1014-00004 · Hawthorne Vega & Cruz LLP · Injunctive Relief

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ATTORNEY WORK PRODUCT / ATTORNEY-CLIENT PRIVILEGED — PREPARED IN ANTICIPATION OF LITIGATION

MEMORANDUM

CALDERWOOD & HARKNESS LLP Litigation Department

PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum is a privileged communication prepared in anticipation of litigation. It reflects the mental impressions, opinions, and legal theories of the attorneys at Calderwood & Harkness LLP. This document should not be disclosed to any person outside the attorney-client relationship without the express written consent of the undersigned.

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I. Executive Summary

This memorandum analyzes the bond requirements that may arise in connection with Optiwave Semiconductor Corp.'s ("OWS") requests for injunctive relief against Lumicore Technologies, Inc. ("Lumicore") in the captioned patent infringement action. The analysis addresses two distinct postures: (1) the permanent injunction that OWS seeks as its primary post-trial remedy, and (2) the contingency preliminary injunction motion (Document 115 in the matter file) that has been drafted but is currently on hold per client instruction.

The central conclusions of this memorandum are as follows:

Permanent Injunction — No Bond Required. Federal Rule of Civil Procedure 65(c) requires the posting of security only in connection with preliminary injunctions and temporary restraining orders. It does not apply to permanent injunctions entered after a full adjudication on the merits. Accordingly, if OWS prevails at trial and the Court enters a permanent injunction under the Northgate Group v. MercExchange, L.L.C., 547 U.S. 388 (2006), framework, no bond will be required. This is the primary injunctive relief path, and no bond-related preparation is needed for this purpose.

Preliminary Injunction — Bond Required; Potentially Substantial. If the litigation team activates the contingency preliminary injunction motion, a bond will be required under Rule 65(c). Given the scale of Lumicore's accused-product revenue — $264.9 million in FY 2023, representing approximately 42% of Lumicore's total product revenue — the bond amount could be substantial. Our analysis projects that the Court would likely set the bond in the range of $25 million to $75 million, though OWS should argue for a bond in the range of $5 million to $15 million based on its financial strength, practicing-entity status, and the strength of its case on the merits.

Surety Identification. We have identified Heritage National Surety Co., a Connecticut-domiciled surety company headquartered in Hartford, Connecticut, as a potential surety for any bond that may be required. Heritage National Surety Co. has experience with large-scale intellectual property litigation bonds and has indicated preliminary willingness to underwrite a bond in the range contemplated, subject to completion of the standard underwriting process.

Recommendation. We recommend that the team pre-position for a preliminary injunction bond by completing the application package for Heritage National Surety Co. in advance, so that OWS can move swiftly if the decision is made to seek a preliminary injunction. Simultaneously, we should develop robust arguments for a nominal or reduced bond to minimize the financial burden on OWS. Bond-related costs were not included in the $18.5 million approved litigation budget and will require separate approval from OWS's Board of Directors and Ridgeline Capital Partners, LP, OWS's majority equity holder. The permanent injunction remains the primary injunctive relief goal and requires no bond-related preparation.

II. Procedural and Factual Background

A. The Litigation

On April 22, 2024, OWS filed suit against Lumicore in the United States District Court for the Eastern District of Texas, marshall Division. The case has been assigned to the Honorable James R. Gilstrap, United States District Judge, and is pending under Case No. 2:24-cv-00319-JRG.

The Complaint asserts four utility patents against Lumicore's optical transceiver products:

• U.S. Patent No. 10,234,847 (the "'847 Patent"), titled "Multi-Channel Coherent Optical Transceiver Architecture with Integrated Digital Signal Processing," issued on March 19, 2019, naming Dr. Rebecca Tanaka, Dr. Sundar Venkataraman, and Dr. Mei-Ling Zhou as co-inventors;

• U.S. Patent No. 10,891,193 (the "'193 Patent"), titled "High-Density Silicon Photonic Integrated Circuit for Wavelength Division Multiplexing," issued on January 12, 2021, naming Dr. Sundar Venkataraman and Dr. James Haroldson as co-inventors;

• U.S. Patent No. 9,678,562 (the "'562 Patent"), titled "Thermal Management System for High-Bandwidth Optical Transceiver Modules," issued on June 13, 2017, naming Dr. Rebecca Tanaka as sole inventor; and

• U.S. Patent No. 11,402,015 (the "'015 Patent"), titled "Low-Latency Error Correction Protocol for Multi-Mode Optical Data Links," issued on August 2, 2022, naming Dr. Mei-Ling Zhou and Dr. Kenji Watanabe as co-inventors.

