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Optical components

JDSU, Emcore Sue Optium

Optium is getting a little cold water sprayed on its pre-IPO party, as Emcore Corp. (Nasdaq: EMKR) and JDSU (Nasdaq: JDSU; Toronto: JDU) have hit the optical transceiver vendor with a patent infringement lawsuit.

The suit was filed Sept. 11 in U.S. District Court for the Western District of Pennsylvania. It concerns U.S. patents 6,282,003 and 6,490,071, both mellifluously titled: "Method and Apparatus for Optimizing SBS [Stimulated Brillouin Scattering] Performance in an Optical Communication System Using at Least Two Phase Modulation Tones."

In a brief court complaint, free of the hyperbole and grandstanding often found in lawsuits (darn!), Emcore and JDSU accuse Optium of violating both patents with its Prisma II 1550nm transmitters.

That Emcore and JDSU are teaming up would suggest Prisma sells primarily into the cable TV industry, as Emcore acquired JDSU's cable business in 2005. (See Emcore Buys JDSU's Cable Biz.)

The timing is interesting, given that Optium is on the verge of going public, having filed its initial S-1 form with the SEC on June 29. (See Optium Files for $100M IPO.)

Adding some intrigue to the case is the fact that several Optium executives came from JDSU. That includes CEO Eitan Gertel and senior VP of engineering Mark Colyar, both hailing from JDSU's transmission subsystems division.

Emcore and JDSU are jointly represented by the law firm of Jones Day. The lead attorney on the case did not return a call for comment.

Optium VP of marketing Tony Musto says the company has filed a response but declined to provide details about the products in question, although he did give the usual comment about the suit being without merit.

The '003 patent was granted to Uniphase Corp. on Aug. 28, 2001; Uniphase had filed for the patent in 1998, a year before its merger with JDS Fitel to form the JDSU we know and love today. The '071 patent was granted to JDSU on Dec. 3, 2002.

Optium is a notoriously quiet company. Its Web page doesn't even list products by name. But in the wake of the telecom crash, Optium managed to build a decent business out of 10-Gbit/s transceivers conforming to the 300-pin multisource agreement (MSA), the mainstream format for such devices until recently.

For its fiscal year ended July 29, Optium reported losses of $8.1 million on revenues of $69.5 million -- representing an 87.4 percent increase in revenues from the previous year. Gross margins were just 25.2 percent, though.

— Craig Matsumoto, Senior Editor, Light Reading

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happy_go_lucky 12/5/2012 | 3:39:09 AM
re: JDSU, Emcore Sue Optium Wow that took very long...thought it would have happened 5 years ago.....
whyiswhy 12/5/2012 | 3:39:08 AM
re: JDSU, Emcore Sue Optium Long? Not at all.

You don't sue a poor man, even if he is stealing from you.

You let him get to the brink of being rich, then turn him upside down and shake.

Same work, better payoff, no customer complaints, etc.

-Why
deauxfaux 12/5/2012 | 3:39:07 AM
re: JDSU, Emcore Sue Optium I checked Optium's latest S-1/A and they did add a section to their risk factors stating that this was not "material." Seems pretty optimistic to me considering all of the cross contamination from JDSU at Optium. Treble damages is a real possibility if they are found to infringe.

As for timing. Sun Tzu said 'confront your enemy with the tip of your sword in his face."

X-licensing certainly is common.... however a quick check at USPTO shows that Optium doesn't have very much to license back.

It will be interesting to see what the underwriter's counsel has to say about all of this as they are the final word.
Pete Baldwin 12/5/2012 | 3:39:07 AM
re: JDSU, Emcore Sue Optium Yes, the timing does seem to suggest that's what's going on. We'll see how much affect it all has.

You know, chip rivals routinely sue each other and eventually end up doing cross-licensing agreements (didn't Intel/AMD and Xilinx/Altera both end that way? I'm forced to admit my memory is rusty there)

Maybe the same kind of thing will end up happening here.
happy_go_lucky 12/5/2012 | 3:39:06 AM
re: JDSU, Emcore Sue Optium Interesting. Yes, it would seem to be the right thing to do. As with what does Optium have to offer, my thoughts are little if anything, especially with Emcore in the picture and lost business opportunities...

I think Optium's IPO will be affected (delayed/or restructured) with a lot of cash going to JDSU/EMcore...
Idontknowwhatiknow 12/5/2012 | 3:39:05 AM
re: JDSU, Emcore Sue Optium The Prisma II Platform is the Scientific-
Atlanta (now Cisco Brand). A key Account for JDSU (Post Bubble it was in their top 5)was S-A to which JDSU had a very nice OEM business for complete line cards (Every component guy's dream). The mangement at Optium developed that business and the patent as well, so they kind of thought it was theirs, well sort of.

One of the reasons Emcore bought the business from JDSU was the strength of the S-A business. When the dust settled from the transaction, lo and behold, the business had been snatched by Optium and Emcore was left holding the bag.

Since this really covers one customer's business, S-A (Cisco) will compel them to make nice. This is a small part of Optium's business and important to Emcore, so look to see Optium throw in the towel and go back after it post IPO.

The bad blood here makes Bosnia look like a group hug.

If anyting, it will be entertaining.
deauxfaux 12/5/2012 | 3:39:02 AM
re: JDSU, Emcore Sue Optium "Since this really covers one customer's business, S-A (Cisco) will compel them to make nice"

Compelling takes time...and has its limits. Time is something that Optium doesn't have on its side if it wants to go public any time soon. Given Optium's less than stellar Gross Margins, it would be hard to make the argument that this lawsuit is "not material." Furthermore, I don't think that Emcore has much business with SA so their "downside" in any negotiation is limited. Getting "west coast Cisco" to lean on Emcore's transceiver business because of an SA problem seems unlikely.

Although 300 pin transponders dominate Optium's sales, my guess is that most of the contribution margin comes from CATV. Emcore is certainly going to want the business from SA/Cisco AND the lost profit from the business that they took.

"The bad blood here makes Bosnia look like a group hug."

Agreed....Emcore has decided that they can live with the fallout at SA. This will have more hitting than the super bowl
happy_go_lucky 12/5/2012 | 3:39:00 AM
re: JDSU, Emcore Sue Optium I agree on your statement, but however I would like to add that the loss or impact of the lawsuit on Optium will be hard felt because in general the cable tv business historically has had better margins, and given the 300 pin business market and low margins, I think that if Optium has to pay up they may feel the pain and their GM may drop even further down, or worst if the SA business is shut down, the GMs could be affected
canadian_bacon 12/5/2012 | 3:38:59 AM
re: JDSU, Emcore Sue Optium I think that S-A(Cisco) won't sit idly by and wait for this to play out in court. I think S-A has known about the pending litigation for quite some time now so they are likely going to develop(or has already developed) their own technology in-house. They may also seek another vendor that isn't violating the JDSU/Emcore patents.
deauxfaux 12/5/2012 | 3:38:58 AM
re: JDSU, Emcore Sue Optium I've got to agree with you. It seems crazy that anyone would want to buy a piece of the 10G 300 Pin business....especially when Optium purchases all of its key components.

VCs must feel like they have to exit
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