Contract analysis

I. PREAMBLE This Final Judgment and Consent Decree ("Consent Decree" or "Decree") is entered into by and between the State of Oregon, by and through Attorney General Diane Calloway, acting through Senior Assistant Attorney General Marcus Trujillo of the Antitrust Division, Oregon Department of Justice ("Plaintiff" or "the State"), and Halcyon Semiconductor Americas Inc., a Delaware corporation with its principal plac

II. RECITALS The Court makes the following findings based upon the record in this action and the submissions of the parties: A. The Transaction

1. On September 8, 2022, Halcyon Semiconductor AG, acting through its wholly owned United States subsidiary Halcyon Semiconductor Americas Inc., entered into an Agreement and Plan of Merger (the "Merger Agreement") pursuant to which Halcyon Americas agreed to acquire one hundred percent (100%) of the outstanding shares of capital stock of Meridian Photonics Inc. ("Meridian"), a Delaware corporation headquartered at 1

2. The aggregate consideration for the Acquisition was Two Billion One Hundred Fifty Million Dollars ($2,150,000,000), payable entirely in cash. The Acquisition was funded by a Two Billion Two Hundred Million Dollar ($2,200,000,000) senior secured term loan facility arranged by Vereinigte Kreditbank AG, acting as administrative agent, with syndicate members Nordmark Capital Group and Pacific Rim Commercial Bank, toge

3. Callister Blackwood & Co. served as the investment bank and financial advisor to Halcyon Semiconductor AG in connection with the negotiation and consummation of the Acquisition. Meridian's financial advisor in the transaction is not a party to this proceeding and its identity is not material to the resolution of this matter.

4. On October 3, 2022, the parties to the Merger Agreement filed the required notification and report forms pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, 15 U.S.C. § 18a (the "HSR Act"), and the applicable rules promulgated by the Federal Trade Commission (HSR File No. 20221003-1847). On November 14, 2022, the Federal Trade Commission granted early termination of the statutory waiting period u

5. The Acquisition closed on January 31, 2023. Following the closing, Meridian Photonics Inc. continues to operate as a wholly owned subsidiary of Halcyon Semiconductor Americas Inc. and maintains its headquarters in Portland, Oregon.

6. Meridian Photonics Inc. is a designer and manufacturer of silicon photonics transceivers and co-packaged optics ("CPO") modules for data-center and telecommunications applications. Meridian has been recognized in the industry as a leading innovator in CPO technology, and its product lines include both 400ZR and 800ZR-compliant transceiver modules. As of the date of the Acquisition, Meridian held forty-seven (47) U

7. Meridian's total revenue for its fiscal year ended December 31, 2022 ("FY 2022") was approximately Three Hundred Eighty-Five Million Dollars ($385,000,000). Based on publicly available data and estimates provided by the parties' respective economic experts during the course of discovery, the estimated total United States market for CPO transceiver modules for FY 2022 was approximately Eight Hundred Seventy-Five Mi

8. On April 10, 2023, Plaintiff, through the Antitrust Division of the Oregon Department of Justice, issued a Civil Investigative Demand ("CID") to Halcyon Semiconductor Americas Inc. pursuant to ORS 646.760, requesting the production of documents and information related to the Acquisition and its effects on competition in the CPO transceiver market.

9. On April 17, 2023, Plaintiff filed a civil complaint in this Court, docketed as Case No. 23CV-18274, asserting claims under ORS 646.730 (prohibiting combinations in restraint of trade) and ORS 646.775 (granting the Attorney General authority to seek injunctive relief against unlawful business practices that may substantially lessen competition). The complaint alleged that the Acquisition of Meridian by Halcyon may

10. Plaintiff alleged that, following consummation of the Acquisition, the combined Halcyon/Meridian entity would hold approximately fifty-eight percent (58%) of United States CPO transceiver sales by revenue, computed by combining Meridian's pre-merger market share of approximately forty-four percent (44%) with Halcyon's pre-existing legacy CPO market share of approximately fourteen percent (14%). Plaintiff further

11. Plaintiff further alleged that the Acquisition would eliminate Meridian Photonics Inc. as an independent, disruptive innovator in CPO technology, thereby reducing innovation competition in a market characterized by rapid technological change and significant barriers to entry. Plaintiff also alleged that Halcyon's vertically integrated position — as both a manufacturer of switch ASICs and, following the Acquisitio