The Complaint alleges seven counts: (1) direct infringement of the '847 Patent; (2) direct infringement of the '193 Patent; (3) direct infringement of the '562 Patent; (4) direct infringement of the '015 Patent; (5) induced infringement of the '847 and '193 Patents; (6) contributory infringement of the '562 Patent; and (7) willful infringement of all four asserted patents, seeking enhanced damages under 35 U.S.C. § 284.

Three Lumicore product lines are accused of infringement:

• LumiLink 400G-ZR+ — Lumicore's 400-gigabit coherent optical transceiver module, designed for metro and long-haul data center interconnect applications;

• LumiLink 800G-DR8 — Lumicore's 800-gigabit direct-detect optical transceiver module, designed for intra-data center and campus networking applications; and

• LumiEdge 1600G-LR — Lumicore's next-generation 1600-gigabit long-range optical transceiver module, which entered limited commercial availability in Q4 2023.

OWS's total damages demand is approximately $210 million, comprising approximately $128.9 million in lost profits, approximately $37.5 million in reasonable royalty damages, and approximately $43.6 million as a blended enhanced damages component attributable to the willful infringement claim. The damages theory has been developed in conjunction with OWS's testifying expert, Dr. Patricia Engelman of Meridian Economics LLC, and is detailed in her preliminary expert report (Document 122 in the matter file).

In addition to monetary damages, OWS seeks a permanent injunction barring Lumicore from making, using, selling, offering to sell, or importing any product that practices the claims of the four asserted patents, including but not limited to the three accused product lines identified above.

B. Current Injunctive Relief Posture

The litigation team has prepared two injunctive relief documents, reflecting OWS's dual-track strategy:

Permanent Injunction (Primary Relief). A draft permanent injunction order has been prepared and is maintained as Document 111 in the matter file. The proposed order would permanently enjoin Lumicore from making, using, selling, offering to sell, or importing the accused products (and any colorable imitations thereof) in the United States. In recognition of the potential disruption to existing customer relationships and ongoing supply obligations, the proposed order includes an 18-month sunset provision that would permit Lumicore to fulfill existing contractual commitments — specifically, customer purchase orders entered into prior to the date of the jury's verdict — during a defined wind-down period. This sunset provision is designed to bolster OWS's position under the public interest prong of the Cascade Holdings analysis and to reduce the likelihood of a stay pending appeal. The permanent injunction order is the primary injunctive relief document and is being prepared for post-trial submission.

Contingency Preliminary Injunction / TRO Motion (On Hold). A contingency motion for a preliminary injunction and/or temporary restraining order has been drafted and is maintained as Document 115 in the matter file. This motion has been prepared in substantively complete form, including supporting declarations from Dr. Rebecca Tanaka (OWS's Chief Technology Officer and named inventor on three of the four asserted patents), David Leitner (OWS's Chief Financial Officer), and Dr. Engelman (damages expert). The motion is currently on hold per client instruction. OWS's General Counsel, Sarah Whitfield, has directed that the motion be activated only if a specific triggering event occurs during the pendency of the suit — for example, if Lumicore announces a new accused product, secures a major customer win that displaces OWS from a key account, or takes other action that materially accelerates the competitive harm to OWS. As of the date of this memorandum, no such triggering event has occurred, and no preliminary injunction has been filed or is imminently planned.

C. Parties' Financial Profiles

Understanding the parties' financial profiles is essential to the bond analysis, as the bond amount is directly influenced by the defendant's potential harm from a wrongful injunction and the plaintiff's ability to satisfy any damages claim.

Optiwave Semiconductor Corp. (OWS). OWS is a Delaware corporation headquartered at 4810 Bayside Technology Parkway, Suite 300, Santa Clara, California 95054. OWS designs, manufactures, and sells high-bandwidth optical transceiver modules and silicon photonic integrated circuits for data center interconnect, telecommunications, and enterprise networking applications. For the fiscal year ended December 31, 2023, OWS reported total revenue of $487.3 million and net income of $61.4 million. OWS is a privately held company. Ridgeline Capital Partners, LP, a San Francisco-based private equity fund, holds a 55% equity stake in OWS, having acquired its position in 2019 for approximately $780 million. OWS's primary commercial lender is Weston Fidelity Bank, N.A., which provides a $125 million revolving credit facility (current availability of approximately $94.2 million as of the most recent draw). OWS maintains directors' and officers' liability and litigation-cost insurance through Pacific Rim Insurance Group under Policy No. PLI-2023-08812. The Board of Directors has approved a litigation budget of $18.5 million for the prosecution of this case through trial, pursuant to Board Resolution No. 2024-07, dated April 2, 2024, with corresponding authorization from Ridgeline Capital Partners.

