1014-00004 · Hawthorne Vega & Cruz LLP · Damages Analysis

comparable-license-analysis.docx DOCUMENT Litigation

29 / 168 ← → ✕

CALDERWOOD & HARKNESS LLP

INTERNAL MEMORANDUM

July 22, 2024

TO: Alan Ngo, Responsible Partner Wendy Schultz, Lead Associate

FROM: Omar Siddiqui, Associate

RE: Comparable License Analysis Supporting Proposed 8.5% Royalty Rate — Optiwave Semiconductor Corp. v. Lumicore Technologies, Inc., Case No. 2:24-cv-00319-JRG (E.D. Tex.)

MATTER NO.: 1014-00004

CONFIDENTIALITY NOTICE: This memorandum is prepared in anticipation of litigation and constitutes attorney work product of Calderwood & Harkness LLP. It is intended solely for use in connection with the representation of Optiwave Semiconductor Corp. and should not be disclosed to any third party without express authorization. Any unauthorized review, use, disclosure, or distribution is prohibited.

Right-click to update Table of Contents

I. EXECUTIVE SUMMARY

This memorandum identifies, evaluates, and analyzes comparable patent license agreements to support the proposed reasonable royalty rate of 8.5% of accused-product net sales under the Georgia-Pacific framework. This analysis is prepared to inform and support the expert damages report of Dr. Lawrence Keating of Meridian Economic Consulting Group, LLC, who has been retained as Optiwave Semiconductor Corp.'s ("OWS") damages expert in the above-captioned matter.

OWS seeks approximately $37.5 million in reasonable-royalty damages on the portion of Lumicore Technologies, Inc.'s ("Lumicore") accused-product revenue not captured by the lost-profits analysis. Total accused-product revenue is projected at $714.6 million through Q4 2025, of which 38.2% (approximately $273.0 million) is captured under the Panduit lost-profits theory as revenue displaced from OWS's own competing transceiver products. The remaining approximately $441.6 million constitutes the royalty-base revenue to which the reasonable royalty rate applies. At the proposed rate of 8.5%, the resulting reasonable-royalty damages total approximately $37.5 million.

Through an extensive review of OWS's licensing history and publicly available industry licensing data, this memorandum identifies five comparable license agreements. Three of these are OWS's own license agreements involving the asserted patents or closely related patents from the same portfolio: (1) the OWS–Terralink Semiconductor License (2020), (2) the OWS–NovaWave Corp. License (2021), and (3) the OWS–Helix Integrated Photonics License (2022). Two additional agreements are third-party industry-comparable licenses in the silicon-photonics transceiver space: (4) the Stratos Photonics v. ArcLight Systems Settlement License (2019), and (5) the Coreline Technologies v. Prisma Semiconductor Cross-License (2021).

The range of royalty rates across all five comparable agreements is 6.5% to 10.2%. The OWS portfolio licenses cluster between 6.5% and 9.0%, while the industry-comparable agreements reach as high as 10.2%. After accounting for differences in portfolio scope, license structure, litigation context, licensee scale, and temporal proximity to the hypothetical negotiation date, the adjusted range narrows to approximately 7.5% to 9.5%, with a weighted central tendency of approximately 8.0% to 8.5%.

The proposed 8.5% royalty rate falls squarely within this established range and is supported by the technological and economic comparability of the analyzed agreements to the hypothetical negotiation between OWS and Lumicore as of Q2 2022 — the date just prior to Lumicore's launch of the LumiLink 400G-ZR+ in Q3 2022. The OWS–Helix Integrated Photonics license, which is the only agreement covering all four asserted patents and was negotiated within months of the hypothetical negotiation date, provides the strongest single data point, with an effective blended rate (including upfront payment amortization) of approximately 8.3% to 8.5%.

This memorandum details the legal framework, methodology, license-by-license analysis, synthesis, and rate derivation, as well as anticipated defendant challenges and recommended responses. It concludes with recommendations for incorporating these comparable licenses into Dr. Keating's expert report and preparing for potential Daubert challenges.

II. LEGAL FRAMEWORK

The reasonable-royalty damages analysis in this matter is governed by the Georgia-Pacific framework, which sets forth fifteen factors to be considered in determining the royalty rate that would have resulted from a hypothetical negotiation between a willing licensor and a willing licensee at the time infringement began. Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970). Two of these factors — Factors 1 and 2 — are directly addressed by the comparable license analysis presented herein.

A. Georgia-Pacific Factor 1: Existing Royalties Received by the Patentee

Georgia-Pacific Factor 1 examines "[t]he royalties received by the patentee for the licensing of the patent in suit, proving or tending to prove an established royalty." Id. at 1120. This factor is of paramount importance in reasonable-royalty determinations because it reflects the actual market value that the patentee has been able to command for the specific patents at issue. Courts have consistently recognized that established royalties — where they exist — provide the most reliable indicator of the hypothetical royalty rate, because they reflect the actual exercise of the patentee's licensing rights in real-world transactions.

For Factor 1 to carry significant weight, the existing licenses should ideally involve the patents-in-suit themselves or, at a minimum, closely related patents from the same family or portfolio. Licenses to the actual patents-in-suit are entitled to the greatest evidentiary weight because they directly demonstrate the market value of the intellectual property at issue. See Monsanto Co. v. McFarling, 488 F.3d 973, 978–79 (Fed. Cir. 2007) (affirming reliance on patentee's established royalty rate as benchmark for reasonable royalty); Integra Lifesciences I, Ltd. v. Bramwell Group, 331 F.3d 860, 870 (Fed. Cir. 2003) (recognizing the importance of existing licenses to the patent-in-suit).

In this matter, three OWS license agreements involve one or more of the four asserted patents — U.S. Patent Nos. 10,234,847 (the "'847 Patent"), 10,891,193 (the "'193 Patent"), 9,678,562 (the "'562 Patent"), and 11,402,015 (the "'015 Patent") — or patents from the same family and portfolio. As detailed in Section IV below, these three licenses are the OWS–Terralink Semiconductor License (covering the '847 and '562 Patents), the OWS–NovaWave Corp. License (covering the '847, '193, and '562 Patents), and the OWS–Helix Integrated Photonics License (covering all four asserted patents). Each was negotiated at arm's length and provides a running royalty rate expressed as a percentage of net sales of licensed products.

B. Georgia-Pacific Factor 2: Comparable Licenses

Georgia-Pacific Factor 2 examines "[t]he rates paid by the licensee for the use of other patents comparable to the patent in suit." Georgia-Pacific, 318 F. Supp. at 1120. Factor 2 broadens the inquiry beyond the patentee's own licensing history to encompass third-party license agreements involving comparable technology and comparable market conditions. The rationale is straightforward: the hypothetical royalty rate should reflect not only what the particular patentee has been able to command, but also what the broader market reveals about the value of comparable intellectual property in the relevant technology space.

Two third-party industry-comparable licenses have been identified that involve silicon-photonics transceiver technology patents with analogous scope and market application: (1) the Stratos Photonics v. ArcLight Systems Settlement License (2019), involving arrayed-waveguide-grating multiplexer patents for data-center transceiver modules, and (2) the Coreline Technologies v. Prisma Semiconductor Cross-License (2021), involving silicon-photonics integrated circuit patents including thermal management and grating-coupler technologies. These agreements, detailed in Section V below, provide additional market-based data points that corroborate the royalty range derived from OWS's own licensing history.

C. Relevance and Comparability Standards

The Federal Circuit has established exacting standards for the use of comparable licenses in reasonable-royalty determinations. A comparable license must bear a sufficient economic and technological relationship to the hypothetical negotiation at issue to provide a reliable basis for the royalty calculation. Conclusory assertions of comparability are insufficient; the proponent of a comparable license must articulate a principled basis for linking the license terms to the facts of the case.

The comparability inquiry requires consideration of several dimensions:

(1) Technological Comparability. The licensed patents should cover technology that is the same as or closely related to the technology of the patents-in-suit. Licenses covering unrelated technology are of limited or no probative value, even if they involve the same parties or the same industry.

(2) Market Comparability. The licensed products should be sold into the same or analogous markets as the accused products, and the licensor and licensee should occupy similar competitive positions.

(3) Economic Comparability. The economic terms of the comparable license — including the revenue base of the licensed products, the financial positions of the parties, and the bargaining dynamics — should be reasonably analogous to those that would exist in the hypothetical negotiation.

(4) Structural Comparability. Differences in license structure must be accounted for. A running royalty expressed as a percentage of net sales is most directly comparable to the proposed royalty structure in this case. Lump-sum licenses, cross-licenses, and hybrid structures (combining upfront payments with running royalties) require adjustment to derive an effective running-royalty rate. The scope of the license — exclusive versus non-exclusive, worldwide versus geographically limited, and any field-of-use restrictions — must also be considered.

(5) Negotiation Context. Whether the license was negotiated at arm's length in a voluntary, pre-suit setting or was the product of litigation settlement significantly affects its probative value. Licenses negotiated in the "shadow of litigation" may reflect a premium (or discount) that does not exist in a truly voluntary negotiation. However, the hypothetical negotiation itself is a legal construct that assumes both parties are aware of the patent rights and the potential for infringement, so litigation-influenced licenses are not categorically excluded.

(6) Temporal Proximity. The comparable license should have been negotiated within a reasonable period before or after the hypothetical negotiation date. Licenses that are temporally remote may reflect different market conditions, technological landscapes, or industry economics that undermine their comparability.

The Federal Circuit's decisions in Lucent Technologies, Inc. v. Gateway, Inc., 580 F.3d 1301 (Fed. Cir. 2009), and Uniloc USA, Inc. v. Kestrel Partners LLC, 632 F.3d 1292 (Fed. Cir. 2011), underscore the need for a sound economic basis linking comparable licenses to the facts of the case. In Lucent, the court vacated a $357.7 million damages award because the patentee relied on lump-sum license agreements without adequately explaining how those agreements supported the running royalty rate applied to the accused products. 580 F.3d at 1325–32. In Uniloc, the court rejected the use of the "25 percent rule of thumb" as lacking a sufficient economic foundation and reiterated that damages calculations must be tethered to the specific facts of the case. 632 F.3d at 1312–18.

More recently, in VirnetX, Inc. v. Sterling Reach Holdings, 767 F.3d 1308, 1330 (Fed. Cir. 2014), the Federal Circuit emphasized that comparable licenses must be sufficiently linked to the patent-in-suit and the accused technology to provide a "reliable basis" for the damages calculation, and that conclusory statements of comparability are insufficient.

For purposes of this analysis, the hypothetical negotiation date is set at Q2 2022 — the period just before Lumicore's launch of the LumiLink 400G-ZR+ in Q3 2022. This date represents the point at which, under the legal fiction of the Georgia-Pacific hypothetical negotiation, a willing licensor (OWS) and a willing licensee (Lumicore) would have sat down to negotiate a reasonable royalty for Lumicore's use of the patented technologies in its accused products. All five comparable licenses identified herein were negotiated within approximately three years of this date, and the most comparable license (OWS–Helix) was negotiated within months of it.

III. METHODOLOGY

A. Search and Identification Process

The comparable licenses identified in this memorandum were selected through a systematic, multi-step process designed to identify the most relevant and probative agreements.

OWS Licensing History. The first and most important step was a comprehensive review of OWS's existing licensing program. OWS's patent licensing activities are managed by FairPoint Licensing Group, LLC (Managing Director: Angela Reeves), located at 500 Sansome Street, Suite 1400, San Francisco, California 94111. FairPoint has managed OWS's licensing program since 2017 and maintains complete records of all license agreements entered into on OWS's behalf.

OWS has entered into at least eight patent license agreements since 2018, covering various subsets of its 142-patent portfolio in the silicon-photonics transceiver space. Of these eight agreements, three involve one or more of the four asserted patents or closely related continuation or family patents and were negotiated at arm's length. These three agreements — the Terralink Semiconductor, NovaWave Corp., and Helix Integrated Photonics licenses — form the core of the Factor 1 analysis. The remaining five OWS licenses were reviewed and excluded because they involved different patent families (e.g., OWS's laser-diode packaging patents or its earlier-generation planar-lightwave-circuit patents) that are not technologically comparable to the asserted patents, or because they involved non-arm's-length transactions (e.g., a cross-license with OWS's joint-venture partner, Zenith Optoelectronics Co., Ltd., which included significant non-monetary consideration that complicates rate extraction).

