2nd UPDATE: Broadcom, Emulex Reach Partial Patent Settlement

Date : 07/05/2012 @ 6:47PM
Source : Dow Jones News
Stock : Broadcom Corp. (BRCM)
Quote : 54.67  0.0 (0.00%) @ 2:05AM
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2nd UPDATE: Broadcom, Emulex Reach Partial Patent Settlement

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--Broadcom and Emulex reach partial agreement over patent litigation

--Emulex will pay $58 million for licenses to certain patents

--Companies have been fighting over networking technology

(Updates with company comments and additional details in the fourth to eighth paragraphs.)

   By Shara Tibken 

Broadcom Corp. (BRCM) and Emulex Corp. (ELX) reached a partial settlement over their patent ligitation, with Emulex agreeing to pay Broadcom $58 million in cash for certain networking technology licenses.

The two companies have been battling for years over networking technology that links different pieces of hardware in data centers. Broadcom initially filed suit against Emulex in late 2009, saying the company infringed nearly a dozen of its patents. Emulex countersued later in the year, alleging Broadcom acted to quash competition in part of the networking market.

The initial suit came only a couple months after Broadcom failed in its attempt to acquire Emulex. The hostile takeover bid was widely seen as Broadcom's attempt to plug a hole in its portfolio with so-called fibre channel chip products used in storage networking.

The companies on Thursday said Emulex will receive licenses to certain patents for use in fibre channel applications, resolving the dispute in one of three patent families involved in the litigation. Broadcom earlier this year had won a permanent injunction against products using the technology.

Litigation remains outstanding regarding the other two patent families.

The fields of use covered by the pact Thursday are partly related to Emulex's XE201 Lancer chips. The company also agreed to provide certain rights to Broadcom protecting the company from Emulex patent assertions. Other terms of the agreement are confidential and weren't disclosed.

The agreement doesn't cover Emulex's ethernet products, spokeswoman Katherine Lane said. The ethernet business represented about 20% of Emulex's revenue in its last publicly reported quarter, Ms. Lane said. She declined to discuss the status of the outstanding litigation.

Broadcom--a provider of chips for set-top boxes, networking and smartphones--declined to comment.

Broadcom shares, up 15% this year through Thursday's close, were flat at $33.69 in late trading. Emulex, up 5.5% over the same period, slipped 4 cents to $7.20 after hours.

Broadcom has seen some success in its litigation against Emulex, which has been an overhang over the smaller company. While its shares are up in 2012, they're off their 52-week high of $11.19 earlier this year.

Broadcom in March said a federal court granted a permanent injunction to halt U.S. sales of some of Emulex's products that earlier were found to infringe on two Broadcom patents. Broadcom in March also said that Emulex products affected by the injunction included the BladeEngine2 and BladeEngine3 Ethernet controllers and Lancer chips used in some adapter products. The ban also covered some fibre channel switch products.

ThinkEquity analyst Rajest Ghai said a big risk was that Emulex wouldn't be able to ship new product designs, which would hurt its financial results and position in the market.

"This does relieve an overhang," Mr. Ghai said.

--Tess Stynes contributed to this report.

-Write to Shara Tibken at shara.tibken@dowjones.com

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