Lumicore Technologies, Inc. Lumicore is a Delaware corporation headquartered at 9200 Spectrum Boulevard, Building C, Austin, Texas 78759. Lumicore designs and sells optical transceiver modules and photonic integrated circuits for data center, enterprise, and edge computing applications. Lumicore conducted an initial public offering on the Nasdaq Stock Market in March 2022, pricing at $24.00 per share. As of the date OWS filed its Complaint (April 22, 2024), Lumicore's common stock was trading at approximately $37.00 per share, giving the company an approximate market capitalization of $3.4 billion based on approximately 91.8 million shares outstanding. Lumicore's estimated FY 2023 total revenue was $312.6 million (based on Lumicore's 10-K filing with the Securities and Exchange Commission, as adjusted for segment reporting changes identified in discovery). Lumicore employs approximately 870 people across its Austin headquarters, its fabrication partnership facilities, and its global sales offices.

Accused Product Revenue. Based on discovery produced to date — including Lumicore's audited financial statements, internal revenue segmentation reports, and product-line profitability analyses (all designated "Highly Confidential — Attorneys' Eyes Only" under the Protective Order) — the accused product lines generated the following FY 2023 revenue:

The accused products collectively represent approximately 84.7% of Lumicore's optical transceiver module revenue and approximately 42% of Lumicore's total product revenue across all segments (including its non-accused sensing and industrial photonics lines). Lumicore has represented in discovery responses that a redesign to avoid the asserted patents would require an estimated 18 to 24 months, encompassing new silicon photonic chip tape-outs, firmware requalification, customer re-certification, and regulatory compliance testing. This redesign timeline is a critical input to the bond analysis, as it affects Lumicore's ability to mitigate harm during any preliminary injunction period.

III. Legal Framework: Bond Requirements Under Fed. R. Civ. P. 65(c)

A. Text of Rule 65(c)

Federal Rule of Civil Procedure 65(c) provides the governing standard for injunction bond requirements. The Rule states in full:

"The court may issue a preliminary injunction or a temporary restraining order only if the movant gives security in an amount that the court considers proper to pay the costs and damages sustained by any party found to have been wrongfully enjoined or restrained. The United States, its officers, and its agencies are not required to give security."

Several features of this text are significant for our analysis. First, and most critically, Rule 65(c) applies by its express terms only to "a preliminary injunction or a temporary restraining order." The Rule does not reference permanent injunctions. This textual limitation is not merely incidental; it reflects a fundamental distinction between preliminary relief (which is granted before the merits have been fully adjudicated and therefore carries a risk that the defendant may be "wrongfully enjoined") and permanent relief (which is granted after a full trial on the merits, substantially eliminating the risk of wrongful enjoinment).

Second, the Rule vests the court with broad discretion over the amount of the bond. The security must be "in an amount that the court considers proper," and the stated purpose of the bond is "to pay the costs and damages sustained by any party found to have been wrongfully enjoined or restrained." This language means the bond is designed to protect the defendant against the specific category of harm arising from a wrongful injunction — not against all possible litigation costs or the entire value of the claim.

Third, the use of the word "may" at the beginning of the Rule ("The court may issue...") does not make the bond requirement itself discretionary. Rather, as the Fifth Circuit has interpreted the Rule, the "may" refers to the court's discretion to issue the injunction in the first place; the bond requirement is mandatory as a condition of issuance. See Kaepa, Inc. v. Achilles Corp., 76 F.3d 624, 628 (5th Cir. 1996) (stating that the Rule "invest[s] the district court with discretion as to the amount of security required, if any, but the court should not normally set bond at zero"). Nevertheless, the Fifth Circuit has recognized limited exceptions permitting waiver or nominal bonds in appropriate circumstances, as discussed in Section VI below.

B. Application to Permanent Injunctions

Rule 65(c) does not require a bond for a permanent injunction. This conclusion follows directly from the text of the Rule, which limits the bond requirement to preliminary injunctions and temporary restraining orders, and is well-supported by the case law.

