Contract analysis

From: Alan Ngo <alan.ngo@calderwoodharkness.com> To: Sandra Ellison <sellison@optiwavesemi.com> Cc: Marcus Delgado <marcus.delgado@calderwoodharkness.com> Subject: Optiwave v. Lumos Photonics — Lumos's Settlement Counteroffer [PRIVILEGED AND CONFIDENTIAL — ATTORNEY-CLIENT COMMUNICATION]

Matter Reference: 1014-00003 / Case No. 5:22-cv-03417-EJD (N.D. Cal.)

I spoke with Tori Ashworth at Brannick Howell & Stein earlier today regarding Lumos's response to our cross-license proposal. As you will recall, on March 15 we submitted a term sheet proposing a mutual cross-license covering OWS's 87-patent portfolio and Lumos's portfolio, with Lumos paying a nominal royalty of $500,000 to OWS. I want to share Lumos's response with you directly, along with my candid assessment and r

Lumos has rejected the cross-license proposal in its entirety. Through Ashworth, Lumos has communicated a counteroffer on the following terms:

1. **Walk-away settlement** — no monetary payment in either direction ($0). 2. **Mutual general releases** of all claims and counterclaims arising from the litigation (Case No. 5:22-cv-03417-EJD). 3. **Each party bears its own attorneys' fees and costs** — no fee-shifting in either direction. 4. **No license granted** — neither party grants a patent license to the other under any terms. 5. **No admission** of infring

Ashworth indicated that Lumos views these terms as final. She stated that Lumos is not inclined to negotiate further within the 30-day settlement window that the parties agreed to on March 6, 2023 (the stipulated discovery stay was entered by the Court on March 10). In practical terms, this is a take-it-or-leave-it offer.

**Assessment in Light of the Post-Markman Posture**

I want to be direct with you about why I believe this counteroffer warrants serious consideration, notwithstanding the obvious disappointment of a zero-dollar outcome.

As we discussed at length following the Markman hearing, Judge Torvelis's Claim Construction Order issued February 17, 2023, was substantially adverse to OWS. The Court adopted Lumos's proposed construction — or a construction substantially aligned with Lumos's position — on 8 of the 11 disputed claim terms across all four patents-in-suit (U.S. Patent Nos. 10,234,567; 10,891,234; 11,045,678; and 11,312,890). Our inte

The core problem is that the Court's narrow constructions effectively exclude Lumos's accused products — the LumosBridge 800G and the LumosEdge 400ZR+ — from the scope of infringement on a claim-by-claim basis:

- **The '567 Patent:** The Court construed "adiabatically coupled" to require a gradual, continuous taper. This construction excludes Lumos's segmented, non-continuous taper design, which our technical experts confirmed employs discrete taper segments rather than a single continuous geometric transition.

- **The '234 Patent:** The Court construed "continuously varying germanium concentration" to require a monotonic increase without step changes. Lumos's accused process uses a step-graded SiGe buffer with four discrete composition steps at germanium fractions of 0.25, 0.50, 0.75, and 1.0. Under the Court's construction, this step-graded approach does not literally infringe.

- **The '678 Patent:** The Court construed "monolithically formed" to exclude heterogeneous bonding. Lumos's architecture uses micro-transfer-printed III-V gain elements bonded to the silicon photonic integrated circuit — a heterogeneous integration approach that falls squarely outside the Court's construction.

- **The '890 Patent:** The Court construed "co-integrated" to require fabrication in the same semiconductor process without bond wires, interposers, or package-level routing. Lumos employs a separate CMOS driver die that is flip-chip bonded to the photonic IC via copper pillar micro-bumps — again, outside the scope of the construction adopted by the Court.

Of the four patents, the '890 Patent presents the only remaining theoretical path to infringement under a doctrine-of-equivalents theory. However, as we flagged in the February 21 memorandum, this argument faces a substantial prosecution history estoppel problem. The "co-integrated" limitation was added by amendment during prosecution specifically to distinguish cited prior art. Under *Festo* and its progeny, the sco

The bottom line is this: if we proceed through trial, I estimate an additional spend of approximately **$1.65 million** — bringing total litigation costs well within but consuming the remainder of the Board-approved $4.2 million budget — with a near-zero expected recovery. Our total spend to date stands at approximately **$2.55 million**, inclusive of Calderwood & Harkness fees, costs and disbursements, and expert fe

I recommend that OWS accept the walk-away settlement on the terms proposed by Lumos.

I recognize this is a deeply disappointing outcome. The pre-litigation damages analysis projected potential recoveries in excess of $75 million, and the Clearpath IP Valuation Services assessment valued the four asserted patents at $42.8 million. Those figures reflected the strength of the case as we understood it prior to claim construction. The post-Markman reality is fundamentally different, and continued investme

Beyond the cost-benefit calculus, there are important defensive considerations. A walk-away settlement avoids the risk of an adverse judgment on Lumos's invalidity counterclaims under 35 U.S.C. §§ 102, 103, and 112. An invalidity finding — particularly one grounded in § 112 written description or enablement — could have cascading negative implications for OWS's broader patent portfolio, including patents not at issue

Sandra, I would ask that you present this counteroffer to the OWS Board of Directors and to Douglas Fairbanks III and Rebecca Torres at Vantage Point Capital Partners Fund IV, LP for their review and approval. The 30-day settlement window agreed to on March 6 will expire in approximately two weeks, and we need to respond to Ashworth with a definitive answer before that window closes. Prompt Board action is essential

I am happy to participate in a Board call or in-person meeting to present our recommendation, walk through the post-Markman analysis, and answer any questions the directors or Vantage Point representatives may have — similar to the February 24 Board meeting at which settlement discussions were first authorized. Marcus and Omar are likewise available. For reference, the Board may wish to revisit the post-Markman Impac

Please confirm receipt of this email and let me know your anticipated timing for Board consideration so that we can plan accordingly.

If the Board approves the walk-away terms, we will promptly prepare the Settlement Agreement and Mutual Release and coordinate with Brannick Howell & Stein on the Joint Stipulation of Dismissal with Prejudice for filing with the Court.

Thank you, Sandra. I know this is not the outcome any of us envisioned when we filed this case, but I believe it is the right decision given where we stand today. Please don't hesitate to call me if you'd like to discuss before taking it to the Board.

**Alan Ngo** Partner, intellectual Property Group Calderwood & Harkness LLP One Embarcadero Center, 34th Floor San Francisco, CA 94111 Tel: (415) 793-4200 Email: alan.ngo@calderwoodharkness.com

*CONFIDENTIALITY NOTICE: This email and any attachments are privileged and confidential attorney-client communications and/or attorney work product. This communication is intended solely for the use of the individual or entity to whom it is addressed. If you are not the intended recipient, or the employee or agent responsible for delivering this message to the intended recipient, you are hereby notified that any diss