Third-Party Industry Licenses. The second step involved identifying third-party license agreements in the silicon-photonics and optical transceiver industry that could serve as Factor 2 comparables. This search encompassed:

(a) Review of publicly available litigation settlements involving silicon-photonics patents, using Camberwell Solutions, Beaumont Data Systems, and PACER searches for patent infringement cases in the optical transceiver technology space concluded by settlement between 2017 and 2023;

(b) Review of SEC filings (Forms 8-K, 10-K, and 10-Q) by publicly traded companies in the silicon-photonics industry, searching for disclosures of material license agreements, settlement payments, or royalty obligations;

(c) Review of industry analyst reports from Ashford Management Consulting, Meridian Enterprises (now Kestrel Management Consulting), and the International Photonics Business Alliance regarding patent licensing trends in the silicon-photonics transceiver market;

(d) Consultation with Dr. Lawrence Keating of Meridian Economic Consulting Group, LLC (233 South Wacker Drive, Suite 4400, Chicago, Illinois 60606), who has independently reviewed industry licensing data as part of his economic analysis and confirmed the comparability criteria applied herein; and

(e) Review of testimony and expert reports filed in prior silicon-photonics patent cases, including Finisar Corp. v. Northpoint Group (N.D. Cal.) and Ashford Holdings v. Drayton Group (W.D. Pa.), to identify license agreements referenced in those proceedings.

This search yielded two third-party agreements with sufficient publicly available information to assess comparability: the Stratos Photonics v. ArcLight Systems settlement license and the Coreline Technologies v. Prisma Semiconductor cross-license. Several additional candidate licenses were considered but excluded because they involved insufficiently comparable technology (e.g., III-V semiconductor laser patents without silicon-photonics integration), insufficiently disclosed terms (e.g., confidential settlement agreements with no public disclosure of royalty rates), or were too temporally remote from the Q2 2022 hypothetical negotiation date.

B. Selection Criteria

The following criteria were applied to determine whether a license agreement qualifies as a comparable for purposes of this analysis:

(1) Technological Comparability: The licensed patents must cover silicon-photonics waveguide, transceiver, thermal management, or grating-coupler technologies that are the same as or closely analogous to the technologies claimed in the four asserted patents. Licenses covering unrelated optical technologies (e.g., free-space optics, fiber-optic cable manufacturing, or LED illumination) were excluded.

(2) Market Comparability: The licensed products must be sold into the hyperscale data-center and/or telecom interconnect markets — the same markets in which OWS and Lumicore compete. Licenses involving optical technologies used exclusively in consumer electronics, automotive LIDAR, or medical imaging applications were excluded, even if the underlying physics are related.

(3) Economic Comparability: The licensee's revenue scale for the licensed products, the relative market positions of the licensor and licensee, and the arm's-length nature of the negotiation must be reasonably analogous to the OWS–Lumicore hypothetical negotiation. Licenses involving de minimis revenue or non-arm's-length transactions (e.g., between affiliated entities or as part of a broader M&A transaction) were excluded or given lesser weight.

(4) Structural Comparability: Preference was given to licenses with a running-royalty structure expressed as a percentage of net sales, which is the same structure proposed for the hypothetical OWS–Lumicore license. Lump-sum licenses were considered only if sufficient data existed to calculate an effective running-royalty rate. Cross-license agreements were included but required adjustment to account for the reciprocal grant.

(5) Temporal Proximity: The license must have been negotiated within a reasonable period (approximately three years) before or after the Q2 2022 hypothetical negotiation date. All five selected comparables fall within this window, with negotiation dates ranging from October 2019 to February 2022.

C. Discovery and Privilege Considerations

All three OWS license agreements have been produced in discovery in this action and are designated "Confidential" under the three-tier Stipulated Protective Order entered by Magistrate Judge Paige on May 3, 2024 (Dkt. No. 47). The Protective Order restricts the use and disclosure of Confidential materials to counsel, retained experts, and other qualified persons identified in the Order. Dr. Keating has executed the required Protective Order Acknowledgment and may access the license agreements in connection with his expert analysis.

The two third-party industry-comparable licenses are based on publicly available information (SEC filings and court dockets) supplemented by information from industry expert Gregory Falk, who has been retained as a consulting expert in this matter. To the extent Mr. Falk's knowledge of the Coreline–Prisma transaction derives from his prior industry role, care has been taken to ensure that no confidential or privileged information from his former employer (Solara Optics, Inc.) has been disclosed in violation of any non-disclosure obligation. Mr. Falk has confirmed in writing that his knowledge of the Coreline–Prisma cross-license terms is based on publicly available information and general industry knowledge, not on any confidential information received during his tenure at Solara Optics.

IV. ANALYSIS OF OWS'S OWN LICENSE AGREEMENTS (GEORGIA-PACIFIC FACTOR 1)

This section analyzes the three OWS license agreements that involve one or more of the four asserted patents. These agreements are the most probative comparable licenses because they reflect the actual royalty rates that OWS — the patentee in this case — has been able to command for the very patents at issue. Each agreement is analyzed in terms of its key terms, followed by a detailed comparability analysis assessing its relevance to the hypothetical negotiation between OWS and Lumicore.

A. License Agreement No. 1: OWS–Terralink Semiconductor License (2020)

1. Summary of Terms

The first OWS license agreement is between Optiwave Semiconductor Corp. (as licensor) and Terralink Semiconductor, Inc. (as licensee), with an effective date of March 12, 2020. This agreement is a portfolio license covering eighteen OWS patents, including two of the four asserted patents: U.S. Patent No. 10,234,847 (the '847 Patent, directed to multi-channel silicon photonic waveguide multiplexer technology with low insertion loss) and U.S. Patent No. 9,678,562 (the '562 Patent, directed to integrated thermal management systems for photonic integrated circuits).

The license grants Terralink a non-exclusive, worldwide license to manufacture, use, and sell licensed products — specifically, Terralink's 100G and 200G silicon-photonics transceiver modules for data-center interconnect applications. The royalty rate is a running royalty of 6.5% on net sales of licensed products, with no upfront payment. The agreement includes a minimum annual royalty obligation of $500,000, ensuring a baseline revenue stream to OWS regardless of Terralink's actual sales volume.

Terralink's net sales of licensed products in fiscal year 2020 were approximately $45 million. The license has a five-year initial term running through March 11, 2025, with automatic renewal for successive two-year terms unless either party provides written notice of termination at least 180 days before the end of the then-current term.

The negotiation context is important: this license was negotiated entirely at arm's length, without any pending or threatened litigation between OWS and Terralink. FairPoint Licensing Group initiated contact with Terralink in Q3 2019 through a standard outreach letter identifying OWS's patent portfolio and proposing a licensing discussion. The negotiations proceeded over approximately five months before the parties reached agreement on the terms described above. There is no indication in the negotiation record that either party considered the possibility of litigation to be imminent or likely, and the 6.5% rate reflects a purely voluntary, arms-length transaction.

2. Comparability Analysis

Technological Comparability: High. The Terralink license covers two of the four asserted patents — the '847 Patent (waveguide multiplexer) and the '562 Patent (thermal management). The licensed products — 100G and 200G silicon-photonics transceiver modules for data-center interconnect — are in the same product category as Lumicore's accused products. While the licensed products are of lower data-rate generation (100G/200G) compared to Lumicore's accused 400G-ZR+ and 800G-DR8 products, the underlying patented technologies (waveguide multiplexing and thermal management) are generation-agnostic and equally applicable to higher-speed transceivers. The technological comparability is therefore high, though not as high as the NovaWave or Helix licenses, which cover more of the asserted patents and license products at comparable data rates.

Market Comparability: Moderate. Terralink is a smaller market participant than Lumicore. Terralink's licensed product revenue of approximately $45 million is roughly one-sixth of Lumicore's FY 2023 accused-product revenue of $264.9 million. However, both companies sell into the same hyperscale data-center market, with overlapping customer bases including major cloud-service providers such as Ridgeway Industries, Crestline Systems, and Aldermere Technologies. The market segment — data-center interconnect transceivers — is identical. The difference in revenue scale is a relevant consideration (addressed in the adjustments below) but does not destroy comparability.

Economic Comparability: Moderate. The most significant economic distinction is the scope of the patent portfolio licensed. The Terralink agreement covers eighteen patents, whereas only four patents are asserted in this case. In a portfolio license covering eighteen patents, the per-patent royalty contribution is necessarily diluted — each patent in the portfolio contributes only a fraction of the total 6.5% royalty rate. If the four asserted patents account for a disproportionate share of the portfolio's value (as OWS contends, and as the Benchmark Semiconductor Analysis, LLC teardown reports suggest), then the effective rate attributable to those four patents standing alone would be higher than 6.5%. This dilution effect is an important adjustment factor, discussed below.

Additionally, the absence of any upfront payment in the Terralink license means that the 6.5% running royalty rate represents the entirety of the consideration flowing to OWS, simplifying the rate comparison. The minimum annual royalty of $500,000 provides a floor but does not affect the running-royalty rate calculation on licensed product sales.

Temporal Proximity: Acceptable. The Terralink license was negotiated and executed in March 2020, approximately two years before the Q2 2022 hypothetical negotiation date. Market conditions in early 2020 were somewhat different from those in Q2 2022 — the COVID-19 pandemic had just begun to affect the global semiconductor supply chain, and the subsequent surge in data-center spending (driven by remote work, cloud computing expansion, and streaming-media growth) had not yet fully materialized. By Q2 2022, the data-center transceiver market was experiencing significantly higher demand and stronger pricing, which would tend to support a higher royalty rate in a hypothetical negotiation at that later date. This temporal difference slightly reduces the Terralink license's comparability but does not render it irrelevant.

Adjustments. Two principal adjustments apply:

First, the portfolio-breadth adjustment. The Terralink license covers eighteen patents, of which only two are asserted in this case. If the four asserted patents account for a substantial share of the portfolio's value — as the technical evidence in this case supports — then isolating the rate attributable to those four patents yields a figure above 6.5%. Dr. Keating's preliminary analysis, based on the relative citation frequency, claim breadth, and commercial significance of the individual patents in the licensed portfolio, estimates that the four asserted patents account for approximately 45% to 55% of the total portfolio value. Applying this allocation to the 6.5% royalty rate yields an effective per-asserted-patent rate of approximately 7.2% to 7.9%. Direction: upward.

Second, the licensee-scale adjustment. Terralink's smaller revenue base ($45 million) may imply a lower volume discount than would be expected for a larger licensee like Lumicore ($264.9 million in FY 2023). In general, larger licensees may negotiate for lower per-unit royalty rates due to volume efficiencies, but this effect is counterbalanced by the greater total royalty payments flowing to the licensor from a larger revenue base. The net effect of this adjustment is small and directionally ambiguous. Direction: neutral to slight upward.

Net Adjustment: Upward from 6.5% baseline. After adjustments, the Terralink license supports an effective rate for the four asserted patents in the range of approximately 7.0% to 8.0%.

B. License Agreement No. 2: OWS–NovaWave Corp. License (2021)

1. Summary of Terms

The second OWS license agreement is between Optiwave Semiconductor Corp. (as licensor) and NovaWave Corp. (as licensee), with an effective date of June 1, 2021. This agreement is a narrower license covering six OWS patents, including three of the four asserted patents: U.S. Patent No. 10,234,847 (the '847 Patent), U.S. Patent No. 10,891,193 (the '193 Patent, directed to coherent optical transceiver integration with on-chip digital signal processing), and U.S. Patent No. 9,678,562 (the '562 Patent).

The license grants NovaWave a non-exclusive license, limited to the United States, for the manufacture and sale of NovaWave's 400G coherent transceiver modules. The geographic scope is limited to the U.S. market, which is the same geographic scope at issue in the present litigation (OWS asserts infringement of U.S. patents based on Lumicore's U.S. sales and importation). The royalty rate is a running royalty of 9.0% on net sales of licensed products. No upfront payment was required. The agreement includes a minimum annual royalty of $250,000.

NovaWave's net sales of licensed products in fiscal year 2021 were approximately $22 million. The license has a three-year initial term running through May 31, 2024, with an option for NovaWave to extend for an additional two-year term upon mutual agreement.

The negotiation context is significant. FairPoint Licensing Group initiated contact with NovaWave in Q4 2020 after OWS's technical team identified potential infringement of the '847, '193, and '562 Patents by NovaWave's 400G coherent transceiver products. FairPoint's initial outreach letter to NovaWave's general counsel, dated November 3, 2020, identified the relevant OWS patents and described the basis for OWS's belief that NovaWave's products practiced the patented technologies. The letter did not threaten litigation in express terms, but it referenced OWS's "active patent enforcement program" and its willingness to "pursue all available remedies to protect its intellectual property." The resulting negotiations proceeded over approximately six months before the parties reached agreement on the terms described above.