A permanent injunction is entered after the merits of the case have been fully adjudicated — typically after a jury trial on infringement and damages, followed by the court's determination that injunctive relief is appropriate under the Cascade Holdings four-factor test. At that stage, the plaintiff has demonstrated by a preponderance of the evidence that the defendant infringed, and the court has determined that (1) the plaintiff has suffered an irreparable injury; (2) remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) the public interest would not be disserved by a permanent injunction. Cascade Holdings, 547 U.S. at 391. Because the merits have been resolved, the "wrongful enjoinment" risk that the bond is designed to address is largely eliminated. The defendant is not "wrongfully enjoined" when a court enters a permanent injunction based on a finding of liability.

This principle is well-established in the Fifth Circuit. See, e.g., Walgreen Co. v. Sara Creek Prop. Co., 966 F.2d 273, 278–79 (7th Cir. 1992) (Posner, J.) (distinguishing permanent injunctions from preliminary injunctions and noting the different procedural requirements applicable to each); see also 11A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2973 (3d ed.) ("Rule 65(c) does not apply to permanent injunctions. A bond is required only when the court issues preliminary injunctive relief."). Courts in the Eastern District of Texas have applied this principle consistently. See, e.g., Paice LLC v. Northpoint Enterprises Motor Corp., No. 2:04-cv-211-DF, 2006 WL 2385139, at 5 (E.D. Tex. Aug. 16, 2006) (entering permanent injunction without bond requirement); Ashgrove & Co. Servs. Corp. v. Vonage Holdings Corp.*, 503 F.3d 1295, 1310 (Fed. Cir. 2007) (affirming permanent injunction in patent case without discussion of bond requirement).

It is important to note one caveat. In rare circumstances, a court may stay a permanent injunction pending appeal and condition the stay on the posting of a bond by the defendant. This procedure is governed not by Rule 65(c), but by Federal Rule of Civil Procedure 62, which addresses stays of enforcement of judgments pending appeal. Under Rule 62, it is the defendant — the party seeking the stay — that bears the burden of posting security, not the plaintiff. A Rule 62 stay-pending-appeal analysis is beyond the scope of this memorandum but is addressed in the post-trial contingency planning document (Document 113 in the matter file).

Conclusion for permanent injunction: No bond is required. If the jury finds infringement and the Court enters a permanent injunction under the Cascade Holdings factors (the Cascade Holdings analysis is detailed separately in Document 108), OWS will not need to post security. No bond-related preparation is necessary for the permanent injunction.

C. Application to Preliminary Injunctions

If the litigation team activates the contingency preliminary injunction motion (Document 115), a bond will be required under Rule 65(c) as a precondition to the Court's issuance of the injunction. The critical question in that scenario is not whether a bond is required — it is — but rather the amount of the bond.

Discretion of the Court. The amount of the bond is committed to the sound discretion of the district court. Kaepa, 76 F.3d at 628. The bond should be set at an amount sufficient to compensate the defendant for "costs and damages sustained" if the defendant is ultimately "found to have been wrongfully enjoined or restrained." Fed. R. Civ. P. 65(c). The bond amount thus functions as a ceiling on the defendant's recovery for wrongful enjoinment; the defendant cannot recover more than the bond amount for harm caused by a wrongful injunction. See Buddy Sys., Inc. v. Exer-Genie, Inc., 545 F.2d 1164, 1167 (9th Cir. 1976); W.R. Grace & Co. v. Local Union 759, Int'l Union of United Rubber Workers, 461 U.S. 757, 770 n.14 (1983).

Fifth Circuit Precedent on Bond Amount. The Fifth Circuit has instructed that the bond amount should reflect the potential harm to the defendant during the period the injunction is in effect, rather than the total value of the litigation or the full scope of the defendant's business. See Corrigan Dispatch Co. v. Casa Guzman, S.A., 569 F.2d 300, 303 (5th Cir. 1978); see also Kaepa, 76 F.3d at 628 (reviewing bond amount for abuse of discretion). The relevant period is from the date the preliminary injunction is issued through its resolution — either at trial (where it merges into a permanent injunction or is dissolved) or on appeal.

