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ONI Strikes Back

Light Reading
News Analysis
Light Reading
4/26/2000

ONI Systems Corp. http://www.oni.com has decided that attack is the best form of defense. The startup has just launched a counter-suit against Nortel Networks http://www.nortel.com, in response to lawsuits that Nortel filed against ONI in October 1999. In December, Nortel was granted a temporary injunction preventing its former employees at ONI from headhunting current Nortel workers, and barring ONI (formerly Optical Networks Inc.) from using Nortel trade secrets.

ONI’s counter-suit alleges unfair competition, breach of contract, and ‘tortious interference,’ and was filed in San Francisco Northern District Court about ten days ago –- according to a source at the vendor.

ONI’s latest legal action may be an attempt to head off potential damage that Nortel’s litigation might have on its upcoming IPO. (A date for the offering has not yet been set, but it has the potential to be one of the hottest IPOs of the year).

The big question is: will it work? Because ONI is in its quiet period, it can’t comment. However, Mohr, Davidow Ventures http://www.mdv.com, ONI’s principal venture capital backer, plays down the issue: “ONI is pursuing its business with vigor and doesn’t believe that [the lawsuits] will have a material effect on their business," says Jonathan Feiber, general partner at MDV.

It’s also possible that Nortel’s suits are just a negotiation ploy. “Some [companies] may bring lawsuits during an IPO process thinking that it might embarrass the issuer and more readily bring it to the negotiating table,” says Ivan Dreyer, partner at Baer Marks & Upham LLP, a Manhattan law firm.

On the other hand, ONI’s most recent S1 registration filing, made on March 10th, acknowledges that lawsuits against the company could force it to “…stop selling, incorporating or using our products that use the challenged intellectual property…”

ONI faces other hurdles on its way to a public offering – not least stock market gyrations. But it may not wait for a bull market to hit the street. “We have filed [for the IPO] and are proceeding with the process. One of the challenges these companies have is to ignore the market turbulence and go about their business,” says MDV’s Feiber.

--Stephen Saunders, US editor, Light Reading http://www.lightreading.com

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