While no litigation was filed or formally threatened, the negotiation occurred in the shadow of a credible enforcement threat. NovaWave's willingness to accept a 9.0% royalty rate — significantly higher than the 6.5% rate agreed to by Terralink — reflects, at least in part, the more assertive posture of OWS's licensing approach and NovaWave's assessment of the litigation risk it would face if negotiations failed.

2. Comparability Analysis

Technological Comparability: Very High. The NovaWave license covers three of the four asserted patents — the '847 Patent, the '193 Patent, and the '562 Patent. The only asserted patent not included is the '015 Patent (polarization-diverse grating coupler). The licensed products — NovaWave's 400G coherent transceiver modules — are directly comparable to Lumicore's accused LumiLink 400G-ZR+ product, which is the highest-volume accused product in this case. The '193 Patent, which claims coherent optical transceiver integration with on-chip digital signal processing, is particularly relevant to the 400G coherent transceiver technology embodied in both NovaWave's licensed products and Lumicore's accused products. This is the most technologically comparable of the three OWS licenses from a product-specific standpoint, though the Helix license covers all four asserted patents.

Market Comparability: Moderate to High. NovaWave operates in the same hyperscale data-center transceiver market as Lumicore, competing for the same pool of cloud-service-provider and enterprise data-center customers. However, NovaWave is a smaller competitor, with licensed product revenue of approximately $22 million — less than one-tenth of Lumicore's FY 2023 accused-product revenue of $264.9 million. This substantial revenue disparity affects the comparability of the license to the hypothetical OWS–Lumicore negotiation, as a larger licensee like Lumicore would likely have greater bargaining leverage. Notwithstanding this difference in scale, the market-segment alignment is strong.

Economic Comparability: High. The narrower patent scope of the NovaWave license (six patents versus eighteen in the Terralink license) is an important economic factor. With a smaller number of licensed patents, each patent contributes a larger share of the total royalty value, and the 9.0% royalty rate more closely reflects the per-patent value of the core asserted technologies. The ratio of asserted patents to total licensed patents (three of six, or 50%) is significantly higher than in the Terralink license (two of eighteen, or 11%), indicating that the 9.0% rate is more directly attributable to the value of the asserted patents.

The U.S.-only geographic scope of the NovaWave license is actually an advantage from a comparability standpoint, because the present litigation involves only U.S. patent infringement and the reasonable-royalty calculation applies only to Lumicore's U.S. sales. A worldwide license might warrant a higher royalty rate due to the broader geographic scope of rights granted, meaning that a U.S.-only rate may be somewhat lower than a worldwide rate for the same patents. This consideration marginally reduces the NovaWave rate's upward comparability to a hypothetical worldwide license but perfectly matches the geographic scope at issue here.

Temporal Proximity: Close. The NovaWave license was executed on June 1, 2021, approximately one year before the Q2 2022 hypothetical negotiation date. This is the second-closest in time among the five comparables (after the Helix license). By mid-2021, the data-center transceiver market was experiencing the early stages of the demand surge that would continue through 2022, and market conditions were broadly similar to those prevailing at the hypothetical negotiation date.

Adjustments. Two adjustments merit consideration:

First, the enforcement-intensity adjustment. The NovaWave license was negotiated in the shadow of a credible (though not formally threatened) enforcement action. This may have contributed to the relatively high 9.0% rate, as NovaWave may have been willing to accept a higher rate to avoid the cost, risk, and uncertainty of patent litigation. However, this dynamic is also present in the hypothetical negotiation at issue here: by Q2 2022, a hypothetical willing licensee in Lumicore's position would be aware of OWS's active enforcement program and robust patent portfolio, and would factor litigation risk into its willingness to pay. The adjustment, if any, is therefore modest. Direction: neutral to slight downward.

Second, the licensee-scale adjustment. NovaWave's significantly smaller licensed product revenue ($22 million versus Lumicore's $264.9 million) means that the volume dynamics are quite different. A larger licensee like Lumicore might negotiate for a lower per-unit rate, reflecting the greater total royalty payments flowing to OWS from a larger revenue base. However, the higher revenue also reflects greater value derived from the patented technology, which can offset the volume-discount effect. Direction: slight downward.

Net Adjustment: Neutral to slight downward from 9.0% baseline. After adjustments, the NovaWave license supports an effective rate in the range of approximately 8.5% to 9.0% for the hypothetical OWS–Lumicore negotiation.

C. License Agreement No. 3: OWS–Helix Integrated Photonics License (2022)

1. Summary of Terms

The third OWS license agreement is between Optiwave Semiconductor Corp. (as licensor) and Helix Integrated Photonics, Inc. (as licensee), with an effective date of February 15, 2022. This agreement is a license covering eight OWS patents, including all four of the asserted patents: U.S. Patent Nos. 10,234,847 (the '847 Patent), 10,891,193 (the '193 Patent), 9,678,562 (the '562 Patent), and 11,402,015 (the '015 Patent, directed to polarization-diverse grating coupler arrays for silicon photonic transceivers). This is the only OWS license in which all four asserted patents are included.

The license grants Helix a non-exclusive, worldwide license to manufacture, use, sell, and import licensed products — specifically, Helix's 400G-ZR and 800G silicon-photonics transceiver modules and related sub-components. The product scope is broader than either the Terralink or NovaWave licenses, encompassing both 400G-ZR and next-generation 800G transceivers. Notably, the licensed products include both a 400G-ZR transceiver (directly comparable to the accused LumiLink 400G-ZR+) and 800G transceivers (directly comparable to the accused LumiLink 800G-DR8), making this the most product-comparable of the three OWS licenses.

The royalty structure is a hybrid: the agreement provides for a running royalty of 7.75% on net sales of licensed products, plus a non-refundable upfront payment of $2.5 million. The upfront payment is creditable against the first $2.5 million in running royalties otherwise payable by Helix — meaning that Helix does not begin making additional running-royalty payments until its cumulative royalty obligation exceeds $2.5 million. The agreement also includes a minimum annual royalty of $750,000, applicable beginning in year two of the license term (since the upfront payment covers year-one obligations).

Helix's net sales of licensed products in fiscal year 2022 were approximately $68 million. The license has a seven-year term running through February 14, 2029, reflecting the parties' expectation of a long-term licensing relationship.

The negotiation context reflects an arm's-length transaction without litigation or formal threat thereof. FairPoint Licensing Group initiated discussions with Helix in approximately August 2021. The negotiations proceeded over roughly six months, during which the parties exchanged claim charts, technical analyses, and financial data. While no litigation was filed or threatened, both parties were aware of OWS's active patent enforcement posture, including the then-pending licensing negotiations with other market participants. The resulting terms — a running royalty plus upfront payment — reflect a negotiated outcome in which Helix sought to manage its near-term cash-flow exposure by prepaying a portion of the royalty obligation, while OWS secured both an immediate payment and a long-term running-royalty stream.

2. Comparability Analysis

Technological Comparability: Highest. This is the strongest technological comparable among the three OWS licenses — indeed, among all five comparables — because it is the only agreement that covers all four of the asserted patents. The licensed patents include the complete set of technologies at issue in this case: waveguide multiplexing ('847 Patent), coherent transceiver integration ('193 Patent), thermal management ('562 Patent), and polarization-diverse grating coupling ('015 Patent). The licensed products — 400G-ZR and 800G transceiver modules — are directly analogous to the accused LumiLink 400G-ZR+ and LumiLink 800G-DR8 products, both in terms of technology generation and market application.

Market Comparability: High. Helix Integrated Photonics is a mid-tier player in the silicon-photonics transceiver market, with licensed product revenue of approximately $68 million in FY 2022. While Helix is smaller than Lumicore (which reported $264.9 million in FY 2023 accused-product revenue), it is the largest of OWS's three licensees, making this the most comparable in terms of licensee scale. Both Helix and Lumicore compete in the hyperscale data-center transceiver market, selling to the same tier of customers. The revenue gap between Helix ($68 million) and Lumicore ($264.9 million) is significant but represents a factor of approximately four — substantially less than the factor of twelve between NovaWave ($22 million) and Lumicore, and less than the factor of six between Terralink ($45 million) and Lumicore.

Economic Comparability: High. The economic terms of the Helix license are the most directly comparable to the hypothetical OWS–Lumicore negotiation. The hybrid royalty structure (running royalty plus upfront payment) adds a layer of complexity but also provides additional economic data. The $2.5 million upfront payment represents additional value beyond the 7.75% running royalty rate. When the upfront payment is amortized over the license revenue, the effective total royalty rate exceeds 7.75%.

To calculate the effective blended rate, we consider the total royalties (including the upfront) as a percentage of total licensed revenue over the license term. In FY 2022, with $68 million in licensed revenue, the running royalty obligation at 7.75% would be $5.27 million. Because the upfront $2.5 million is creditable against the first $2.5 million in running royalties, the total payment in year one is $5.27 million (the $2.5 million upfront plus $2.77 million in additional running royalties). In subsequent years, Helix pays only the 7.75% running royalty. The upfront payment effectively adds approximately 3.7 percentage points to the first-year rate (based on $68 million revenue). Over the seven-year term, assuming licensed revenue of approximately $68–80 million per year (consistent with projected growth in the data-center transceiver market), the blended effective rate (total payments divided by total revenue) is estimated at approximately 8.3% to 8.5%.

The license covers eight patents (four asserted plus four additional), so some portfolio-breadth dilution is present. However, the four asserted patents represent half of the licensed portfolio and, based on OWS's internal assessments and the Benchmark Semiconductor Analysis, LLC teardown reports, constitute the most commercially significant patents in the licensed set. The rate attributable to the four asserted patents alone would therefore be at least proportional to their share of the portfolio — and likely higher, given their outsized commercial importance.

Temporal Proximity: Closest. The Helix license was executed on February 15, 2022, approximately three to four months before the Q2 2022 hypothetical negotiation date. This is the most temporally proximate of all five comparables. Market conditions in February 2022 were virtually identical to those in Q2 2022 — the global semiconductor shortage was ongoing, data-center transceiver demand was at historically high levels, and OWS and its competitors were navigating the same supply-chain and pricing dynamics that would characterize the hypothetical negotiation environment. The temporal proximity of this license is an important factor weighing in favor of its comparability.

Adjustments. The primary adjustments relate to the upfront payment and the portfolio breadth:

First, the effective-rate adjustment for the upfront payment. As calculated above, the blended effective rate over the seven-year license term is approximately 8.3% to 8.5%, which is the most meaningful rate for comparison purposes because it captures the full economic value of the license. This adjusted rate is strongly supportive of the proposed 8.5% royalty rate. Direction: upward from the nominal 7.75% running-royalty rate.

Second, the portfolio-breadth adjustment. The license covers eight patents, of which four are asserted. The four asserted patents represent the core commercial value of the licensed portfolio. Isolating the value attributable to the four asserted patents would yield an adjusted rate at or above the blended effective rate of 8.3% to 8.5%, given the disproportionate importance of the asserted patents within the eight-patent portfolio. Direction: upward.

Net Adjustment: Upward from the nominal 7.75% running-royalty rate, yielding an effective rate of approximately 8.3% to 8.5%. This is the single most probative comparable in the analysis and strongly supports the proposed 8.5% royalty rate.

V. ANALYSIS OF THIRD-PARTY INDUSTRY-COMPARABLE LICENSES (GEORGIA-PACIFIC FACTOR 2)

This section analyzes two third-party license agreements in the silicon-photonics transceiver industry that serve as Factor 2 comparables. While these agreements do not involve OWS or the specific patents-in-suit, they provide valuable market-based data points demonstrating the rates paid for comparable technology in the same industry and market segment.

A. Comparable License No. 4: Stratos Photonics, Inc. v. ArcLight Systems, Inc. — Settlement License (2019)

1. Summary of Terms

This comparable license arises from the settlement of patent infringement litigation between Stratos Photonics, Inc. (as licensor and plaintiff) and ArcLight Systems, Inc. (as licensee and defendant), with an effective date of October 8, 2019. The underlying litigation was filed in the United States District Court for the Northern District of California and involved five Stratos Photonics patents covering arrayed-waveguide-grating multiplexer technology for data-center interconnect transceivers.