12. Plaintiff identified two Oregon-based data-center operators as customers directly affected by the Acquisition: Cascadia Cloud Services Inc., which spent approximately Sixty-Two Million Dollars ($62,000,000) on Meridian CPO modules in FY 2022, and Northstar Digital Infrastructure LLC, which spent approximately Twenty-Eight Million Dollars ($28,000,000) on Meridian CPO modules in FY 2022. Both entities submitted de

13. In its complaint, Plaintiff sought injunctive relief, including but not limited to the potential divestiture of Meridian Photonics Inc. or its CPO business, behavioral remedies to preserve competition, and such other and further relief as the Court might deem just and equitable. C. Proceedings

14. On May 5, 2023, Defendant filed its Answer to the complaint, denying the material allegations of the complaint and asserting affirmative defenses including, inter alia, federal preemption under the HSR Act and the dormant Commerce Clause, procompetitive efficiencies generated by the Acquisition, failure by Plaintiff to demonstrate a substantial lessening of competition in any properly defined relevant market, and

15. On May 19, 2023, Defendant filed a Motion to Dismiss the complaint pursuant to ORCP 21, arguing that Plaintiff's claims were preempted by federal antitrust law and that the complaint failed to allege facts sufficient to establish a prima facie violation of ORS 646.730 or ORS 646.775. On July 7, 2023, the Court denied Defendant's Motion to Dismiss in its entirety, holding that Plaintiff's claims were not preempted

16. Following the denial of Defendant's Motion to Dismiss, discovery commenced on July 21, 2023. The parties exchanged initial disclosures and commenced the production of documents responsive to discovery requests.

17. On August 15, 2023, Plaintiff filed a Motion for Preliminary Injunction, seeking an order imposing behavioral restrictions on Defendant pending trial, including interim non-discrimination obligations in the supply of CPO Modules and restrictions on modifications to the interoperability of CPO Modules with Third-Party Switch ASICs.

18. On September 8, 2023, Defendant filed its Opposition to Plaintiff's Motion for Preliminary Injunction, arguing that Plaintiff had failed to demonstrate irreparable harm or a likelihood of success on the merits. Defendant's opposition was supported by the Declaration of Dr. Franklin Morrow of Stonebridge Analytics LLC, an economic consulting firm, who opined that the relevant market was broader than alleged, that

19. On September 22, 2023, the Court held an evidentiary hearing on Plaintiff's Motion for Preliminary Injunction. At the conclusion of the hearing, the Court took the motion under advisement and strongly encouraged the parties to engage in settlement discussions, noting the complexity of the issues presented and the potential for a negotiated resolution that would protect competition without the delay and expense of

20. On October 6, 2023, at the direction and encouragement of the Court, the parties commenced formal mediation before court-appointed mediator Hon. Patricia Loomis (Ret.), a former Judge of the Multnomah County Circuit Court and experienced mediator of complex commercial and antitrust disputes.

21. On October 20, 2023, following two full days of mediation sessions and subsequent direct negotiations between counsel, the parties agreed to a term sheet setting forth the principal terms of this Consent Decree. Thereafter, the parties negotiated and drafted this Consent Decree, which memorializes the terms of their agreement. D. Purpose and Agreement

22. The parties have negotiated this Consent Decree in good faith and at arm's length to resolve all claims asserted in the complaint filed in this action, without any admission of liability by Defendant and without further litigation. The parties believe that the terms of this Consent Decree represent a fair, reasonable, and adequate resolution of the dispute.

23. Defendant denies all allegations of wrongdoing contained in the complaint and enters into this Consent Decree solely to avoid the expense, burden, distraction, and uncertainty of further litigation, and without conceding the merits of any of Plaintiff's claims or the validity of any of Plaintiff's legal or factual theories.

24. Plaintiff believes that the terms of this Consent Decree, including the FRAND licensing commitment, interoperability obligations, non-discrimination requirements, compliance monitoring provisions, and civil penalty, adequately protect competition and Oregon consumers in the relevant market for CPO transceiver modules for data-center applications.

25. The parties agree that entry of this Consent Decree is in the public interest and that the behavioral remedies and compliance provisions set forth herein are sufficient to address the competitive concerns raised in the complaint without requiring divestiture of Meridian Photonics Inc. or its assets.

