Daily Archives: October 26, 2009

3Com Shares in U.S. Ethernet Innovations’ Patent-Related Proceeds

Those of you following the deepening mystery of whether 3Com Corp. is affiliated with U.S. Ethernet Innovations – a firm formed expressly to pursue patent licensing and litigation related to Ethernet technologies originally developed by 3Com – will recall that a 3Com executive earlier this month explicitly disavowed any direct affiliation between the two companies.

When asked on October 16 whether his company is or was affiliated with U.S. Ethernet Innovations, Gene Skayne, a VP of Finance at 3Com, said the following:

“US Ethernet is not affiliated with 3Com. We sold them some patents earlier this year.”

While there is no dispute that 3Com sold patents to U.S. Ethernet Innovations, the ongoing relationship between the two companies has been more difficult to pin down.

In a comment connected to an earlier blog post on this site, Dan Newman, a communications strategist at public-affairs consultancy SCN Strategies, conveyed a statement from David Kennedy, CEO of U.S. Ethernet Innovations (USEI), that directly refutes 3Com’s claim of there being no relationship between the companies.

Said USIE’s Kennedy:

“Earlier this year USEI’s parent company purchased 35 U.S. and foreign patents (‘the Ethernet Patent Portfolio’) from 3Com. As a result, the parties have a contractual relationship related to USEI’s ongoing licensing program, with numerous obligations flowing back and forth, including 3Com’s right to receive a significant portion of the royalties derived in connection with the licensing of the Ethernet Patent Portfolio.”

Further to that statement, U.S. Ethernet Innovations reports that 3Com has not relinquished rights to revenue derived from licensing or litigation pertaining to the patents in question.

Responding to USEI’s statement, John Vincenzo, 3Com’s vice president of corporate marketing, said the following:

Earlier this year, 3Com sold certain patents that were no longer core to its operations. As part of the patent sale, 3Com retained a license to the patents and the potential to receive a limited percentage of proceeds related to the licensing of the Ethernet Patent Portfolio — which is common practice. 3Com was not involved in the formation of U.S. Ethernet innovation, has no ownership interest in the company, and has no other affiliation with USEI beyond a limited cooperation obligation to provide information related to the status and history of the patents. 3Com has no control over the litigation USEI recently filed.

In summary, then, 3Com apparently was not involved in the formation of U.S. Ethernet Innovations and does not own a stake in USEI. Nonetheless, 3Com does provide USEI with patent-related information and retains the right to receive proceeds derived from licensing of and litigation pertaining to USEI’s patent portfolio.

As reported by Network World earlier this month, U.S. Ethernet Innovations recently launched patent-infringement suits against Acer, Apple, Asus, Dell, Fujitsu, Gateway, HP, Sony, and Toshiba.

3Com presumably will share in any proceeds that might flow from that litigation.

Nortel Sells Packet-Core Network Components to Hitachi for $10M

Its creditors won’t exactly be doing cartwheels over the news, but insolvent Nortel announced additional asset sales this morning.

As reported by Canadian Press (CP) and Dow Jones Newswires, Nortel will sell some of its next-generation packet core network component assets to Japanese electronics manufacturer Hitachi Ltd. for US$10 million. The assets exclude legacy packet core components for Nortel’s GSM and UMTS businesses, but include software to support data transfer over existing and next-generation wireless networks.

As part of the deal, Hitachi will also receive “relevant non-patent intellectual property, equipment and other related tangible assets, as well as a non-exclusive license of certain relevant patents and other intellectual property.”

The transaction is expected to close in 2009, subject to approval by the United States Bankruptcy Court for the District of Delaware and the Ontario Superior Court of Justice.

HP’s Hurd Fails to Clarify Strategic Value of Hardware Infrastructure

What’s the value of hardware infrastructure in the data center?

That question has resurfaced in light of comments made by Hewlett-Packard CEO Mark Hurd at last week’s Gartner Symposium in Orlando, Florida.

In his remarks, reported by Bob Evans at the InformationWeek website, Hurd attempted to explain why HP is taking the right data-center course while others — principally IBM, though he refrained from enunciating those three letters in his talk — are going astray.

Hurd emphasized the importance of hardware infrastructure in the data center and in the broader enterprise. He clearly believes HP’s role as a vendor of PCs, servers, networking hardware, and storage systems gives it an edge over its rivals.

Unfortunately, he doesn’t articulate that advantage clearly, at least insofar as I could discern from Evans’ coverage of Hurd’s address at the Gartner Symposium.

As near as I can tell, Hurd’s argument for HP’s direct involvement in all facets of enterprise hardware is that it allows HP to command the lowest-possible prices from its supply chain. But that doesn’t seem right, does it?

