Alcatel Settles Suit for a Chunk of Startup

Alcatel SA (NYSE: ALA: Paris: CGEP:PA) and IPOptical Inc. have kissed and made up after almost six months of legal battles, announcing that they have reached an out-of-court settlement.

As part of the agreement, Alcatel has taken equity in the startup and the two companies have agreed to a cooperative working relationship, according to a joint press release. Whether Alcatel invested in IPOptical in exchange for the equity, or whether it was given to the company as part of the settlement, is not known. Both vendors are keeping the conditions of the settlement under wraps.

But one thing is certain, Alcatel doesn’t typically invest in companies it has sued.

“This is not a usual type of settlement,” says Brian Murphy, a spokesperson for Alcatel. “But every case is settled in its own way. There is no standard for this kind of thing. I think it's safe to say that this is the first time I’ve seen this.”

The suit was filed on June 15, 2000, in the United States District Court for the Eastern District of Virginia. The complaint filed by Alcatel alleged that Alex Mondrus, a former Alcatel employee, infringed on Alcatel’s copyrights, misappropriated Alcatel’s trade secrets, and violated fiduciary obligations owed to Alcatel while he was employed by Alcatel (see Alcatel Sues Former Employee). Mondrus and other IPOptical officials denied Alcatel’s claims, and the two companies were set to duke it out in court in early 2001 (see Alcatel's Former Employee Fights Back).

“Going to court wouldn’t have been a win-win situation for either of us,” says Greg Cinque, VP of hardware development for IPOptical, who had worked at Alcatel for 16 years before leaving last April to found IPOptical with Mondrus. “When we sat down with top Alcatel people and went through each issue, we moved through things pretty quickly and amicably.”

Cinque says that he and others at IPOptical are very happy to put the litigation behind them. While he says the case did not impact development schedules, it may have hampered recruiting efforts.

“Some applicants were nervous about the litigation,” says Cinque. “And some may have decided not to join us because of that, but overall there was little impact on our development.”

He adds that the company actually exceeded its hiring goals and grew about 40 percent in the last several months. “We could have done better, I suppose,” he says. “But there was no real negative impact overall with hiring.”

What exactly is IPOptical working on? According to the original lawsuit, it looked as though the startup was assembling a team to build a terabit router. Mondrus and others who left Alcatel to work at IPOptical had all been involved with Alcatel’s 7770 terabit routing product due to be released in May 2001 (see Alcatel Takes On Juniper). But Cinque says that IPOptical is more than a terabit router vendor, and that it will not compete directly with anything that Alcatel currently has planned.

“We are going to revolutionize IP transmission over optical networks,” he says. “We aren’t adversarial toward Alcatel. We’ve tried to be very cordial. We respect them totally. And I believe that people at Alcatel respect us, too.”

-- Marguerite Reardon, senior editor, Light Reading, http://www.lightreading.com

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