E.D. Tex. Practice. Judge Gilstrap has broad discretion on bond amounts. A review of recent patent cases in the Eastern District of Texas reveals considerable variation in bond amounts, reflecting the case-specific nature of the inquiry. In technology and semiconductor matters involving substantial accused-product revenue, bonds have ranged from nominal amounts (in cases where the movant's likelihood of success was overwhelming) to tens of millions of dollars (in cases involving significant revenue at risk). The most analogous case we have identified is Marlowe Holdings v. Pemberton Corporation, No. 2:17-cv-00812-JRG (E.D. Tex.), where Judge Gilstrap required a $30 million bond in connection with a preliminary injunction affecting approximately $180 million in annual accused-product revenue — a ratio of approximately 16.7% of annual revenue. If a similar ratio were applied here, the bond could be approximately $44 million based on $264.9 million in accused-product revenue. However, significant factual differences between the cases caution against mechanical application of any ratio.

The bond amount is further influenced by the length of the anticipated preliminary injunction period. In this case, we estimate that a preliminary injunction, if granted, would remain in effect for approximately 12 to 18 months before resolution at trial. The Markman hearing has not yet occurred, and the current trial setting is December 2025; depending on the timing of the PI motion, the PI period could extend from approximately early 2025 through the December 2025 trial date.

IV. Bond Amount Analysis for Preliminary Injunction Scenario

A. Estimating Lumicore's Potential Harm from a Wrongful Preliminary Injunction

The bond amount analysis requires an estimate of the harm Lumicore would sustain if a preliminary injunction were granted and subsequently determined to have been wrongfully issued — that is, if OWS ultimately does not prevail on the merits at trial or the injunction is reversed on appeal. In that scenario, Lumicore would be entitled to recover damages caused by the wrongful injunction, up to the bond amount.

The harm categories are as follows:

Revenue Impact. The accused products generated $264.9 million in FY 2023 revenue. If a preliminary injunction barred Lumicore from selling the accused products for a 12- to 18-month period, Lumicore's revenue loss during that period could be substantial. Assuming flat revenue (no growth), a 12-month PI period would result in approximately $264.9 million in lost revenue; an 18-month period would result in approximately $397.4 million. However, these figures overstate the likely harm, because (1) Lumicore may be able to partially mitigate by redirecting customers to non-accused products or by accelerating the redesign effort, and (2) the bond is intended to cover damages, not gross revenue — Lumicore's recovery would be measured by lost profits, not lost revenue. Additionally, the optical transceiver market is experiencing robust growth, with industry analysts projecting compound annual growth rates of 18–22% through 2027. If market growth is factored in, Lumicore's claimed revenue loss during a PI period could exceed $300 million to $400 million or more.

Profit Impact. A more meaningful measure of Lumicore's harm is its lost gross profits during the PI period. Lumicore's accused-product gross margins, as disclosed in discovery documents designated "Highly Confidential — Attorneys' Eyes Only" under the Protective Order, range from 52.1% for the LumiLink 400G-ZR+ to 55.7% for the LumiLink 800G-DR8 to 58.3% for the LumiEdge 1600G-LR. Applying these margins to FY 2023 revenue yields the following lost gross profit estimates for a 12-month PI period:

For an 18-month PI period, the estimated lost gross profits would scale proportionally to approximately $217.8 million, before accounting for market growth. These figures represent gross profits and do not account for fixed costs that Lumicore would continue to incur regardless of the injunction (e.g., facility costs, executive salaries, certain R&D expenditures), which would reduce the net harm. Accordingly, Lumicore's actual lost net profits during a 12-month PI period would likely fall in the range of $140 million to $155 million, and could exceed this range in a growth scenario.

Additional Harm Categories. Beyond direct lost profits, Lumicore could claim additional categories of harm from a wrongful preliminary injunction, including:

• Customer relationship losses: Lumicore's customers — including major hyperscale cloud computing operators and telecommunications carriers — may shift their purchasing to OWS or other competitors during the PI period, and those customer relationships may not be fully recoverable even after the injunction is dissolved. Lumicore has identified several multi-year supply agreements with major customers that could be disrupted.

• Loss of market position: In the rapidly evolving optical transceiver market, a 12- to 18-month absence from the market could result in permanent loss of market share. Lumicore has positioned itself as a leading challenger to OWS in the 400G and 800G segments, and a forced withdrawal from the market could allow OWS (and other competitors) to consolidate their positions.

• Employee attrition: Lumicore employs approximately 870 people total. A significant portion of these employees are directly involved in the design, manufacturing support, sales, and customer engineering of the accused products. A prolonged injunction could lead to attrition of key engineering talent, which would be difficult and expensive to replace.

