Rough Week Corvis should give Ciena 10% of all the profits it ever made on these infringing systems.


;)
porn starr 12/5/2012 | 12:08:47 AM
re: Corvis Having a Rough Week the company's trading below cash - we don't need an MBA textbook calculation to reach your obvious point

Phil H. is right
Lightwoman 12/5/2012 | 12:08:48 AM
re: Corvis Having a Rough Week Phil,
You said that Corvis is "worth about $301M today". That statement is not correct. It is only the market capitalization that is worth $301M.

The equation for total enterprise value, if that is what you were looking for, is:

TEV = equity + debt + preferred stock + minority interests + capital lease obligations - cash - short term investments

and to be correct you need to compute equity on a diluted basis.

with a very rough approximation as
TEV = market cap - cash - st
the enterprise value of corvis is around

- $150M (that's negative $150M)

That is the value that investors ascribe to Corvis' as a firm that sells goods and services.
In other words, it is expected that Corvis will continue to destroy value rather than create it.
erbiumfiber 12/5/2012 | 12:08:51 AM
re: Corvis Having a Rough Week Yup, I hear you. And isn't that the whole point of patent litigation in the first place??

I'm tired of the direction the American patent system is taking. I am moving to Japan in 3 weeks to be a patent attorney over there. There is much to be commended about the Japanese system (although it, too, is not without its faults) so let me give that a try for a change... at least their patenting style is different so you definitely have no trouble understanding which part of the technology is the actual invention...

And, of course, it will be super fun to live in the heart of Tokyo...

ef
fiber_dude 12/5/2012 | 12:08:52 AM
re: Corvis Having a Rough Week Sparxe,

Corvis doesn't have $438 million in cash and 18,000 miles of optical network.

They Have:
$438 Mill Cash and investments
minus $128 Mill to Buy 18000 miles optical network
minus $50 Mill Burn on Broadwing for 2003
minus ~$50-$100 Mill of their own burn and restructuring for the year.

So, they will likely close the year with more like $160M-$210M cash, and 2 businesses which are both losing money, plus all the other stuff you mentioned - I hear fiber is worth alot these days :)
And they list their property at $38 Mill and falling each quarter.

Fiber_Dude



linearefekt 12/5/2012 | 12:08:55 AM
re: Corvis Having a Rough Week Hard to imagine a settlement at this point. After award of the gleaming Fed carrot in 6-8 months Ciena may be in the mood to settle but for now the FUD the suit casts weighs considerably more than its composite photons.

BTW, whats wrong with a little spin? You go Phil!

LE
opticalphaggot 12/5/2012 | 12:09:00 AM
re: Corvis Having a Rough Week Phil can indeed add, but not just that, he uses good analogies in his journalistic style so that idiots like me can understand what Dubya-DM is. He has more spin then an electron and his news has as much weight as a photon! Best of both worlds I must say.

Oh yeah, Sparxe, we have something in common. We both like Kool Aid, but for different reasons.
Sparxe 12/5/2012 | 12:09:01 AM
re: Corvis Having a Rough Week
Phil,

Would you mind telling us how a company with $438 million in cash, real estate, patents (they are not all tainted) and 18,000 miles of optical network is worth $301 million?

Times are hard enough at CORV without your fuzzy math...

Sparxe Nj
erbiumfiber 12/5/2012 | 12:09:04 AM
re: Corvis Having a Rough Week OK, this is totally picky and obnoxious, but one "infringes" a patent or a patent is "infringed." The word "on" has crept into the expression as used by non-patent people; we don't know how or why. Since there will be more tedious moments to report about in this litigation (and others), you will be able to use this handy tip over and over and over again.

Nothing is more tedious than the "damages phase" of patent litigation so let's hope an out-of-court settlement is forthcoming. It has been nearly three long years just getting to this point (the original trial had been scheduled for April Fool's Day, 2002- was that a message from the judge?!).

Annoyingly for us patent types, all interesting parts of discovery, motions, trial testimony, etc. have been sealed (e.g., anything to do with anything technical, other than the judge's ruling on the patent claims- the "Markman opinion"). Too bad, but that's what usually ends up happening. Often the courtroom is cleared of spectators so you can't even go watch all the action... Oh well, one can always hit the oral arguments at the Federal Circuit if an appeal is taken...
ThouShaltNotJudge 12/5/2012 | 12:09:06 AM
re: Corvis Having a Rough Week I've taken a shot or two at Phil in the past, but if nothing else, he's a champ at maintaining his equanimity. kudos Mr. Harvey.
ThouShaltNotJudge 12/5/2012 | 12:09:07 AM
re: Corvis Having a Rough Week The subject line of this post deserves a rating of 5!.
porn starr 12/5/2012 | 12:09:09 AM
re: Corvis Having a Rough Week it really is time to liquidate

The industry will be better off once it can place a tombstone over companies like this. It has burned through $576 million in cash over the last 2 1/4 years, and has nothing to show for it except embarrasingly low sales. We can't start a recovery when we have to read press releases about public companies barely doing a million in sales each quarter.

lite-brite 12/5/2012 | 12:09:09 AM
re: Corvis Having a Rough Week Phil,

May I say that regardless of the base of the criticism of your reporting, you guys do a pretty good job of keeping light on the retorts.

Good on ya!
l-b
DCITDave 12/5/2012 | 12:09:10 AM
re: Corvis Having a Rough Week I disagree. There is nothing astounding about my grasp of the obvious.
likebizy 12/5/2012 | 12:09:11 AM
re: Corvis Having a Rough Week The company may be worth more to the shareholders if they closed the doors. Your grasp for the obvious is astounding!!!!!!!!!!!
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