Friday, October 26, 2007

In David vs. Goliath Case, Intel to Pay $250 Million to End Patent Suit [Patents]

Transmeta Corp., a struggling Santa Clara, Calif., chipmaker, emerged with a transformative licensing deal Wednesday, as Intel Corp. agreed to pay it $250 million to settle a patent infringement suit Transmeta filed against the Silicon Valley titan last year.

Under the agreement announced Wednesday, Intel will pay $150 million up front with annual payments of $20 million for each of the next five years. In return, Intel gets a perpetual nonexclusive license to all of Transmeta's patents and patent applications.

Transmeta General Counsel John Horsley said the result gives the company "some immediate cash as well as a future income stream that will hopefully support our development and licensing business going forward."

Transmeta laid off three-quarters of its staff earlier this year, Horsley said, leaving it with just 40 employees today. The $250 million in payments from Intel dwarfed the company's market value, which on Tuesday was just $41.8 million. On Wednesday, shares of the company more than tripled.

Neither side wanted to go into details, but according to an Intel spokesperson, well-known mediator Anthony Piazza brought the two sides to an agreement.

"We were able to find a solution that was acceptable to both companies," Intel corporate spokesman for legal affairs Chuck Mulloy said. "We believe that this agreement is consistent with our longstanding practice of licensing technology in exchange for fair value."

Transmeta, with a legal department of two, took on Intel, which employs 240 in-house lawyers.

Transmeta GC Horsley joined the company in 2000 from the Federal Trade Commission, where he was chief counsel for intellectual property and technology matters. He helped take Transmeta public that year. The legal department's other lawyer, Bryn Ekroot, also holds a Ph.D. and is Transmeta's associate general counsel and senior IP director. The company was represented in the litigation by Ropes & Gray and Morris, Nichols, Arsht & Tunnell. Intel fielded a team of Weil, Gotshal & Manges lawyers led by Matthew Powers.

Transmeta sued Intel last year, claiming that most of Intel's current microprocessors infringe at least one of 11 Transmeta patents. Intel answered with a countersuit in January, accusing Transmeta of violating its own patents.

Earlier this year, Intel took an aggressive tack by asking the U.S. Patent and Trademark Office for an inter partes re-examination of some of Transmeta's patents. At the time, Transmeta complained that the request was aimed at delaying its suit, since judges often stay patent suits when a re-examination has been sought.

According to a PTO document, the re-examiner had indicated that one of Transmeta's patent claims ought to be rejected, but that conclusion was preliminary, and subject to challenge and further review.

Re-examinations have become an increasingly popular tool for accused infringers. The relatively new government process is "a very effective and cost-effective tool in litigation," according to Sonnenschein Nath & Rosenthal IP partner Tarek Fahmi, who isn't involved in the dispute. "I don't know to what extent it sped up the settlement process, but I'm sure it had an impact," Fahmi said.

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