26. This Consent Decree does not constitute evidence of, or an admission of, any violation of ORS Chapter 646, the Sherman Antitrust Act, the Clayton Act, Section 5 of the Federal Trade Commission Act, or any other state, federal, or foreign law or regulation. Entry of this Consent Decree shall not give rise to any inference of wrongdoing by Defendant in any proceeding, whether judicial, administrative, regulatory, o

27. This Court has subject matter jurisdiction over the claims asserted in this action pursuant to ORS 646.775, which authorizes the Attorney General to bring actions in the circuit courts of this state to prevent, restrain, or remedy violations of ORS 646.730. This Court has personal jurisdiction over Defendant, which has transacted business in Oregon, maintains significant business relationships with Oregon-based c

28. Venue is proper in Multnomah County, Oregon, pursuant to ORS 14.080, because Defendant's subsidiary Meridian Photonics Inc. maintains its principal place of business in Multnomah County, and a substantial part of the events or omissions giving rise to the claims asserted in this action occurred in Multnomah County.

29. Defendant hereby consents to the continuing jurisdiction of this Court for all purposes relating to the implementation, interpretation, enforcement, and modification of this Consent Decree during the Term and until all obligations arising hereunder have been satisfied in full.

30. The Court shall retain jurisdiction over this matter for the duration of this Consent Decree and for such additional period as may be necessary to resolve any disputes arising under or related to the Consent Decree, to enforce compliance with the Consent Decree, and to adjudicate any motions for modification or early termination filed pursuant to Section XIII hereof.

31. As used in this Consent Decree, the following terms shall have the meanings ascribed to them below: (a) "Acquisition" means the acquisition of one hundred percent (100%) of the outstanding shares of capital stock of Meridian Photonics Inc. by Halcyon Semiconductor Americas Inc. pursuant to the Agreement and Plan of Merger dated September 8, 2022, which transaction closed on January 31, 2023. (b) "Compliance Monit

32. This Consent Decree shall be binding upon Defendant and upon all of its officers, directors, agents, employees, subsidiaries (including but not limited to Meridian Photonics Inc.), affiliates, successors, and assigns. Defendant shall ensure that all persons and entities subject to this Consent Decree are made aware of its terms and comply with its requirements.

33. Within ten (10) business days of the Effective Date, Defendant shall provide a true and correct copy of this Consent Decree to all officers and members of senior management of Halcyon Semiconductor Americas Inc. and Meridian Photonics Inc., including but not limited to each entity's chief executive officer, chief operating officer, chief financial officer, chief technology officer, general counsel, and all vice p

34. In the event that Defendant, during the Term, sells, transfers, assigns, or otherwise conveys all or any substantial portion of Meridian's assets, business operations, or intellectual property (including any or all of the CPO Patents) to any third party, Defendant shall, as a condition of such sale, transfer, assignment, or conveyance, require the acquiror or transferee to assume in writing all of the obligations

VI. FRAND LICENSING COMMITMENT A. Obligation

35. During the Term, Defendant shall offer and make available to any Requesting Licensee a license to any or all of the CPO Patents on FRAND Terms. The FRAND licensing obligation imposed by this Section is intended to ensure that the competitive benefits of Meridian's CPO patent portfolio remain available to the broader market and that the Acquisition does not enable Defendant to foreclose competitors from practicing

36. Defendant shall not unreasonably withhold, delay, or condition the grant of any license to the CPO Patents. Defendant shall not require, as a condition of granting a license, that the Requesting Licensee agree to purchase or use Halcyon Components, enter into any exclusive dealing arrangement with Defendant, or accept any restriction on the Requesting Licensee's ability to purchase or use products or components m

37. FRAND Terms shall include, at a minimum, the following elements: (i) Royalty rates that are fair and reasonable in light of the scope, validity, and value of the licensed patents, taking into account the contribution of the patented technology to the value of the end product, the availability of non-infringing alternatives (if any), the royalty rates established in comparable license agreements, and such other fa

38. Within thirty (30) days of the Effective Date, Defendant shall establish and maintain a licensing desk or designated point of contact, staffed by qualified personnel with authority to negotiate and execute license agreements, to receive and process requests from Requesting Licensees for licenses to the CPO Patents. Defendant shall publish the contact information for the licensing desk on the Meridian Photonics In

39. Defendant shall respond to any bona fide written license request from a Requesting Licensee within sixty (60) calendar days of receipt of such request. The response shall include either: (a) a written offer of license terms setting forth the proposed royalty rate, the scope of the license (including the specific patents to be licensed and the permitted fields of use), the proposed duration of the license, and all