Under the settlement terms, Stratos Photonics granted ArcLight a non-exclusive, worldwide license to its five arrayed-waveguide-grating multiplexer patents for ArcLight's 100G and 400G transceiver module families. The running royalty rate is 8.0% on net sales of licensed products for the remaining life of the licensed patents. In addition, ArcLight agreed to pay $12.5 million as a lump sum to settle past-damages claims covering the pre-settlement infringement period. The $12.5 million past-damages payment is separate from the ongoing running-royalty obligation and is not included in the rate comparison.

The key terms of this settlement were disclosed in Stratos Photonics' SEC filing (Form 8-K, filed October 2019) and are referenced in the case docket, which reflects the dismissal of the action with prejudice following the settlement. The 8-K filing discloses the material terms of the license, including the royalty rate and past-damages payment, as required by SEC disclosure obligations for material definitive agreements.

2. Comparability Analysis

Technological Comparability: High. The Stratos Photonics patents cover arrayed-waveguide-grating (AWG) multiplexer technology, which is the same core technology addressed by OWS's '847 Patent ("Multi-Channel Silicon Photonic Waveguide Multiplexer with Low Insertion Loss"). While the specific patent claims differ, the technological domain is identical: both patent sets claim inventions relating to the optical multiplexing function that is fundamental to multi-channel silicon-photonics transceiver operation. The licensed products — data-center transceiver modules in the 100G and 400G product families — are in the same product category as Lumicore's accused LumiLink products. The 400G transceiver products licensed under the Stratos–ArcLight agreement are particularly relevant as a comparable to the accused LumiLink 400G-ZR+.

Market Comparability: High. Both Stratos Photonics and ArcLight Systems operate in the silicon-photonics transceiver market for hyperscale data centers, which is the same market in which OWS and Lumicore compete. While Stratos Photonics and ArcLight are not household names in the broader semiconductor industry, they are established participants in the niche silicon-photonics segment, and their competitive dynamics are analogous to those between OWS and Lumicore. The customer base — hyperscale cloud-service providers and large enterprise data-center operators — is substantially overlapping.

Economic Comparability: Moderate to High. The most significant economic consideration is the litigation-settlement context. Licenses negotiated as part of litigation settlements may reflect a "litigation premium" — i.e., an elevated royalty rate reflecting the defendant's desire to eliminate the risks and costs of ongoing litigation, including the possibility of enhanced damages, injunctive relief, and attorney fees. The presence of a litigation premium could mean that the 8.0% rate overstates what would have been agreed in a purely voluntary pre-suit negotiation.

However, several factors mitigate this concern. First, the Georgia-Pacific hypothetical negotiation is itself a construct in which both parties are assumed to be aware of the patent rights and the infringement, so the negotiation occurs with knowledge of the enforcement risk, even if no lawsuit has been filed. Second, in the instant case, OWS had an active enforcement posture as of the hypothetical negotiation date, and a hypothetical willing licensee in Lumicore's position would be aware of that posture. Third, the $12.5 million lump-sum past-damages payment is separate from the ongoing 8.0% running royalty and absorbs much of the litigation-specific premium, leaving the forward-looking 8.0% rate as a reasonable approximation of the arm's-length licensing rate.

The revenue data for ArcLight's licensed products are not publicly disclosed, which limits the ability to perform a precise revenue-scale comparison to the Lumicore hypothetical negotiation. However, based on industry reports and ArcLight's publicly known market position, its transceiver product revenue is estimated to be in the range of $80 million to $120 million per year — reasonably comparable to Lumicore's FY 2023 accused-product revenue of $264.9 million, though on the lower end.

Temporal Proximity: Acceptable. The settlement was reached in October 2019, approximately two and a half years before the Q2 2022 hypothetical negotiation date. This is the most temporally remote of the five comparables but remains within the acceptable window. Market conditions in late 2019 were characterized by steady data-center spending growth, before the pandemic-driven acceleration that began in mid-2020. The pre-pandemic market conditions may have been somewhat less favorable for licensors than the Q2 2022 environment, suggesting that the 8.0% rate may, if anything, understate the rate that would be negotiated in the stronger Q2 2022 market.

Adjustments. Two adjustments are relevant:

First, the litigation-premium adjustment. As discussed above, the settlement context may justify a slight downward adjustment to approximate the rate that would have been agreed in a purely voluntary negotiation. However, the magnitude of this adjustment is limited by the fact that (a) the ongoing 8.0% royalty is a forward-looking rate, separate from the past-damages payment; and (b) the hypothetical negotiation in this case would itself occur with an awareness of enforcement risk. Estimated adjustment: 0 to 0.5 percentage points downward. Direction: neutral to slight downward.

Second, the temporal adjustment. The stronger market conditions in Q2 2022, relative to October 2019, would tend to support a slightly higher royalty rate in the hypothetical negotiation. Estimated adjustment: 0 to 0.5 percentage points upward. Direction: neutral to slight upward.

Net Adjustment: Approximately neutral. The litigation-premium and temporal adjustments roughly offset each other, leaving the 8.0% rate as a reasonable data point. After adjustments, this license supports a rate in the range of approximately 7.5% to 8.5%.

B. Comparable License No. 5: Coreline Technologies, Inc. v. Prisma Semiconductor Corp. — Cross-License (2021)

1. Summary of Terms

The fifth comparable is a cross-license agreement between Coreline Technologies, Inc. and Prisma Semiconductor Corp., with an effective date of April 22, 2021. This agreement resolved mutual patent disputes between the two companies involving silicon-photonics integrated circuit patents, including patents directed to thermal management and grating-coupler technologies — two of the four technology areas covered by the asserted patents in this case.

Under the cross-license, Coreline licensed fourteen of its patents to Prisma, and Prisma licensed nine of its patents to Coreline. Each party's full line of silicon-photonics transceiver and photonic integrated circuit products is covered by the reciprocal license grants. The license has a ten-year term and a worldwide geographic scope.

The royalty structure involves a balancing payment from Prisma to Coreline, reflecting the differential value of the respective patent portfolios. Based on revenue data disclosed in Prisma's annual report (Form 10-K) and the balancing-payment terms partially disclosed in public SEC filings, the effective running-royalty rate on Prisma's licensed products is calculated at approximately 10.2%. This effective rate was derived by dividing the annual balancing payment by Prisma's net sales of covered products, as confirmed through industry-expert Gregory Falk's (former Vice President of Engineering at Solara Optics, Inc.) knowledge of the transaction terms. Mr. Falk's understanding is based on publicly available information and general industry knowledge, as noted in Section III.C above.

2. Comparability Analysis

Technological Comparability: High. The Coreline patent portfolio licensed to Prisma includes patents covering thermal management technology for silicon-photonics integrated circuits and grating-coupler technology for optical signal coupling. These are the same core technology areas addressed by OWS's '562 Patent (integrated thermal management system) and '015 Patent (polarization-diverse grating coupler arrays). The transceiver and photonic IC product scope of the cross-license is directly comparable to the product category of Lumicore's accused products. While the specific patent claims differ from OWS's asserted patents, the technological overlap is substantial and provides a meaningful basis for comparison.

Market Comparability: High. Both Coreline Technologies and Prisma Semiconductor operate in the silicon-photonics transceiver space, serving both data-center and telecom interconnect markets. Their customer bases substantially overlap with those of OWS and Lumicore. The competitive dynamics between Coreline and Prisma — two established players competing in the same technology segment — are analogous to the competitive dynamics between OWS and Lumicore.

Economic Comparability: Moderate. The most significant comparability limitation is the cross-license structure. In a cross-license, each party both grants and receives a license, and the net monetary payment (the "balancing payment") reflects only the differential value between the two patent portfolios. The 10.2% effective rate on Prisma's products represents the net cost to Prisma after accounting for the value of the reciprocal license that Prisma receives from Coreline.

In a one-way license scenario — like the hypothetical OWS–Lumicore negotiation — there is no reciprocal grant, and the licensee receives no offsetting benefit. This means that the one-way license rate would typically be lower than the effective cross-license rate for the net payer (here, Prisma), because the net payer in a cross-license is, in effect, paying the difference between what it owes and what it would receive in a one-way scenario. Conversely, the total value of the license to Prisma includes both the monetary balancing payment and the value of the reciprocal rights received — suggesting that the "full" royalty rate that Prisma would have paid in a one-way scenario would be somewhat lower than 10.2%.

However, the 10.2% effective rate demonstrates that the market supports royalty rates at or above the proposed 8.5% rate for silicon-photonics transceiver patents. Even with a downward adjustment for the cross-license structure, the one-way equivalent rate remains in the range of approximately 8.5% to 9.5%, based on Dr. Keating's preliminary economic analysis of the offsetting value of the reciprocal grant.

Temporal Proximity: Good. The cross-license was executed in April 2021, approximately fourteen months before the Q2 2022 hypothetical negotiation date. Market conditions in April 2021 were broadly comparable to those in Q2 2022, with strong data-center spending, growing demand for high-speed transceivers, and favorable pricing dynamics for silicon-photonics products. The temporal proximity is strong.

Adjustments. The primary adjustment relates to the cross-license structure:

The cross-license structure requires a downward adjustment to approximate the royalty rate that would apply in a one-way license scenario. The value of the reciprocal grant — i.e., Prisma's nine patents licensed to Coreline — offsets a portion of the balancing payment that Prisma would otherwise owe. If the reciprocal grant is estimated to be worth approximately 1.0 to 1.5 percentage points (based on the relative size of the two portfolios and the revenue data), then the one-way equivalent rate would be in the range of approximately 8.5% to 9.5%. Direction: downward.

Net Adjustment: Downward from the 10.2% effective rate, yielding an estimated one-way equivalent of approximately 8.5% to 9.5%. Even after this adjustment, the Coreline–Prisma cross-license supports a royalty rate at or above the proposed 8.5%.

VI. SYNTHESIS AND RATE DERIVATION

A. Summary Table of Comparable Royalty Rates

The following table summarizes the key data from all five comparable licenses, including the raw royalty rate and the direction of adjustments needed to align each comparable to the hypothetical OWS–Lumicore negotiation:

B. Range Analysis

The five comparable licenses establish a raw royalty-rate range of 6.5% to 10.2%. At the low end, the OWS–Terralink license reflects the broadest portfolio scope (eighteen patents), the lowest negotiation intensity (voluntary outreach with no enforcement pressure), and the greatest temporal distance from the hypothetical negotiation date (March 2020, over two years before Q2 2022). At the high end, the Coreline–Prisma cross-license reflects an effective rate that includes the cross-license structure premium and covers a large number of patents on both sides.

After applying the qualitative and quantitative adjustments described in the individual license analyses above — accounting for differences in portfolio breadth, license structure (one-way vs. cross-license), litigation context, licensee scale, and temporal proximity — the adjusted range narrows to approximately 7.5% to 9.5%.

The central tendency of this adjusted range is calculated as follows:

Median of raw rates: Arranging the five raw rates in ascending order (6.5%, 7.75%, 8.0%, 9.0%, 10.2%), the median is 8.0%.

Mean of raw rates: (6.5 + 9.0 + 7.75 + 8.0 + 10.2) ÷ 5 = 41.45 ÷ 5 = 8.29%.

Adjusted mean (reflecting qualitative adjustments): After applying upward adjustments to the Terralink rate (portfolio dilution) and the Helix nominal rate (upfront payment amortization), a modest downward adjustment to the NovaWave rate (licensee scale), an approximately neutral adjustment to the Stratos–ArcLight rate, and a downward adjustment to the Coreline–Prisma rate (cross-license structure), the adjusted rates cluster in the range of approximately 7.5% to 9.5%, with a weighted central tendency of approximately 8.4% to 8.6%.

The central tendency of approximately 8.4% to 8.6% is consistent with the proposed 8.5% royalty rate.

C. Derivation of Proposed 8.5% Rate

The proposed 8.5% royalty rate is at or near the central tendency of the adjusted comparable range and is supported by multiple independent data points.