• Reputational harm: A public injunction barring Lumicore from selling its flagship products could damage Lumicore's reputation in the industry and among investors, potentially affecting its ability to raise capital, recruit talent, and secure customer commitments.

• Inability to fulfill existing contracts: Lumicore has existing purchase orders and supply agreements with customers that may not be subject to any sunset or transition provision in a preliminary injunction order. Failure to fulfill these contracts could expose Lumicore to breach-of-contract claims from its own customers.

These additional harm categories are potentially compensable but are more difficult to quantify precisely and are subject to mitigation arguments. A court setting the bond amount may give these categories some weight but is unlikely to attempt a precise quantification; rather, the court is likely to set the bond at a level that broadly encompasses both the direct profit impact and some cushion for additional harms.

Realistic Bond Amount Range. Based on the foregoing analysis, Lumicore will likely argue for a bond in the range of $100 million to $200 million or more, reflecting the full scope of its estimated lost profits and additional harms. We assess that the Court is likely to set the bond in the range of $50 million to $150 million, depending on its assessment of the likelihood that the injunction will ultimately be determined to have been wrongfully issued (which in turn depends on the Court's preliminary assessment of the strength of OWS's case on the merits) and the degree to which Lumicore's claimed harms are supported by evidence and subject to mitigation.

B. Arguments for a Reduced or Nominal Bond

OWS should advance multiple arguments for a bond set at a nominal amount or at a level significantly below Lumicore's full claimed harm. The strongest arguments are as follows:

OWS's Financial Strength. OWS is a financially robust company with FY 2023 revenue of $487.3 million, net income of $61.4 million, and access to a $125 million revolving credit facility with Weston Fidelity Bank, N.A. (with approximately $94.2 million in current availability). OWS is majority-owned by Ridgeline Capital Partners, LP, a well-capitalized private equity sponsor that acquired its 55% stake for $780 million in 2019. OWS's financial strength means that its ability to pay damages if Lumicore is wrongfully enjoined is not in doubt. The bond requirement is designed to protect the defendant against the risk that a judgment for wrongful enjoinment will be uncollectible; where the plaintiff's financial capacity to satisfy such a judgment is clear, a nominal bond serves the purpose of the Rule. See, e.g., Corrigan Dispatch, 569 F.2d at 303 (noting the court's discretion to consider the plaintiff's financial condition in setting bond amount); International Controls Corp. v. Vesco, 490 F.2d 1334, 1356 (2d Cir. 1974) (approving a reduced bond where the plaintiff was financially capable of satisfying any damages award).

Strength of OWS's Case on the Merits. To obtain a preliminary injunction, OWS must demonstrate a "substantial likelihood of success on the merits" — a high threshold that, if met, correspondingly reduces the risk of wrongful enjoinment. If the Court grants the preliminary injunction, it will have already determined that OWS is substantially likely to prevail at trial. The bond should be calibrated to the risk of wrongful enjoinment, not the quantum of harm assuming wrongful enjoinment; and a strong showing of likelihood of success reduces that risk considerably. See Mead Johnson & Co. v. Abbottott Labs., 201 F.3d 883, 888 (7th Cir. 2000) (noting the inverse relationship between the strength of the merits showing and the appropriate bond amount).

Patent Cases Often Involve Reduced Bonds. Courts have recognized that patent cases present a distinct context for bond analysis. Where the plaintiff is a practicing entity that competes directly with the defendant in the marketplace, the plaintiff's own competitive losses serve as a natural check on the risk of wrongful enjoinment. If OWS were to wrongfully enjoin Lumicore and subsequently lose at trial, OWS would have gained a temporary competitive advantage — but OWS would also be exposed to claims for wrongful enjoinment, and its own investment in the preliminary injunction (including legal fees, bond costs, and opportunity costs) would be lost. This natural alignment of incentives reduces the need for a large bond. See Abbottott Labs. v. Andrx Pharm., Inc., 452 F.3d 1331, 1347 (Fed. Cir. 2006) (discussing bond requirements in patent cases involving competing products).

OWS Is a Practicing Entity. OWS is not a non-practicing entity or patent assertion entity. OWS manufactures and sells optical transceiver products that compete directly with Lumicore's accused products, including:

• The OWS-400ZR transceiver module family, which competes directly with the LumiLink 400G-ZR+;

• The OWS-800XR transceiver module family, which competes directly with the LumiLink 800G-DR8; and

• The OWS-1600DR transceiver module family, which competes directly with the LumiEdge 1600G-LR.

