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DWDM

ONI/Nortel Lawsuit Moves to Next Level

ONI Systems Inc. (Nasdaq: ONIS) appears to be making some headway in its two-year battle to defend itself against a patent infringement lawsuit filed by Nortel Networks Corp. (NYSE/Toronto: NT).

Or is it?

On the surface, it would appear that Nortel's threat has diminished. Today, ONI announced that Nortel has dropped four of the five patent infringement claims that it filed against ONI in March 2000 (see Nortel Drops Patent Disputes With ONI). In the press release issued this morning, ONI said it will continue to fight the remaining claim.

But for ONI, the remaining patent lawsuit still poses a considerable threat. It’s unclear why Nortel decided to drop four of the five claims now (and the company would not comment on this specifically), but one thing is for sure -- the legal wranglings between the two companies are not over.

Joel Rosenblatt, a private practice patent attorney in Florida who is not involved in the lawsuit, hypothesizes that Nortel must be feeling confident about the strength of its fifth patent claim.

“The truth is it doesn’t really matter how many claims are established against a company,” he says. “The essence of the case is in the strength of any one of those claims. Hypothetically, if the Nortel patent is broad enough, it could put ONI out of business.” Nortel officials emphasize the fact that the lawsuit is still not over.

"Nortel Networks remains confident in the strength of its case," says Nortel spokesman David Chamberlin. "The action we took was to focus the case and to help bring it to a more efficient conclusion. We believe the patent which remains the subject of this lawsuit continues to reflect the core of our claim, and by winning on the remaining patent, Nortel Networks will obtain the same relief as if we had proceeded with all the matters in the original suit."

In the original filing, Nortel alleged that ONI infringed on five of its patents when it was developing its metropolitan-area DWDM transport system. The four patents that have been dropped from the lawsuit are for technology related to Sonet applications. They include patents entitled, “Ring Transmission System”; “Communications System with Protection Switching and Channel Identities”; “Communications System with Protection Switching Using Individual Selectors”; and “Protection Switching in a Multi-Channel”.

Originally, patent number 5,751,454, “Wavelength Bypassed Ring Networks,” was also included in the lawsuit, but in September 2000 patent number 6,084,694, “WDM Optical Network with Passive Pass-Through at Each Node,” was added and 5,751,454 was deleted.

The lawsuit, which has dragged on for two years, will likely end up in court some time this fall if a settlement can’t be reached before then. Nortel is seeking a judgment that declares patent infringement, stops ONI from producing products based on the patent, and compensates Nortel for damages and lost royalties.

The suit, which was filed in the Northern District of California Federal Court, San Jose Division, also alleges misappropriation of trade secrets, unlawful business practices, and unfair competition. Those claims remain part of the lawsuit.

In October 1999, Nortel also filed a lawsuit against ONI in Canada’s Superior Court in the district of Montreal. In that lawsuit Nortel sought an injunction to prevent ONI from hiring Nortel employees and its former contractors. It also sought to prevent those individuals who had been hired by ONI from Nortel from disclosing trade secrets. After successfully winning an injunction against ONI to stop hiring even more Nortel workers and contractors, the suit was eventually dropped in July of 2000, according to Nortel’s Chamberlin.

If Nortel wins the remaining patent lawsuit, it could have severe repercussions for Ciena Corp. (Nasdaq: CIEN), which agreed to acquire ONI in February (see Ciena and ONI: Wedding of the Year?). ONI vice president for marketing, Larry Loper, says this is of little concern at the moment. Not only does the company believe that it will successfully fend off the Nortel claims, but he also says both Ciena and ONI are currently being operated as separate companies until the merger is finalized.

”This really doesn’t affect Ciena right now,” says Loper. “Until the merger is complete, we’re operating as two standalone companies.” ONI was trading up $0.38 (6.16%) to $6.55 today in midday trading.

— Marguerite Reardon, Senior Editor, Light Reading
http://www.lightreading.com
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zweisel 12/4/2012 | 10:41:07 PM
re: ONI/Nortel Lawsuit Moves to Next Level The same question was raised in my head as well. If Nortel can win this one, what a win it would be. It would effectively wipe out the value of what Ciena will be then own if the merger goes through. However, litigation of this kind is long and drawn out so it will be a while.
puddnhead_wilson 12/4/2012 | 10:41:07 PM
re: ONI/Nortel Lawsuit Moves to Next Level If the lawsuit doesn't even go to trial until fall, and the CIENA-ONI merger is voted on before then (as it almost certainly will be), how on earth can Loper say what is going on with this suit right now doesn't have any effect on CIENA??? Isn't that like saying the car coming at you head-on doesn't have any effect on you because it won't impact for another second or two?