The three licenses that most strongly support the 8.5% rate are:

(1) The OWS–Helix Integrated Photonics License (February 2022). This is the most comparable license across every dimension: it is the only agreement covering all four asserted patents; it licenses the most analogous products (400G-ZR and 800G transceivers); it involves the largest OWS licensee ($68 million in licensed revenue); and it is the most temporally proximate to the Q2 2022 hypothetical negotiation date. When the $2.5 million upfront payment is amortized over the seven-year license term, the effective blended rate is approximately 8.3% to 8.5%, which is precisely the propose

CALDERWOOD & HARKNESS LLP
INTERNAL MEMORANDUM
July 22, 2024
TO: Alan Ngo, Responsible Partner Wendy Schultz, Lead Associate
FROM: Omar Siddiqui, Associate
RE: Comparable License Analysis Supporting Proposed 8.5% Royalty Rate — Optiwave Semiconductor Corp. v. Lumicore Technologies, Inc., Case No. 2:24-cv-00319-JRG (E.D. Tex.)
MATTER NO.: 1014-00004
CONFIDENTIALITY NOTICE: This memorandum is prepared in anticipation of litigation and constitutes attorney work product of Calderwood & Harkness LLP. It is intended solely for use in connection with the representation of Optiwave Semiconductor Corp. and should not be disclosed to any third party without express authorization. Any unauthorized review, use, disclosure, or distribution is prohibited.
Right-click to update Table of Contents
I. EXECUTIVE SUMMARY
This memorandum identifies, evaluates, and analyzes comparable patent license agreements to support the proposed reasonable royalty rate of 8.5% of accused-product net sales under the Georgia-Pacific framework. This analysis is prepared to inform and support the expert damages report of Dr. Lawrence Keating of Meridian Economic Consulting Group, LLC, who has been retained as Optiwave Semiconductor Corp.'s ("OWS") damages expert in the above-captioned matter.
OWS seeks approximately $37.5 million in reasonable-royalty damages on the portion of Lumicore Technologies, Inc.'s ("Lumicore") accused-product revenue not captured by the lost-profits analysis. Total accused-product revenue is projected at $714.6 million through Q4 2025, of which 38.2% (approximately $273.0 million) is captured under the Panduit lost-profits theory as revenue displaced from OWS's own competing transceiver products. The remaining approximately $441.6 million constitutes the royalty-base revenue to which the reasonable royalty rate applies. At the proposed rate of 8.5%, the resulting reasonable-royalty damages total approximately $37.5 million.
Through an extensive review of OWS's licensing history and publicly available industry licensing data, this memorandum identifies five comparable license agreements. Three of these are OWS's own license agreements involving the asserted patents or closely related patents from the same portfolio: (1) the OWS–Terralink Semiconductor License (2020), (2) the OWS–NovaWave Corp. License (2021), and (3) the OWS–Helix Integrated Photonics License (2022). Two additional agreements are third-party industry-comparable licenses in the silicon-photonics transceiver space: (4) the Stratos Photonics v. ArcLight Systems Settlement License (2019), and (5) the Coreline Technologies v. Prisma Semiconductor Cross-License (2021).
The range of royalty rates across all five comparable agreements is 6.5% to 10.2%. The OWS portfolio licenses cluster between 6.5% and 9.0%, while the industry-comparable agreements reach as high as 10.2%. After accounting for differences in portfolio scope, license structure, litigation context, licensee scale, and temporal proximity to the hypothetical negotiation date, the adjusted range narrows to approximately 7.5% to 9.5%, with a weighted central tendency of approximately 8.0% to 8.5%.
The proposed 8.5% royalty rate falls squarely within this established range and is supported by the technological and economic comparability of the analyzed agreements to the hypothetical negotiation between OWS and Lumicore as of Q2 2022 — the date just prior to Lumicore's launch of the LumiLink 400G-ZR+ in Q3 2022. The OWS–Helix Integrated Photonics license, which is the only agreement covering all four asserted patents and was negotiated within months of the hypothetical negotiation date, provides the strongest single data point, with an effective blended rate (including upfront payment amortization) of approximately 8.3% to 8.5%.
This memorandum details the legal framework, methodology, license-by-license analysis, synthesis, and rate derivation, as well as anticipated defendant challenges and recommended responses. It concludes with recommendations for incorporating these comparable licenses into Dr. Keating's expert report and preparing for potential Daubert challenges.
II. LEGAL FRAMEWORK
The reasonable-royalty damages analysis in this matter is governed by the Georgia-Pacific framework, which sets forth fifteen factors to be considered in determining the royalty rate that would have resulted from a hypothetical negotiation between a willing licensor and a willing licensee at the time infringement began. Georgia-Pacific Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970). Two of these factors — Factors 1 and 2 — are directly addressed by the comparable license analysis presented herein.
A. Georgia-Pacific Factor 1: Existing Royalties Received by the Patentee
Georgia-Pacific Factor 1 examines "[t]he royalties received by the patentee for the licensing of the patent in suit, proving or tending to prove an established royalty." Id. at 1120. This factor is of paramount importance in reasonable-royalty determinations because it reflects the actual market value that the patentee has been able to command for the specific patents at issue. Courts have consistently recognized that established royalties — where they exist — provide the most reliable indicator of the hypothetical royalty rate, because they reflect the actual exercise of the patentee's licensing rights in real-world transactions.
For Factor 1 to carry significant weight, the existing licenses should ideally involve the patents-in-suit themselves or, at a minimum, closely related patents from the same family or portfolio. Licenses to the actual patents-in-suit are entitled to the greatest evidentiary weight because they directly demonstrate the market value of the intellectual property at issue. See Monsanto Co. v. McFarling, 488 F.3d 973, 978–79 (Fed. Cir. 2007) (affirming reliance on patentee's established royalty rate as benchmark for reasonable royalty); Integra Lifesciences I, Ltd. v. Bramwell Group, 331 F.3d 860, 870 (Fed. Cir. 2003) (recognizing the importance of existing licenses to the patent-in-suit).
In this matter, three OWS license agreements involve one or more of the four asserted patents — U.S. Patent Nos. 10,234,847 (the "'847 Patent"), 10,891,193 (the "'193 Patent"), 9,678,562 (the "'562 Patent"), and 11,402,015 (the "'015 Patent") — or patents from the same family and portfolio. As detailed in Section IV below, these three licenses are the OWS–Terralink Semiconductor License (covering the '847 and '562 Patents), the OWS–NovaWave Corp. License (covering the '847, '193, and '562 Patents), and the OWS–Helix Integrated Photonics License (covering all four asserted patents). Each was negotiated at arm's length and provides a running royalty rate expressed as a percentage of net sales of licensed products.
B. Georgia-Pacific Factor 2: Comparable Licenses
Georgia-Pacific Factor 2 examines "[t]he rates paid by the licensee for the use of other patents comparable to the patent in suit." Georgia-Pacific, 318 F. Supp. at 1120. Factor 2 broadens the inquiry beyond the patentee's own licensing history to encompass third-party license agreements involving comparable technology and comparable market conditions. The rationale is straightforward: the hypothetical royalty rate should reflect not only what the particular patentee has been able to command, but also what the broader market reveals about the value of comparable intellectual property in the relevant technology space.
Two third-party industry-comparable licenses have been identified that involve silicon-photonics transceiver technology patents with analogous scope and market application: (1) the Stratos Photonics v. ArcLight Systems Settlement License (2019), involving arrayed-waveguide-grating multiplexer patents for data-center transceiver modules, and (2) the Coreline Technologies v. Prisma Semiconductor Cross-License (2021), involving silicon-photonics integrated circuit patents including thermal management and grating-coupler technologies. These agreements, detailed in Section V below, provide additional market-based data points that corroborate the royalty range derived from OWS's own licensing history.
C. Relevance and Comparability Standards
The Federal Circuit has established exacting standards for the use of comparable licenses in reasonable-royalty determinations. A comparable license must bear a sufficient economic and technological relationship to the hypothetical negotiation at issue to provide a reliable basis for the royalty calculation. Conclusory assertions of comparability are insufficient; the proponent of a comparable license must articulate a principled basis for linking the license terms to the facts of the case.
The comparability inquiry requires consideration of several dimensions:
(1) Technological Comparability. The licensed patents should cover technology that is the same as or closely related to the technology of the patents-in-suit. Licenses covering unrelated technology are of limited or no probative value, even if they involve the same parties or the same industry.
(2) Market Comparability. The licensed products should be sold into the same or analogous markets as the accused products, and the licensor and licensee should occupy similar competitive positions.
(3) Economic Comparability. The economic terms of the comparable license — including the revenue base of the licensed products, the financial positions of the parties, and the bargaining dynamics — should be reasonably analogous to those that would exist in the hypothetical negotiation.
(4) Structural Comparability. Differences in license structure must be accounted for. A running royalty expressed as a percentage of net sales is most directly comparable to the proposed royalty structure in this case. Lump-sum licenses, cross-licenses, and hybrid structures (combining upfront payments with running royalties) require adjustment to derive an effective running-royalty rate. The scope of the license — exclusive versus non-exclusive, worldwide versus geographically limited, and any field-of-use restrictions — must also be considered.
(5) Negotiation Context. Whether the license was negotiated at arm's length in a voluntary, pre-suit setting or was the product of litigation settlement significantly affects its probative value. Licenses negotiated in the "shadow of litigation" may reflect a premium (or discount) that does not exist in a truly voluntary negotiation. However, the hypothetical negotiation itself is a legal construct that assumes both parties are aware of the patent rights and the potential for infringement, so litigation-influenced licenses are not categorically excluded.
(6) Temporal Proximity. The comparable license should have been negotiated within a reasonable period before or after the hypothetical negotiation date. Licenses that are temporally remote may reflect different market conditions, technological landscapes, or industry economics that undermine their comparability.
The Federal Circuit's decisions in Lucent Technologies, Inc. v. Gateway, Inc., 580 F.3d 1301 (Fed. Cir. 2009), and Uniloc USA, Inc. v. Kestrel Partners LLC, 632 F.3d 1292 (Fed. Cir. 2011), underscore the need for a sound economic basis linking comparable licenses to the facts of the case. In Lucent, the court vacated a $357.7 million damages award because the patentee relied on lump-sum license agreements without adequately explaining how those agreements supported the running royalty rate applied to the accused products. 580 F.3d at 1325–32. In Uniloc, the court rejected the use of the "25 percent rule of thumb" as lacking a sufficient economic foundation and reiterated that damages calculations must be tethered to the specific facts of the case. 632 F.3d at 1312–18.
More recently, in VirnetX, Inc. v. Sterling Reach Holdings, 767 F.3d 1308, 1330 (Fed. Cir. 2014), the Federal Circuit emphasized that comparable licenses must be sufficiently linked to the patent-in-suit and the accused technology to provide a "reliable basis" for the damages calculation, and that conclusory statements of comparability are insufficient.
For purposes of this analysis, the hypothetical negotiation date is set at Q2 2022 — the period just before Lumicore's launch of the LumiLink 400G-ZR+ in Q3 2022. This date represents the point at which, under the legal fiction of the Georgia-Pacific hypothetical negotiation, a willing licensor (OWS) and a willing licensee (Lumicore) would have sat down to negotiate a reasonable royalty for Lumicore's use of the patented technologies in its accused products. All five comparable licenses identified herein were negotiated within approximately three years of this date, and the most comparable license (OWS–Helix) was negotiated within months of it.
III. METHODOLOGY
A. Search and Identification Process
The comparable licenses identified in this memorandum were selected through a systematic, multi-step process designed to identify the most relevant and probative agreements.
OWS Licensing History. The first and most important step was a comprehensive review of OWS's existing licensing program. OWS's patent licensing activities are managed by FairPoint Licensing Group, LLC (Managing Director: Angela Reeves), located at 500 Sansome Street, Suite 1400, San Francisco, California 94111. FairPoint has managed OWS's licensing program since 2017 and maintains complete records of all license agreements entered into on OWS's behalf.
OWS has entered into at least eight patent license agreements since 2018, covering various subsets of its 142-patent portfolio in the silicon-photonics transceiver space. Of these eight agreements, three involve one or more of the four asserted patents or closely related continuation or family patents and were negotiated at arm's length. These three agreements — the Terralink Semiconductor, NovaWave Corp., and Helix Integrated Photonics licenses — form the core of the Factor 1 analysis. The remaining five OWS licenses were reviewed and excluded because they involved different patent families (e.g., OWS's laser-diode packaging patents or its earlier-generation planar-lightwave-circuit patents) that are not technologically comparable to the asserted patents, or because they involved non-arm's-length transactions (e.g., a cross-license with OWS's joint-venture partner, Zenith Optoelectronics Co., Ltd., which included significant non-monetary consideration that complicates rate extraction).