Because OWS has its own market share and customer relationships at stake, it has strong incentives not to pursue a wrongful injunction. If the injunction is ultimately dissolved and OWS is found to have wrongfully enjoined Lumicore, OWS's temporary market gains would be reversed, and OWS would face reputational consequences in the marketplace. These natural incentives support a reduced bond.

Insurance Coverage. OWS maintains litigation-cost insurance under Pacific Rim Insurance Group, Policy No. PLI-2023-08812, which may provide coverage for bond obligations. If the policy covers bond premiums and collateral costs, OWS's financial exposure is further reduced, and the Court can be assured that any damages arising from wrongful enjoinment will be covered. Coverage confirmation is pending (see Section V.C below), but the existence of the insurance program is itself a factor supporting a reduced bond.

C. Arguments Against a Nominal Bond (Anticipated from Lumicore)

We should anticipate the following arguments from Lumicore in opposition to a nominal or reduced bond:

Massive Revenue at Stake. Lumicore will emphasize that its accused products generated $264.9 million in FY 2023 revenue, and that the injunction would effectively shut down approximately 42% of Lumicore's total product revenue. Lumicore will argue that a nominal bond would leave it without meaningful protection against this extraordinary potential harm. Lumicore will contend that the purpose of the bond is to ensure that the defendant can be made whole if the injunction is wrongfully issued, and that a nominal bond in the face of hundreds of millions of dollars of potential harm is inconsistent with that purpose.

Inability to Quickly Mitigate Harm. Lumicore has represented in discovery that a redesign to avoid the asserted patents would require 18 to 24 months. This extended redesign timeline means that Lumicore cannot quickly pivot to non-infringing alternatives if a preliminary injunction is granted. During the entire PI period, Lumicore would be unable to sell its most important product lines, with no meaningful ability to mitigate the resulting harm. This inability to mitigate supports a larger bond.

Public Company Status and Shareholder Impact. Lumicore is a publicly traded company with approximately 91.8 million shares outstanding and a market capitalization of approximately $3.4 billion (based on a stock price of approximately $37.00 per share as of the complaint filing date). Lumicore will argue that a wrongful preliminary injunction could materially impact its stock price, causing significant harm to its public shareholders. A nominal bond would provide no protection to these shareholders. Lumicore may cite securities law obligations and the potential for shareholder derivative suits arising from the company's inability to recover meaningful damages from a wrongful injunction.

Employee and Customer Commitments. Lumicore will point to its approximately 870 employees, a significant number of whom are directly involved in the accused-product lines, and argue that a wrongful injunction could lead to layoffs, employee attrition, and loss of institutional knowledge. Lumicore will also identify specific customer commitments and supply agreements that would be disrupted, and argue that the resulting breach-of-contract exposure and customer relationship damage warrant a substantial bond.

Distinguishing OWS's Financial Strength Argument. Lumicore will argue that OWS's financial strength is not a substitute for an adequate bond. Even if OWS has the resources to satisfy a damages judgment, the bond serves as a liquid, immediately available source of recovery that does not require Lumicore to litigate a separate wrongful-enjoinment action to collect. Without an adequate bond, Lumicore would face the risk and expense of pursuing a second lawsuit against OWS to recover damages from wrongful enjoinment, with no guarantee of recovery.

D. Recommended Bond Amount Position

Based on the foregoing analysis, our recommended approach is as follows:

Primary position: Argue for a bond in the range of $5 million to $15 million. OWS should present a comprehensive brief arguing that a bond in this range is sufficient to protect Lumicore's interests, emphasizing OWS's financial strength and ability to satisfy any damages judgment, the strength of OWS's case on the merits (as demonstrated by the Court's own finding of a substantial likelihood of success), OWS's status as a practicing entity with its own competitive incentives, and the availability of insurance coverage. OWS should present evidence that the risk of wrongful enjoinment is low given the strength of its patent portfolio and the evidence of infringement.

Realistic expectation: Prepare for the Court to set the bond in the range of $25 million to $75 million. Based on our review of E.D. Tex. practice, the scale of the accused products, and the anticipated opposition from Lumicore, we assess that the Court is most likely to set the bond in this range. The lower end of this range ($25 million) would apply if the Court is persuaded by OWS's financial strength and merits arguments; the upper end ($75 million) would apply if the Court gives significant weight to Lumicore's claimed lost profits and redesign timeline.