40. In the event that Defendant and a Requesting Licensee are unable to agree upon FRAND Terms within ninety (90) calendar days following the date of Defendant's initial response to the license request, either Defendant or the Requesting Licensee may invoke the dispute resolution procedures set forth in Section XII of this Decree, and the matter shall be subject to resolution in accordance with those procedures. Pend

41. The FRAND licensing obligation set forth in this Section VI covers all forty-seven (47) CPO Patents identified in Exhibit A attached hereto, as well as any continuations, continuations-in-part, divisionals, reissues, or reexaminations thereof that are filed, issued, or pending during the Term. The obligation also extends to any foreign counterpart patents or patent applications corresponding to the CPO Patents, t

VII. INTEROPERABILITY OBLIGATION A. Backward Compatibility

42. During the Term, Defendant shall maintain backward-compatible interoperability between CPO Modules and Third-Party Switch ASICs that conform to OIF Standards (400ZR and 800ZR), as those standards exist on the Effective Date and as they may be updated, amended, or supplemented during the Term by the Optical Internetworking Forum. Defendant shall ensure that CPO Modules continue to function properly and deliver the

43. Defendant shall not take any action, whether through hardware design, firmware modification, software update, or otherwise, to degrade, disable, limit, or impair the interoperability of CPO Modules with OIF-compliant Third-Party Switch ASICs. This prohibition extends to actions that would reduce the performance, functionality, reliability, or data throughput of CPO Modules when used with Third-Party Switch ASICs,

44. Defendant shall conduct interoperability testing at least annually during the Term, using commercially available Third-Party Switch ASICs from at least two (2) independent vendors that are not affiliates of Defendant. The testing methodology shall be consistent with industry-standard testing protocols, including those promulgated or recommended by the Optical Internetworking Forum, and shall be designed to verify

45. Defendant shall make the results of each annual interoperability test available to the Compliance Monitor within thirty (30) days of the completion of such testing. The test results shall include, at a minimum, the identification of the Third-Party Switch ASICs tested, the specific CPO Module models tested, the testing methodology employed, the test environment and configuration, and a summary of the results, inc

46. Upon reasonable request from any third-party equipment manufacturer, Defendant shall make available technical documentation sufficient to enable such manufacturer to independently test the interoperability of its products with CPO Modules. Such technical documentation shall include, at a minimum, published datasheets, interface specifications, and application notes. Defendant may require the requesting manufactur

47. Any new CPO Module model or product version released by Defendant during the Term shall be designed to comply with the then-current OIF Standards for coherent optics interfaces at data rates of 400 Gbps or higher, and shall be backward-compatible with OIF-compliant Third-Party Switch ASICs, consistent with the obligations set forth in Sections VII.A and VII.B of this Decree. Defendant shall conduct interoperabili

48. Nothing in this Section VII shall be construed to prohibit Defendant from developing and offering proprietary features or enhancements that extend beyond the requirements of OIF Standards, provided that: (a) the baseline OIF-compliant interoperability of the CPO Module is maintained; and (b) any proprietary features or enhancements are offered in addition to, and not as a replacement for, OIF-standard functionali

VIII. NON-DISCRIMINATION IN SUPPLY A. Prohibition on Tying

49. During the Term, Defendant shall not condition, directly or indirectly, the sale, supply, availability, pricing, delivery priority, or allocation of CPO Modules to any customer on that customer's purchase, licensing, use, or continued use of any Halcyon Components. This prohibition includes, but is not limited to, the following practices: (i) Requiring or incentivizing a customer to purchase Halcyon Components as

50. Defendant shall make CPO Modules available to all customers on commercially reasonable and non-discriminatory terms, including with respect to pricing, delivery schedules, lead times, allocation during periods of supply constraints, warranty terms, technical support, and access to product roadmap information. Defendant shall not offer materially more favorable terms to customers that also purchase Halcyon Compone

51. In the event of a supply shortage or allocation constraint affecting CPO Modules, Defendant shall allocate available supply among customers on a fair, transparent, and non-discriminatory basis, taking into account existing contractual commitments, historical purchase volumes, and customer order dates, and without favoring customers that purchase Halcyon Components over customers that purchase competing products.

52. Defendant shall not retaliate against, discriminate against, or take any adverse action against any customer, supplier, distributor, or business partner that purchases or uses Third-Party Switch ASICs or other semiconductor components manufactured by Defendant's competitors. For purposes of this Section, "adverse action" includes, but is not limited to, price increases not justified by cost changes, supply reduct