Third-Party Industry Licenses. The second step involved identifying third-party license agreements in the silicon-photonics and optical transceiver industry that could serve as Factor 2 comparables. This search encompassed:
(a) Review of publicly available litigation settlements involving silicon-photonics patents, using Camberwell Solutions, Beaumont Data Systems, and PACER searches for patent infringement cases in the optical transceiver technology space concluded by settlement between 2017 and 2023;
(b) Review of SEC filings (Forms 8-K, 10-K, and 10-Q) by publicly traded companies in the silicon-photonics industry, searching for disclosures of material license agreements, settlement payments, or royalty obligations;
(c) Review of industry analyst reports from Ashford Management Consulting, Meridian Enterprises (now Kestrel Management Consulting), and the International Photonics Business Alliance regarding patent licensing trends in the silicon-photonics transceiver market;
(d) Consultation with Dr. Lawrence Keating of Meridian Economic Consulting Group, LLC (233 South Wacker Drive, Suite 4400, Chicago, Illinois 60606), who has independently reviewed industry licensing data as part of his economic analysis and confirmed the comparability criteria applied herein; and
(e) Review of testimony and expert reports filed in prior silicon-photonics patent cases, including Finisar Corp. v. Northpoint Group (N.D. Cal.) and Ashford Holdings v. Drayton Group (W.D. Pa.), to identify license agreements referenced in those proceedings.
This search yielded two third-party agreements with sufficient publicly available information to assess comparability: the Stratos Photonics v. ArcLight Systems settlement license and the Coreline Technologies v. Prisma Semiconductor cross-license. Several additional candidate licenses were considered but excluded because they involved insufficiently comparable technology (e.g., III-V semiconductor laser patents without silicon-photonics integration), insufficiently disclosed terms (e.g., confidential settlement agreements with no public disclosure of royalty rates), or were too temporally remote from the Q2 2022 hypothetical negotiation date.
B. Selection Criteria
The following criteria were applied to determine whether a license agreement qualifies as a comparable for purposes of this analysis:
(1) Technological Comparability: The licensed patents must cover silicon-photonics waveguide, transceiver, thermal management, or grating-coupler technologies that are the same as or closely analogous to the technologies claimed in the four asserted patents. Licenses covering unrelated optical technologies (e.g., free-space optics, fiber-optic cable manufacturing, or LED illumination) were excluded.
(2) Market Comparability: The licensed products must be sold into the hyperscale data-center and/or telecom interconnect markets — the same markets in which OWS and Lumicore compete. Licenses involving optical technologies used exclusively in consumer electronics, automotive LIDAR, or medical imaging applications were excluded, even if the underlying physics are related.
(3) Economic Comparability: The licensee's revenue scale for the licensed products, the relative market positions of the licensor and licensee, and the arm's-length nature of the negotiation must be reasonably analogous to the OWS–Lumicore hypothetical negotiation. Licenses involving de minimis revenue or non-arm's-length transactions (e.g., between affiliated entities or as part of a broader M&A transaction) were excluded or given lesser weight.
(4) Structural Comparability: Preference was given to licenses with a running-royalty structure expressed as a percentage of net sales, which is the same structure proposed for the hypothetical OWS–Lumicore license. Lump-sum licenses were considered only if sufficient data existed to calculate an effective running-royalty rate. Cross-license agreements were included but required adjustment to account for the reciprocal grant.
(5) Temporal Proximity: The license must have been negotiated within a reasonable period (approximately three years) before or after the Q2 2022 hypothetical negotiation date. All five selected comparables fall within this window, with negotiation dates ranging from October 2019 to February 2022.
C. Discovery and Privilege Considerations
All three OWS license agreements have been produced in discovery in this action and are designated "Confidential" under the three-tier Stipulated Protective Order entered by Magistrate Judge Paige on May 3, 2024 (Dkt. No. 47). The Protective Order restricts the use and disclosure of Confidential materials to counsel, retained experts, and other qualified persons identified in the Order. Dr. Keating has executed the required Protective Order Acknowledgment and may access the license agreements in connection with his expert analysis.
The two third-party industry-comparable licenses are based on publicly available information (SEC filings and court dockets) supplemented by information from industry expert Gregory Falk, who has been retained as a consulting expert in this matter. To the extent Mr. Falk's knowledge of the Coreline–Prisma transaction derives from his prior industry role, care has been taken to ensure that no confidential or privileged information from his former employer (Solara Optics, Inc.) has been disclosed in violation of any non-disclosure obligation. Mr. Falk has confirmed in writing that his knowledge of the Coreline–Prisma cross-license terms is based on publicly available information and general industry knowledge, not on any confidential information received during his tenure at Solara Optics.
IV. ANALYSIS OF OWS'S OWN LICENSE AGREEMENTS (GEORGIA-PACIFIC FACTOR 1)
This section analyzes the three OWS license agreements that involve one or more of the four asserted patents. These agreements are the most probative comparable licenses because they reflect the actual royalty rates that OWS — the patentee in this case — has been able to command for the very patents at issue. Each agreement is analyzed in terms of its key terms, followed by a detailed comparability analysis assessing its relevance to the hypothetical negotiation between OWS and Lumicore.
A. License Agreement No. 1: OWS–Terralink Semiconductor License (2020)
1. Summary of Terms
The first OWS license agreement is between Optiwave Semiconductor Corp. (as licensor) and Terralink Semiconductor, Inc. (as licensee), with an effective date of March 12, 2020. This agreement is a portfolio license covering eighteen OWS patents, including two of the four asserted patents: U.S. Patent No. 10,234,847 (the '847 Patent, directed to multi-channel silicon photonic waveguide multiplexer technology with low insertion loss) and U.S. Patent No. 9,678,562 (the '562 Patent, directed to integrated thermal management systems for photonic integrated circuits).
The license grants Terralink a non-exclusive, worldwide license to manufacture, use, and sell licensed products — specifically, Terralink's 100G and 200G silicon-photonics transceiver modules for data-center interconnect applications. The royalty rate is a running royalty of 6.5% on net sales of licensed products, with no upfront payment. The agreement includes a minimum annual royalty obligation of $500,000, ensuring a baseline revenue stream to OWS regardless of Terralink's actual sales volume.
Terralink's net sales of licensed products in fiscal year 2020 were approximately $45 million. The license has a five-year initial term running through March 11, 2025, with automatic renewal for successive two-year terms unless either party provides written notice of termination at least 180 days before the end of the then-current term.
The negotiation context is important: this license was negotiated entirely at arm's length, without any pending or threatened litigation between OWS and Terralink. FairPoint Licensing Group initiated contact with Terralink in Q3 2019 through a standard outreach letter identifying OWS's patent portfolio and proposing a licensing discussion. The negotiations proceeded over approximately five months before the parties reached agreement on the terms described above. There is no indication in the negotiation record that either party considered the possibility of litigation to be imminent or likely, and the 6.5% rate reflects a purely voluntary, arms-length transaction.
2. Comparability Analysis
Technological Comparability: High. The Terralink license covers two of the four asserted patents — the '847 Patent (waveguide multiplexer) and the '562 Patent (thermal management). The licensed products — 100G and 200G silicon-photonics transceiver modules for data-center interconnect — are in the same product category as Lumicore's accused products. While the licensed products are of lower data-rate generation (100G/200G) compared to Lumicore's accused 400G-ZR+ and 800G-DR8 products, the underlying patented technologies (waveguide multiplexing and thermal management) are generation-agnostic and equally applicable to higher-speed transceivers. The technological comparability is therefore high, though not as high as the NovaWave or Helix licenses, which cover more of the asserted patents and license products at comparable data rates.
Market Comparability: Moderate. Terralink is a smaller market participant than Lumicore. Terralink's licensed product revenue of approximately $45 million is roughly one-sixth of Lumicore's FY 2023 accused-product revenue of $264.9 million. However, both companies sell into the same hyperscale data-center market, with overlapping customer bases including major cloud-service providers such as Ridgeway Industries, Crestline Systems, and Aldermere Technologies. The market segment — data-center interconnect transceivers — is identical. The difference in revenue scale is a relevant consideration (addressed in the adjustments below) but does not destroy comparability.
Economic Comparability: Moderate. The most significant economic distinction is the scope of the patent portfolio licensed. The Terralink agreement covers eighteen patents, whereas only four patents are asserted in this case. In a portfolio license covering eighteen patents, the per-patent royalty contribution is necessarily diluted — each patent in the portfolio contributes only a fraction of the total 6.5% royalty rate. If the four asserted patents account for a disproportionate share of the portfolio's value (as OWS contends, and as the Benchmark Semiconductor Analysis, LLC teardown reports suggest), then the effective rate attributable to those four patents standing alone would be higher than 6.5%. This dilution effect is an important adjustment factor, discussed below.
Additionally, the absence of any upfront payment in the Terralink license means that the 6.5% running royalty rate represents the entirety of the consideration flowing to OWS, simplifying the rate comparison. The minimum annual royalty of $500,000 provides a floor but does not affect the running-royalty rate calculation on licensed product sales.
Temporal Proximity: Acceptable. The Terralink license was negotiated and executed in March 2020, approximately two years before the Q2 2022 hypothetical negotiation date. Market conditions in early 2020 were somewhat different from those in Q2 2022 — the COVID-19 pandemic had just begun to affect the global semiconductor supply chain, and the subsequent surge in data-center spending (driven by remote work, cloud computing expansion, and streaming-media growth) had not yet fully materialized. By Q2 2022, the data-center transceiver market was experiencing significantly higher demand and stronger pricing, which would tend to support a higher royalty rate in a hypothetical negotiation at that later date. This temporal difference slightly reduces the Terralink license's comparability but does not render it irrelevant.
Adjustments. Two principal adjustments apply:
First, the portfolio-breadth adjustment. The Terralink license covers eighteen patents, of which only two are asserted in this case. If the four asserted patents account for a substantial share of the portfolio's value — as the technical evidence in this case supports — then isolating the rate attributable to those four patents yields a figure above 6.5%. Dr. Keating's preliminary analysis, based on the relative citation frequency, claim breadth, and commercial significance of the individual patents in the licensed portfolio, estimates that the four asserted patents account for approximately 45% to 55% of the total portfolio value. Applying this allocation to the 6.5% royalty rate yields an effective per-asserted-patent rate of approximately 7.2% to 7.9%. Direction: upward.
Second, the licensee-scale adjustment. Terralink's smaller revenue base ($45 million) may imply a lower volume discount than would be expected for a larger licensee like Lumicore ($264.9 million in FY 2023). In general, larger licensees may negotiate for lower per-unit royalty rates due to volume efficiencies, but this effect is counterbalanced by the greater total royalty payments flowing to the licensor from a larger revenue base. The net effect of this adjustment is small and directionally ambiguous. Direction: neutral to slight upward.
Net Adjustment: Upward from 6.5% baseline. After adjustments, the Terralink license supports an effective rate for the four asserted patents in the range of approximately 7.0% to 8.0%.
B. License Agreement No. 2: OWS–NovaWave Corp. License (2021)
1. Summary of Terms
The second OWS license agreement is between Optiwave Semiconductor Corp. (as licensor) and NovaWave Corp. (as licensee), with an effective date of June 1, 2021. This agreement is a narrower license covering six OWS patents, including three of the four asserted patents: U.S. Patent No. 10,234,847 (the '847 Patent), U.S. Patent No. 10,891,193 (the '193 Patent, directed to coherent optical transceiver integration with on-chip digital signal processing), and U.S. Patent No. 9,678,562 (the '562 Patent).
The license grants NovaWave a non-exclusive license, limited to the United States, for the manufacture and sale of NovaWave's 400G coherent transceiver modules. The geographic scope is limited to the U.S. market, which is the same geographic scope at issue in the present litigation (OWS asserts infringement of U.S. patents based on Lumicore's U.S. sales and importation). The royalty rate is a running royalty of 9.0% on net sales of licensed products. No upfront payment was required. The agreement includes a minimum annual royalty of $250,000.
NovaWave's net sales of licensed products in fiscal year 2021 were approximately $22 million. The license has a three-year initial term running through May 31, 2024, with an option for NovaWave to extend for an additional two-year term upon mutual agreement.
The negotiation context is significant. FairPoint Licensing Group initiated contact with NovaWave in Q4 2020 after OWS's technical team identified potential infringement of the '847, '193, and '562 Patents by NovaWave's 400G coherent transceiver products. FairPoint's initial outreach letter to NovaWave's general counsel, dated November 3, 2020, identified the relevant OWS patents and described the basis for OWS's belief that NovaWave's products practiced the patented technologies. The letter did not threaten litigation in express terms, but it referenced OWS's "active patent enforcement program" and its willingness to "pursue all available remedies to protect its intellectual property." The resulting negotiations proceeded over approximately six months before the parties reached agreement on the terms described above.
