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

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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
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 | 12:08:38 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.
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?

lickmeyster 12/5/2012 | 12:08:34 AM
re: Corvis Having a Rough Week Opticalphaggot,
Stop posting, please.
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.
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...
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!
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.

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