The rational shareholder has to weigh the merits and consequences of these legal proceedings when deciding how to vote on the merger.
bitdropper 12/4/2012 | 10:41:06 PM
re: ONI/Nortel Lawsuit Moves to Next Level Can someone clarify this lawsuit please. Is this the issue involving the NT employees who were working on MONS, and jumped ship to ONI with the ip when NT bought Cambrian?
Belzebutt 12/4/2012 | 10:41:03 PM
re: ONI/Nortel Lawsuit Moves to Next Level I would have thought it's about Cambrian/NT Optera engineers defecting... I can't imagine a dead product being that important.
cyber_techy 12/4/2012 | 10:41:02 PM
re: ONI/Nortel Lawsuit Moves to Next Level All Nortel's probably looking for is to squeeze some cash out of ONI to be shown as earning for this quarter. They just laid off over 50 managers this week alone from the Carrier Data Networking division.
Component_Guy 12/4/2012 | 10:41:02 PM
re: ONI/Nortel Lawsuit Moves to Next Level Ciena must have been aware of the lawsuit prior to moving forward with merger plans. Ciena must feel there is no infringment, or has discounted a likely setlement.


CG
bitdropper 12/4/2012 | 10:41:01 PM
re: ONI/Nortel Lawsuit Moves to Next Level "I would have thought it's about Cambrian/NT Optera engineers defecting... I can't imagine a dead product being that important."

--------------------------------------------------

Yeah, I wondered that too. I just remember that NT was developing their own in house DWDM (I think it was called MONS or something like that). When they bought Cambrian, they dumped the in house program. I seem to remember NT being p.o.'d that some of the designers had defected to ONI, and all of a sudden ONI had a product suspiciously like the one NT had been building. ONI then proceeded to successfully compete with NT using this product. I guess NT cried foul, and tried to stop ONI from selling it, claiming ip infringement. Anyway, something like that. It may have just been a rumor for all I know.













puddnhead_wilson 12/4/2012 | 10:41:01 PM
re: ONI/Nortel Lawsuit Moves to Next Level >Can someone clarify this lawsuit please. Is this the issue involving the NT employees who were working on MONS, and jumped ship to ONI with the ip when NT bought Cambrian?

Wish I could, but I am confused too. the article unfortunately is written in such a way tht it more clearly identifies the four patents that are NOT included anymore & not the one that is, but if I read it right by induction the patent at issue is GǣWDM Optical Network with Passive Pass-Through at Each Node.Gǥ I don't really know what specifically is covered there.

A couple thoughts come to mind. 1) this could drag on a LONG time (look at CIEN-CORV), 2) the comment about forcinig ONI to stop all sales seems a bit draconian, perhaps this move is intended to create FUD in customers newly recontemplating buying ONI instead of NT for metro, now that ONI products appear to have more long-term viability assurance as a CIEN product offering?

The commetn that 'we are dropping four of our five complaints because we only need one finding anyway' seems a bit disengenious. It's hard to believe a positive outcome for NT on that count is THAT certain that they feel they don't need to even bother with the other four (if for nothing else, as someone else pointed out if it were that obvious you'd think CIENA would have been much more cautious). So you have to think the real reason NT is doing this is because the risk reward is no longer worth it because the chance of victory on each of those those four claims is outweighed by the financial legal cost of pursuing them for a company with significant debt), and everything they said is of course PR BS. They are still pursuing the last count because either 1) they truly still believe it is worth the cost, or 2) continuing the customer FUD factor already mentioned, which is served by continuing only with the one stronger (?) count almost as much as pursuing all five, but is achieved at up to 80% less cost to NT.

Note I have no real knowledge of this case, I am just trying to bring logic to bear to explain the actions of each party (NT nad CIEN in particular) as rational.
Vesting 12/4/2012 | 10:41:01 PM
re: ONI/Nortel Lawsuit Moves to Next Level bitdropper wrote " Can someone clarify this lawsuit please. Is this the issue involving the NT employees who were working on MONS, and jumped ship to ONI with the ip when NT bought Cambrian?"

Read the article. The only remaining lawsuit is for a patent infringment. They dropped the lawsuit on hiring Nortel employees in June of 2000. That one appeared to be a ploy by Nortel to damage ONI's funding process. If I remember correctly it was filed the day after ONI announced Cisco was investing in them. I think they were scared that Cisco would buy ONI out. The employees they hired had been working on the OC-192 and not MONS.

Anyone who knows both products can easily identify that the ONLINE and Optera 5200 are nothing alike. I think this is Nortels attempt to continue to pour salt in a wound and cut their litigation costs at the same time.
puddnhead_wilson 12/4/2012 | 10:41:01 PM
re: ONI/Nortel Lawsuit Moves to Next Level >Ciena must have been aware of the lawsuit prior to moving forward with merger plans. Ciena must feel there is no infringment, or has discounted a likely setlement.

Of course, one would presume. Probably part of what was behind the low premium. But they obviously can't be CERTAIN of what will happen. therefor the implications can be at best only partially discounted. If the extreme happens, as outlined in the article -- NT can force a halt to ONI systems -- that clearly it is barely discounted at all. The value of ONI becomes not much more than its net cash less whatever damages they are forced to pay.
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