While no litigation was filed or formally threatened, the negotiation occurred in the shadow of a credible enforcement threat. NovaWave's willingness to accept a 9.0% royalty rate — significantly higher than the 6.5% rate agreed to by Terralink — reflects, at least in part, the more assertive posture of OWS's licensing approach and NovaWave's assessment of the litigation risk it would face if negotiations failed.
2. Comparability Analysis
Technological Comparability: Very High. The NovaWave license covers three of the four asserted patents — the '847 Patent, the '193 Patent, and the '562 Patent. The only asserted patent not included is the '015 Patent (polarization-diverse grating coupler). The licensed products — NovaWave's 400G coherent transceiver modules — are directly comparable to Lumicore's accused LumiLink 400G-ZR+ product, which is the highest-volume accused product in this case. The '193 Patent, which claims coherent optical transceiver integration with on-chip digital signal processing, is particularly relevant to the 400G coherent transceiver technology embodied in both NovaWave's licensed products and Lumicore's accused products. This is the most technologically comparable of the three OWS licenses from a product-specific standpoint, though the Helix license covers all four asserted patents.
Market Comparability: Moderate to High. NovaWave operates in the same hyperscale data-center transceiver market as Lumicore, competing for the same pool of cloud-service-provider and enterprise data-center customers. However, NovaWave is a smaller competitor, with licensed product revenue of approximately $22 million — less than one-tenth of Lumicore's FY 2023 accused-product revenue of $264.9 million. This substantial revenue disparity affects the comparability of the license to the hypothetical OWS–Lumicore negotiation, as a larger licensee like Lumicore would likely have greater bargaining leverage. Notwithstanding this difference in scale, the market-segment alignment is strong.
Economic Comparability: High. The narrower patent scope of the NovaWave license (six patents versus eighteen in the Terralink license) is an important economic factor. With a smaller number of licensed patents, each patent contributes a larger share of the total royalty value, and the 9.0% royalty rate more closely reflects the per-patent value of the core asserted technologies. The ratio of asserted patents to total licensed patents (three of six, or 50%) is significantly higher than in the Terralink license (two of eighteen, or 11%), indicating that the 9.0% rate is more directly attributable to the value of the asserted patents.
The U.S.-only geographic scope of the NovaWave license is actually an advantage from a comparability standpoint, because the present litigation involves only U.S. patent infringement and the reasonable-royalty calculation applies only to Lumicore's U.S. sales. A worldwide license might warrant a higher royalty rate due to the broader geographic scope of rights granted, meaning that a U.S.-only rate may be somewhat lower than a worldwide rate for the same patents. This consideration marginally reduces the NovaWave rate's upward comparability to a hypothetical worldwide license but perfectly matches the geographic scope at issue here.
Temporal Proximity: Close. The NovaWave license was executed on June 1, 2021, approximately one year before the Q2 2022 hypothetical negotiation date. This is the second-closest in time among the five comparables (after the Helix license). By mid-2021, the data-center transceiver market was experiencing the early stages of the demand surge that would continue through 2022, and market conditions were broadly similar to those prevailing at the hypothetical negotiation date.
Adjustments. Two adjustments merit consideration:
First, the enforcement-intensity adjustment. The NovaWave license was negotiated in the shadow of a credible (though not formally threatened) enforcement action. This may have contributed to the relatively high 9.0% rate, as NovaWave may have been willing to accept a higher rate to avoid the cost, risk, and uncertainty of patent litigation. However, this dynamic is also present in the hypothetical negotiation at issue here: by Q2 2022, a hypothetical willing licensee in Lumicore's position would be aware of OWS's active enforcement program and robust patent portfolio, and would factor litigation risk into its willingness to pay. The adjustment, if any, is therefore modest. Direction: neutral to slight downward.
Second, the licensee-scale adjustment. NovaWave's significantly smaller licensed product revenue ($22 million versus Lumicore's $264.9 million) means that the volume dynamics are quite different. A larger licensee like Lumicore might negotiate for a lower per-unit rate, reflecting the greater total royalty payments flowing to OWS from a larger revenue base. However, the higher revenue also reflects greater value derived from the patented technology, which can offset the volume-discount effect. Direction: slight downward.
Net Adjustment: Neutral to slight downward from 9.0% baseline. After adjustments, the NovaWave license supports an effective rate in the range of approximately 8.5% to 9.0% for the hypothetical OWS–Lumicore negotiation.
C. License Agreement No. 3: OWS–Helix Integrated Photonics License (2022)
1. Summary of Terms
The third OWS license agreement is between Optiwave Semiconductor Corp. (as licensor) and Helix Integrated Photonics, Inc. (as licensee), with an effective date of February 15, 2022. This agreement is a license covering eight OWS patents, including all four of the asserted patents: U.S. Patent Nos. 10,234,847 (the '847 Patent), 10,891,193 (the '193 Patent), 9,678,562 (the '562 Patent), and 11,402,015 (the '015 Patent, directed to polarization-diverse grating coupler arrays for silicon photonic transceivers). This is the only OWS license in which all four asserted patents are included.
The license grants Helix a non-exclusive, worldwide license to manufacture, use, sell, and import licensed products — specifically, Helix's 400G-ZR and 800G silicon-photonics transceiver modules and related sub-components. The product scope is broader than either the Terralink or NovaWave licenses, encompassing both 400G-ZR and next-generation 800G transceivers. Notably, the licensed products include both a 400G-ZR transceiver (directly comparable to the accused LumiLink 400G-ZR+) and 800G transceivers (directly comparable to the accused LumiLink 800G-DR8), making this the most product-comparable of the three OWS licenses.
The royalty structure is a hybrid: the agreement provides for a running royalty of 7.75% on net sales of licensed products, plus a non-refundable upfront payment of $2.5 million. The upfront payment is creditable against the first $2.5 million in running royalties otherwise payable by Helix — meaning that Helix does not begin making additional running-royalty payments until its cumulative royalty obligation exceeds $2.5 million. The agreement also includes a minimum annual royalty of $750,000, applicable beginning in year two of the license term (since the upfront payment covers year-one obligations).
Helix's net sales of licensed products in fiscal year 2022 were approximately $68 million. The license has a seven-year term running through February 14, 2029, reflecting the parties' expectation of a long-term licensing relationship.
The negotiation context reflects an arm's-length transaction without litigation or formal threat thereof. FairPoint Licensing Group initiated discussions with Helix in approximately August 2021. The negotiations proceeded over roughly six months, during which the parties exchanged claim charts, technical analyses, and financial data. While no litigation was filed or threatened, both parties were aware of OWS's active patent enforcement posture, including the then-pending licensing negotiations with other market participants. The resulting terms — a running royalty plus upfront payment — reflect a negotiated outcome in which Helix sought to manage its near-term cash-flow exposure by prepaying a portion of the royalty obligation, while OWS secured both an immediate payment and a long-term running-royalty stream.
2. Comparability Analysis
Technological Comparability: Highest. This is the strongest technological comparable among the three OWS licenses — indeed, among all five comparables — because it is the only agreement that covers all four of the asserted patents. The licensed patents include the complete set of technologies at issue in this case: waveguide multiplexing ('847 Patent), coherent transceiver integration ('193 Patent), thermal management ('562 Patent), and polarization-diverse grating coupling ('015 Patent). The licensed products — 400G-ZR and 800G transceiver modules — are directly analogous to the accused LumiLink 400G-ZR+ and LumiLink 800G-DR8 products, both in terms of technology generation and market application.
Market Comparability: High. Helix Integrated Photonics is a mid-tier player in the silicon-photonics transceiver market, with licensed product revenue of approximately $68 million in FY 2022. While Helix is smaller than Lumicore (which reported $264.9 million in FY 2023 accused-product revenue), it is the largest of OWS's three licensees, making this the most comparable in terms of licensee scale. Both Helix and Lumicore compete in the hyperscale data-center transceiver market, selling to the same tier of customers. The revenue gap between Helix ($68 million) and Lumicore ($264.9 million) is significant but represents a factor of approximately four — substantially less than the factor of twelve between NovaWave ($22 million) and Lumicore, and less than the factor of six between Terralink ($45 million) and Lumicore.
Economic Comparability: High. The economic terms of the Helix license are the most directly comparable to the hypothetical OWS–Lumicore negotiation. The hybrid royalty structure (running royalty plus upfront payment) adds a layer of complexity but also provides additional economic data. The $2.5 million upfront payment represents additional value beyond the 7.75% running royalty rate. When the upfront payment is amortized over the license revenue, the effective total royalty rate exceeds 7.75%.
To calculate the effective blended rate, we consider the total royalties (including the upfront) as a percentage of total licensed revenue over the license term. In FY 2022, with $68 million in licensed revenue, the running royalty obligation at 7.75% would be $5.27 million. Because the upfront $2.5 million is creditable against the first $2.5 million in running royalties, the total payment in year one is $5.27 million (the $2.5 million upfront plus $2.77 million in additional running royalties). In subsequent years, Helix pays only the 7.75% running royalty. The upfront payment effectively adds approximately 3.7 percentage points to the first-year rate (based on $68 million revenue). Over the seven-year term, assuming licensed revenue of approximately $68–80 million per year (consistent with projected growth in the data-center transceiver market), the blended effective rate (total payments divided by total revenue) is estimated at approximately 8.3% to 8.5%.
The license covers eight patents (four asserted plus four additional), so some portfolio-breadth dilution is present. However, the four asserted patents represent half of the licensed portfolio and, based on OWS's internal assessments and the Benchmark Semiconductor Analysis, LLC teardown reports, constitute the most commercially significant patents in the licensed set. The rate attributable to the four asserted patents alone would therefore be at least proportional to their share of the portfolio — and likely higher, given their outsized commercial importance.
Temporal Proximity: Closest. The Helix license was executed on February 15, 2022, approximately three to four months before the Q2 2022 hypothetical negotiation date. This is the most temporally proximate of all five comparables. Market conditions in February 2022 were virtually identical to those in Q2 2022 — the global semiconductor shortage was ongoing, data-center transceiver demand was at historically high levels, and OWS and its competitors were navigating the same supply-chain and pricing dynamics that would characterize the hypothetical negotiation environment. The temporal proximity of this license is an important factor weighing in favor of its comparability.
Adjustments. The primary adjustments relate to the upfront payment and the portfolio breadth:
First, the effective-rate adjustment for the upfront payment. As calculated above, the blended effective rate over the seven-year license term is approximately 8.3% to 8.5%, which is the most meaningful rate for comparison purposes because it captures the full economic value of the license. This adjusted rate is strongly supportive of the proposed 8.5% royalty rate. Direction: upward from the nominal 7.75% running-royalty rate.
Second, the portfolio-breadth adjustment. The license covers eight patents, of which four are asserted. The four asserted patents represent the core commercial value of the licensed portfolio. Isolating the value attributable to the four asserted patents would yield an adjusted rate at or above the blended effective rate of 8.3% to 8.5%, given the disproportionate importance of the asserted patents within the eight-patent portfolio. Direction: upward.
Net Adjustment: Upward from the nominal 7.75% running-royalty rate, yielding an effective rate of approximately 8.3% to 8.5%. This is the single most probative comparable in the analysis and strongly supports the proposed 8.5% royalty rate.
V. ANALYSIS OF THIRD-PARTY INDUSTRY-COMPARABLE LICENSES (GEORGIA-PACIFIC FACTOR 2)
This section analyzes two third-party license agreements in the silicon-photonics transceiver industry that serve as Factor 2 comparables. While these agreements do not involve OWS or the specific patents-in-suit, they provide valuable market-based data points demonstrating the rates paid for comparable technology in the same industry and market segment.
A. Comparable License No. 4: Stratos Photonics, Inc. v. ArcLight Systems, Inc. — Settlement License (2019)
1. Summary of Terms
This comparable license arises from the settlement of patent infringement litigation between Stratos Photonics, Inc. (as licensor and plaintiff) and ArcLight Systems, Inc. (as licensee and defendant), with an effective date of October 8, 2019. The underlying litigation was filed in the United States District Court for the Northern District of California and involved five Stratos Photonics patents covering arrayed-waveguide-grating multiplexer technology for data-center interconnect transceivers.