There must be more to it than that. I can’t believe that a purely tactical, cost-saving consideration is driving HP’s strategy to be the “infrastructure company.” If HP perceives an extensive hardware stack as indispensable to its ultimate success in the enterprise and the data center, the reasoning behind it must be about more than extracting low component prices from the supply chain.

Surely, HP must see strategic value in the hardware itself, though Hurd doesn’t explain how or why it perceives such value.

IBM is taking a different tack — so far, anyway — placing its bests on the value derived from the management and orchestration of software, backed up by professional services. For IBM, hardware is commoditized (PCs) or on its way to commoditization (servers, and at least some networking and storage gear), and the smart play is to emphasize the value it can bring customers through ongoing software-based innovation and savvy integration of the various elements into a coherent overall solution.

We don’t know whether IBM is right, but it has done a relatively good job explaining its position. HP might have similarly good reasons for wanting to be an across-the-board hardware purveyor, but Hurd failed to offer them at the Gartner Symposium.

On2 Reports Proposed Settlement with Shareholders Fighting Google Deal

According to SEC filings, video-compression vendor On2 Technologies appears to have settled its differences with dissident shareholders who had launched lawsuits over how and at what price Google had bid to acquire the company this past summer.

In their litigation, the unhappy shareholders alleged, among other things, that On2’s directors violated their fiduciary duty in not seeking another prospective buyer and in failing to negotiate a higher price from Google.

In the Form 8-K regarding the proposed shareholder settlement, the key legalese text reads as follows:

As previously disclosed in a Form 8-K filed by the Company on August 10, 2009, and as discussed in the Registration Statement under the caption “On2 Proposal 1 – The Merger – Litigation Related to the Merger,” since the proposed merger was announced on August 5, 2009, On2 has been served with five purported class action complaints, four filed in the Court of Chancery of the State of Delaware, which have been consolidated into a single action (the “Delaware Action”), and another filed in the Supreme Court of the State of New York, County of Queens (the “New York Action”). On September 17, 2009, plaintiffs in the Delaware Action filed a Consolidated Verified Class Action Complaint and plaintiff in the New York Action filed an Amended Class Action Complaint. In general, these pleadings allege, among other things, that the members of the On2 board of directors breached their fiduciary duties to the stockholders of On2 in connection with negotiating and entering into the merger agreement and by making materially misleading disclosures about the merger negotiations and merger terms in the initial preliminary proxy statement/prospectus and that Google and On2 aided and abetted in such alleged breaches of the directors’ duties. Both actions seek similar relief, including, among other things, declaratory and injunctive relief (including enjoining the closing of the proposed merger) and also seek damages in an unspecified amount.

Although On2, the On2 directors and Google believe that the Delaware Action and the New York Action are entirely without merit and that they have valid defenses to all claims, to minimize the costs associated with this litigation, on October 23, 2009, On2 and the On2 directors and the plaintiffs to each of the Delaware Action and the New York Action entered into a memorandum of understanding (“MOU”) contemplating the settlement of all claims in each of the Delaware Action and the New York Action. Under the MOU, the plaintiffs, on behalf of themselves and the putative class, agreed to settle all the aforementioned litigation and release the named defendants in the actions (including Google, which is not participating in the settlement) and their affiliates from, among other things, claims related to the merger. Pursuant to the terms of the MOU, On2 agreed to provide additional supplemental disclosures that are reflected in the proxy statement/prospectus, which forms a part of the Registration Statement. The settlement is contingent upon, among other things, further definitive documentation, approval of the settlement and the dismissal with prejudice of the actions by, respectively, the Delaware Court of Chancery and the Supreme Court of the State of New York. The proposed settlement is not in any way an admission of any wrongdoing or liability in connection with the plaintiffs’ allegations and the On2 directors maintain that they diligently and scrupulously complied with their fiduciary and other legal duties.

Neither the press release accompanying the SEC filing nor the filing itself discloses what recompense, if any, might have been agreed between the plaintiffs and defendants. The restive shareholders were vehemently adamant in their opposition to the deal, and I do not imagine they relented passively. Perhaps more information will be divulged — one way or another — shortly.

Just to recap, Google announced in early August that it would acquire On2 in a stock-based transaction valued at approximately $106.5 million, with each outstanding share of On2 common stock converted into $0.60 worth of Google class A common stock.

When the acquisition was first announced, Sundar Pichai, Google vice president of product management, said the following:

“Today video is an essential part of the web experience, and we believe high-quality video compression technology should be a part of the web platform, We are committed to innovation in video quality on the web, and we believe that On2’s team and technology will help us further that goal.”