Nortel Networks Corp. (NYSE/Toronto: NT) has settled a patent dispute with Redback Networks Inc. (Nasdaq: RBAK), according to a company spokesperson. The suit was the latest in a series of motions filed by Nortel in defense of its patents over the past couple of years.

"The parties have entered into a patent cross-licensing agreement with each other, and Redback will pay Nortel undisclosed fees under the agreement," the Nortel spokesperson says.

Redback declined to comment.

Redback launched the suit in December 2001 as a sort of preemptive strike, because Nortel had been so vigorously defending its technology with Redback's competitors (see Suing for Revenue?).

The lawsuit involved several patents, including:

Patent 4667324 -- Network multiplex structure;

Patent 4736363 -- Path-oriented routing system and method for packet switching networks;

Patent 5159595 -- Ring transmission system;

Patent 5608733 -- ATM inverse multiplexing; and

Patent 6205142 -- Inverse multiplexing of digital data In its complaint, Redback accused Nortel of setting out on a "campaign of patent-infringement lawsuits against smaller companies" in the metro optical equipment market. Redback noted that Nortel asserted patent 4736363 (Path-oriented routing) in its lawsuit against Extreme Networks Inc. (Nasdaq: EXTR), F5 Networks Inc. (Nasdaq: FFIV), and Foundry Networks Inc. (Nasdaq: FDRY). Redback says Nortel asserted patent 5159595 (Ring transmission systems) in its suit against Extreme and ONI Systems [now Ciena Corp. (Nasdaq: CIEN)].

When Nortel contacted Redback, it supposedly demanded an upfront fee and a running royalty on all Redback products using Nortel's patents. Redback's complaint alleges that Nortel demanded an upfront fee ranging from $50 million to $100 million from Extreme, F5, and Foundry, plus a running royalty of 7 percent to 9 percent from each product sold. "These terms are commercially unreasonable and anti-competitive," Redback's complaint stated.

The Redback/Nortel settlement is the latest of several to emerge from Nortel's licensing litigation:

• Nortel v. Ciena: In March 2000, Nortel sued ONI Systems, and in January 2003, it settled the suit with Ciena, which had purchased ONI (see Nortel, Ciena Settle Suit). Nortel granted Ciena a license for two patents -- 6084694 and 6493117, both related to WDM optical networking with passive pass-through at each node -- and Ciena made a one-time payment of $25 million to Nortel.
• Nortel v. Extreme and F5: In September 2002, Nortel and Extreme brought an end to their court fight by entering a cross-licensing agreement involving several patents. That settlement also led to the dismissal of Nortel's complaint against F5, which shares some technology with Extreme. None of the companies have publicly talked about the details of the settlement.
• Nortel v. Foundry: Nortel's case against Foundry is still being contested by Foundry in U.S. District Courts in California and Massachusetts.
  
  

Nortel isn't the only company seeking to make the most of its patents, particularly as the downturn continues. Companies such as ADC Telecommunications Inc. (Nasdaq: ADCT) and Lucent Technologies Inc. (NYSE: LU), like Nortel, have internal divisions devoted full-time to pursuing patent licensing opportunities -- with the force of law, if need be (see Peddling Patents for Profit).

— Phil Harvey, Senior Editor, Light Reading