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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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deauxfaux 12/5/2012 | 3:38:28 AM
re: JDSU, Emcore Sue Optium Cisco has absolutely zero appetite for getting into any part of the component business.

At the end of the day (assuming Optium did infringe) Emcore will take its money any way it can; through more business, patent licensing fees, or court settlements.
whyiswhy 12/5/2012 | 3:38:28 AM
re: JDSU, Emcore Sue Optium Real:

FYI, Cisco having bought Optium (a speculated possibility I was responding to) would absolutely inherit the lawsuit (that's the law), and you-betcha JDSU and Emcore would absolutely continue to pursue it, at least to the point of settlement (that's common sense).

Why: To drop the suit would be to lose substantial business and fail to protect the IP in question, thus making it (the IP) open season for anyone to come in and use it, quite legally. Any fair settlement would have to offset that loss of business and pay for the past infringement. Thus making the purchase of Optium by Cisco in a word word: stupid.

There is no such thing as a free lunch.

BTW, I live in this (hardball with the big boys) world.

-Why
deauxfaux 12/5/2012 | 3:38:27 AM
re: JDSU, Emcore Sue Optium No one is going to sue Cisco.....period...end of story. The question is one of liability.

Technically, Why is right. If Cisco were to purchase Optium as a legal entity, the liabilities (for everything) will follow the assets used to create them. That is the Law. It could get laundered as an asset sale and maybe some of the liability question could be made murkier, but the result would be the same

But Cisco isn't going to buy Optium either.

Technically, if any company uses an product that infringes a patent, that company that bought, and is using the product can be held liable. But since no one wants their customer settling patent suits, nearly every supplier INDEMNIFIES its customers and agrees to take on the burden of defending patent infringement claims. It is in their best interest to do a good job of this since they have more to lose than a customer that can buy from several sources.

This is just about extracting dollars from Optium, and nothing else

realoptics 12/5/2012 | 3:38:27 AM
re: JDSU, Emcore Sue Optium Why:

There was absolutely no doubt that you are playing hardballs with the big boys.

But this big boy of Cisco will NOT be sued by those JDSU-Emcore alike since Cisco is their customer.

Also, your comments on:

GǣFYI, Cisco having bought Optium (a speculated possibility I was responding to) would absolutely inherit the lawsuit (that's the law)Gǥ

is absolutely not correct. As this big boy Cisco would not have bought anything from whoever without a P.O that has half dozen pages of fine-prints attached with, in which the clauses clear Cisco from any legal responsibility on any possible infringements.

JDSU/Emcore can pursue in any directions they want but they do not even DARE to contemplate on asking Cisco for liability, they are pursuing Optium for the purpose of getting business from Cisco, or whoever else may buy, not trying to get any damage payment from Cisco whatsoever. JDSU may be big in the components business, but not big enough to sue their big customer as Cisco. This is not related to how strong they belive in their goddam claims in their stupid patents. As a matter of fact, JDSU would not even sue a small customer, who supposedly is the king or god to a supplier-in this case, their GballsG are always soft, and they should be- and this is the real world that I am talking about

Cheers!

R.O
whyiswhy 12/5/2012 | 3:38:25 AM
re: JDSU, Emcore Sue Optium Real:

See the posting below and learn some business law, which as Deax affirms, is as I say.

Apparently you have some skin in the game, because you seem to think there is an out or some sort of defense to the suit with Cisco involved. It's actually the opposite.

Are you the Cisco guy that thought it was a great idea to buy Optium components, or do you work at Optium and sell the stuff to Cisco?

Any indemnity which Optium offered to Cisco (or Cisco carved out in their PO T&C's) is only worth as much as Optium is worth, which in this case begs the question.

Sort of like your kid goes and runs his/her car into the neighbors house. As their parent, in most states you are liable. You get sued and lose (say). In theory your insurance company has to cover you. But what if they go bankrupt or run out of town? You still have to cough up the cash (sell the farm?), and it's your job to go find them and sue them, not your neighbors.

It's going to cost Cisco one way of another, and maybe cost them a lot.

Good luck with your career!

-Why
realoptics 12/5/2012 | 3:38:25 AM
re: JDSU, Emcore Sue Optium Why:


Deax did not just affirm you, it affirms that both what you said and I said are true! The law does say, as you suggested that Cisco might be liable, But I did mentioned that Cisco has its own protection(indemnity).

You mentioned: GǣAny indemnity which Optium offered to Cisco (or Cisco carved out in their PO T&C's) is only worth as much as Optium is worthGǥ--- which is very true, and Optium would likely be just worth as much as the value of the products they had sold. Assuming 100% of the company value is from the alleged infringed products (which would be extremely conservative), it would be still enough to pay the damage to JDSU if JDSUGs patents indeed hold water

The law is the law but you seemed still have difficulty to understand the supplier and customer relationship. For a recent example, NTP sued RIM, the Blackberry maker, got $625 million. Have you ever heard any individuals who owns a blackberry, or the Verizon/Cingular alike (who are equivalent to Cisco as to the subject we are discussing about) paid any penny to NTP?

By the way, I would not liable for anything if my kid is old enough, and had registered his/her own car, he/she can run anybody over, it is only his/her own problem. And Cisco is not the parent of Optium

DonGt be a bigot! We are simply having a casual discussion here, it at its maximum is only gossip. Why you have to always think that whoever present a different opinion than yours must have some direct interests? Is that narrow minded? Are you really playing hard balls with big boys?

Cheers, R.O
deauxfaux 12/5/2012 | 3:38:24 AM
re: JDSU, Emcore Sue Optium Real said: "Assuming 100% of the company value is from the alleged infringed products (which would be extremely conservative), it would be still enough to pay the damage to JDSU if JDSUGs patents indeed hold water"

Your point about valuation is a bit problematic. As a private company, the valuation of Optium at this point is nearly meaningless: there is no way of creating liquidity for Optium's shares to pay for any claims. Optium could be worth $100M to its VCs, but that doesn't mean that the VCs are going to cough up $100M in cash to pay for claims of patent infringement.

JDSU/Emcore wants cash...not a piece of Optium

Additionally, because Optium's officers were former employees of the division of JDSU which holds the patents, JDSU/Emcore will likely assert that the infringement was willful (since they knew of the patents when their own team created them at JDSU). If found guilty of willful infringement, then they will be responsible for 3X the actual damages.

The value of claims could be 4X the total sale of the infringing products... (actual + punitive damages)....payable in cash.

I think that Emcore doesn't care how it gets paid. An exclusive supply agreement from Cisco with damages from Optium would be just as good as an "all cash" settlement from Optium. This is assuming of course, that JDSU/Emcore has a valid claim.

BTW. If your child was under 18 and wrecked a car, you WOULD be responsible for damages in most states. The state requires you to give permission before your son/daughter gets a license, and forces you to incur liability to give that permission in consideration for granting a license to a minor.
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