Under the settlement terms, Stratos Photonics granted ArcLight a non-exclusive, worldwide license to its five arrayed-waveguide-grating multiplexer patents for ArcLight's 100G and 400G transceiver module families. The running royalty rate is 8.0% on net sales of licensed products for the remaining life of the licensed patents. In addition, ArcLight agreed to pay $12.5 million as a lump sum to settle past-damages claims covering the pre-settlement infringement period. The $12.5 million past-damages payment is separate from the ongoing running-royalty obligation and is not included in the rate comparison.
The key terms of this settlement were disclosed in Stratos Photonics' SEC filing (Form 8-K, filed October 2019) and are referenced in the case docket, which reflects the dismissal of the action with prejudice following the settlement. The 8-K filing discloses the material terms of the license, including the royalty rate and past-damages payment, as required by SEC disclosure obligations for material definitive agreements.
2. Comparability Analysis
Technological Comparability: High. The Stratos Photonics patents cover arrayed-waveguide-grating (AWG) multiplexer technology, which is the same core technology addressed by OWS's '847 Patent ("Multi-Channel Silicon Photonic Waveguide Multiplexer with Low Insertion Loss"). While the specific patent claims differ, the technological domain is identical: both patent sets claim inventions relating to the optical multiplexing function that is fundamental to multi-channel silicon-photonics transceiver operation. The licensed products — data-center transceiver modules in the 100G and 400G product families — are in the same product category as Lumicore's accused LumiLink products. The 400G transceiver products licensed under the Stratos–ArcLight agreement are particularly relevant as a comparable to the accused LumiLink 400G-ZR+.
Market Comparability: High. Both Stratos Photonics and ArcLight Systems operate in the silicon-photonics transceiver market for hyperscale data centers, which is the same market in which OWS and Lumicore compete. While Stratos Photonics and ArcLight are not household names in the broader semiconductor industry, they are established participants in the niche silicon-photonics segment, and their competitive dynamics are analogous to those between OWS and Lumicore. The customer base — hyperscale cloud-service providers and large enterprise data-center operators — is substantially overlapping.
Economic Comparability: Moderate to High. The most significant economic consideration is the litigation-settlement context. Licenses negotiated as part of litigation settlements may reflect a "litigation premium" — i.e., an elevated royalty rate reflecting the defendant's desire to eliminate the risks and costs of ongoing litigation, including the possibility of enhanced damages, injunctive relief, and attorney fees. The presence of a litigation premium could mean that the 8.0% rate overstates what would have been agreed in a purely voluntary pre-suit negotiation.
However, several factors mitigate this concern. First, the Georgia-Pacific hypothetical negotiation is itself a construct in which both parties are assumed to be aware of the patent rights and the infringement, so the negotiation occurs with knowledge of the enforcement risk, even if no lawsuit has been filed. Second, in the instant case, OWS had an active enforcement posture as of the hypothetical negotiation date, and a hypothetical willing licensee in Lumicore's position would be aware of that posture. Third, the $12.5 million lump-sum past-damages payment is separate from the ongoing 8.0% running royalty and absorbs much of the litigation-specific premium, leaving the forward-looking 8.0% rate as a reasonable approximation of the arm's-length licensing rate.
The revenue data for ArcLight's licensed products are not publicly disclosed, which limits the ability to perform a precise revenue-scale comparison to the Lumicore hypothetical negotiation. However, based on industry reports and ArcLight's publicly known market position, its transceiver product revenue is estimated to be in the range of $80 million to $120 million per year — reasonably comparable to Lumicore's FY 2023 accused-product revenue of $264.9 million, though on the lower end.
Temporal Proximity: Acceptable. The settlement was reached in October 2019, approximately two and a half years before the Q2 2022 hypothetical negotiation date. This is the most temporally remote of the five comparables but remains within the acceptable window. Market conditions in late 2019 were characterized by steady data-center spending growth, before the pandemic-driven acceleration that began in mid-2020. The pre-pandemic market conditions may have been somewhat less favorable for licensors than the Q2 2022 environment, suggesting that the 8.0% rate may, if anything, understate the rate that would be negotiated in the stronger Q2 2022 market.
Adjustments. Two adjustments are relevant:
First, the litigation-premium adjustment. As discussed above, the settlement context may justify a slight downward adjustment to approximate the rate that would have been agreed in a purely voluntary negotiation. However, the magnitude of this adjustment is limited by the fact that (a) the ongoing 8.0% royalty is a forward-looking rate, separate from the past-damages payment; and (b) the hypothetical negotiation in this case would itself occur with an awareness of enforcement risk. Estimated adjustment: 0 to 0.5 percentage points downward. Direction: neutral to slight downward.
Second, the temporal adjustment. The stronger market conditions in Q2 2022, relative to October 2019, would tend to support a slightly higher royalty rate in the hypothetical negotiation. Estimated adjustment: 0 to 0.5 percentage points upward. Direction: neutral to slight upward.
Net Adjustment: Approximately neutral. The litigation-premium and temporal adjustments roughly offset each other, leaving the 8.0% rate as a reasonable data point. After adjustments, this license supports a rate in the range of approximately 7.5% to 8.5%.
B. Comparable License No. 5: Coreline Technologies, Inc. v. Prisma Semiconductor Corp. — Cross-License (2021)
1. Summary of Terms
The fifth comparable is a cross-license agreement between Coreline Technologies, Inc. and Prisma Semiconductor Corp., with an effective date of April 22, 2021. This agreement resolved mutual patent disputes between the two companies involving silicon-photonics integrated circuit patents, including patents directed to thermal management and grating-coupler technologies — two of the four technology areas covered by the asserted patents in this case.
Under the cross-license, Coreline licensed fourteen of its patents to Prisma, and Prisma licensed nine of its patents to Coreline. Each party's full line of silicon-photonics transceiver and photonic integrated circuit products is covered by the reciprocal license grants. The license has a ten-year term and a worldwide geographic scope.
The royalty structure involves a balancing payment from Prisma to Coreline, reflecting the differential value of the respective patent portfolios. Based on revenue data disclosed in Prisma's annual report (Form 10-K) and the balancing-payment terms partially disclosed in public SEC filings, the effective running-royalty rate on Prisma's licensed products is calculated at approximately 10.2%. This effective rate was derived by dividing the annual balancing payment by Prisma's net sales of covered products, as confirmed through industry-expert Gregory Falk's (former Vice President of Engineering at Solara Optics, Inc.) knowledge of the transaction terms. Mr. Falk's understanding is based on publicly available information and general industry knowledge, as noted in Section III.C above.
2. Comparability Analysis
Technological Comparability: High. The Coreline patent portfolio licensed to Prisma includes patents covering thermal management technology for silicon-photonics integrated circuits and grating-coupler technology for optical signal coupling. These are the same core technology areas addressed by OWS's '562 Patent (integrated thermal management system) and '015 Patent (polarization-diverse grating coupler arrays). The transceiver and photonic IC product scope of the cross-license is directly comparable to the product category of Lumicore's accused products. While the specific patent claims differ from OWS's asserted patents, the technological overlap is substantial and provides a meaningful basis for comparison.
Market Comparability: High. Both Coreline Technologies and Prisma Semiconductor operate in the silicon-photonics transceiver space, serving both data-center and telecom interconnect markets. Their customer bases substantially overlap with those of OWS and Lumicore. The competitive dynamics between Coreline and Prisma — two established players competing in the same technology segment — are analogous to the competitive dynamics between OWS and Lumicore.
Economic Comparability: Moderate. The most significant comparability limitation is the cross-license structure. In a cross-license, each party both grants and receives a license, and the net monetary payment (the "balancing payment") reflects only the differential value between the two patent portfolios. The 10.2% effective rate on Prisma's products represents the net cost to Prisma after accounting for the value of the reciprocal license that Prisma receives from Coreline.
In a one-way license scenario — like the hypothetical OWS–Lumicore negotiation — there is no reciprocal grant, and the licensee receives no offsetting benefit. This means that the one-way license rate would typically be lower than the effective cross-license rate for the net payer (here, Prisma), because the net payer in a cross-license is, in effect, paying the difference between what it owes and what it would receive in a one-way scenario. Conversely, the total value of the license to Prisma includes both the monetary balancing payment and the value of the reciprocal rights received — suggesting that the "full" royalty rate that Prisma would have paid in a one-way scenario would be somewhat lower than 10.2%.
However, the 10.2% effective rate demonstrates that the market supports royalty rates at or above the proposed 8.5% rate for silicon-photonics transceiver patents. Even with a downward adjustment for the cross-license structure, the one-way equivalent rate remains in the range of approximately 8.5% to 9.5%, based on Dr. Keating's preliminary economic analysis of the offsetting value of the reciprocal grant.
Temporal Proximity: Good. The cross-license was executed in April 2021, approximately fourteen months before the Q2 2022 hypothetical negotiation date. Market conditions in April 2021 were broadly comparable to those in Q2 2022, with strong data-center spending, growing demand for high-speed transceivers, and favorable pricing dynamics for silicon-photonics products. The temporal proximity is strong.
Adjustments. The primary adjustment relates to the cross-license structure:
The cross-license structure requires a downward adjustment to approximate the royalty rate that would apply in a one-way license scenario. The value of the reciprocal grant — i.e., Prisma's nine patents licensed to Coreline — offsets a portion of the balancing payment that Prisma would otherwise owe. If the reciprocal grant is estimated to be worth approximately 1.0 to 1.5 percentage points (based on the relative size of the two portfolios and the revenue data), then the one-way equivalent rate would be in the range of approximately 8.5% to 9.5%. Direction: downward.
Net Adjustment: Downward from the 10.2% effective rate, yielding an estimated one-way equivalent of approximately 8.5% to 9.5%. Even after this adjustment, the Coreline–Prisma cross-license supports a royalty rate at or above the proposed 8.5%.
VI. SYNTHESIS AND RATE DERIVATION
A. Summary Table of Comparable Royalty Rates
The following table summarizes the key data from all five comparable licenses, including the raw royalty rate and the direction of adjustments needed to align each comparable to the hypothetical OWS–Lumicore negotiation:
B. Range Analysis
The five comparable licenses establish a raw royalty-rate range of 6.5% to 10.2%. At the low end, the OWS–Terralink license reflects the broadest portfolio scope (eighteen patents), the lowest negotiation intensity (voluntary outreach with no enforcement pressure), and the greatest temporal distance from the hypothetical negotiation date (March 2020, over two years before Q2 2022). At the high end, the Coreline–Prisma cross-license reflects an effective rate that includes the cross-license structure premium and covers a large number of patents on both sides.
After applying the qualitative and quantitative adjustments described in the individual license analyses above — accounting for differences in portfolio breadth, license structure (one-way vs. cross-license), litigation context, licensee scale, and temporal proximity — the adjusted range narrows to approximately 7.5% to 9.5%.
The central tendency of this adjusted range is calculated as follows:
Median of raw rates: Arranging the five raw rates in ascending order (6.5%, 7.75%, 8.0%, 9.0%, 10.2%), the median is 8.0%.
Mean of raw rates: (6.5 + 9.0 + 7.75 + 8.0 + 10.2) ÷ 5 = 41.45 ÷ 5 = 8.29%.
Adjusted mean (reflecting qualitative adjustments): After applying upward adjustments to the Terralink rate (portfolio dilution) and the Helix nominal rate (upfront payment amortization), a modest downward adjustment to the NovaWave rate (licensee scale), an approximately neutral adjustment to the Stratos–ArcLight rate, and a downward adjustment to the Coreline–Prisma rate (cross-license structure), the adjusted rates cluster in the range of approximately 7.5% to 9.5%, with a weighted central tendency of approximately 8.4% to 8.6%.
The central tendency of approximately 8.4% to 8.6% is consistent with the proposed 8.5% royalty rate.
C. Derivation of Proposed 8.5% Rate
The proposed 8.5% royalty rate is at or near the central tendency of the adjusted comparable range and is supported by multiple independent data points.
The three licenses that most strongly support the 8.5% rate are:
(1) The OWS–Helix Integrated Photonics License (February 2022). This is the most comparable license across every dimension: it is the only agreement covering all four asserted patents; it licenses the most analogous products (400G-ZR and 800G transceivers); it involves the largest OWS licensee ($68 million in licensed revenue); and it is the most temporally proximate to the Q2 2022 hypothetical negotiation date. When the $2.5 million upfront payment is amortized over the seven-year license term, the effective blended rate is approximately 8.3% to 8.5%, which is precisely the propose

CALDERWOOD & HARKNESS LLP

INTERNAL MEMORANDUM

MATTER NO.: 1014-00004

I. EXECUTIVE SUMMARY

II. LEGAL FRAMEWORK

III. METHODOLOGY

IV. ANALYSIS OF OWS'S OWN LICENSE AGREEMENTS (GEORGIA-PACIFIC FACTOR 1)

VI. SYNTHESIS AND RATE DERIVATION

Record

Parties

Dates

Amounts