Alternative position: If the Court is inclined to set a bond above $50 million, argue for a phased bond structure. OWS should request that the bond increase over time — for example, $25 million in the first 90 days, increasing to $50 million after 90 days, and to the full amount after 180 days — to allow OWS to procure surety in stages and manage the cash flow impact. A phased structure also reflects the reality that Lumicore's harm accumulates over time rather than all at once.

Threshold consideration: If the Court sets a bond above $50 million, the team and client should carefully evaluate whether the cost of procuring the bond — including annual premiums, collateral requirements, and the opportunity cost of immobilized capital — is justified relative to the strategic benefit of the preliminary injunction. The permanent injunction remains the primary injunctive relief goal and requires no bond. A preliminary injunction is a powerful strategic tool, but its value must be weighed against the financial burden of a large bond.

V. Surety Identification and Bond Procurement

A. Heritage National Surety Co.

Identification. Heritage National Surety Co., a Connecticut-domiciled surety company headquartered in Hartford, Connecticut, has been identified as a potential surety for any injunction bond that may be required in connection with a preliminary injunction motion. Heritage National Surety Co. is a subsidiary of Heritage National Financial Group, Inc., and is rated A+ (Superior) by AM Best Company for financial strength. The company has been in continuous operation since 1927 and has substantial experience with federal court litigation bonds, including in large-scale intellectual property disputes.

Qualifications. Heritage National Surety Co. is authorized to issue federal court bonds and is listed on the U.S. Department of the Treasury's Listing of Certified Companies (commonly known as "Treasury Circular 570"), which confirms its authorization to provide suretyship on federal bonds. Heritage National Surety Co. has underwritten litigation bonds in patent infringement cases in the Eastern District of Texas and other federal courts, and its bonds have been accepted by courts in cases of comparable magnitude. The company's single-bond limit is $250 million, and its aggregate bond capacity is $1.2 billion, meaning a bond in the $25 million to $75 million range is well within its underwriting capacity.

Preliminary Contact. Calderwood & Harkness LLP has made preliminary inquiries with Heritage National Surety Co. through our contacts at the company's Specialty Bonds Division. Heritage National Surety Co. has indicated its willingness in principle to underwrite a bond in the range contemplated, subject to the following conditions: (1) review and approval of OWS's audited financial statements for FY 2023 (prepared by Gresham & Whitfield LLP, OWS's independent auditor); (2) execution of a general indemnity agreement by OWS and, potentially, by Ridgeline Capital Partners, LP, as the majority equity holder; and (3) satisfaction of collateral requirements. Heritage National Surety Co. has assigned a designated underwriter, Patricia Liang, to the account, and she is available to begin the formal underwriting process upon receipt of the application package.

Premium Estimate. Surety bond premiums for federal court litigation bonds of this type and magnitude typically range from 1% to 3% of the bond face amount, charged annually for the duration the bond remains in effect. The premium rate within this range depends on the applicant's creditworthiness, the nature and complexity of the underlying litigation, and the collateral posted. Based on OWS's financial profile, Heritage National Surety Co. has indicated that OWS would likely qualify for a premium rate at the lower to mid-range of this scale. The following table illustrates the estimated annual premium costs at various bond levels:

Collateral Requirements. Heritage National Surety Co. has indicated that it may require OWS to post collateral equal to a portion of the bond face amount, typically in the range of 25% to 50%. Acceptable forms of collateral include cash deposits, irrevocable letters of credit, and certain investment-grade securities. OWS's $125 million revolving credit facility with Weston Fidelity Bank, N.A. (with approximately $94.2 million in current availability) could be used to issue a standby letter of credit as collateral, though this would reduce OWS's available borrowing capacity under the facility. The following table illustrates the estimated collateral requirements at various bond levels:

Timeline. Based on Heritage National Surety Co.'s guidance, bond procurement typically takes two to four weeks from submission of a completed application package, including underwriting review, execution of the indemnity agreement, posting of collateral, and issuance of the bond. Given the contingent nature of the PI motion, we recommend preparing the complete application package now — including OWS's financial statements, a draft indemnity agreement, and collateral arrangements with Weston Fidelity Bank — so that it is ready for immediate submission if and when the decision is made to activate the PI motion. This advance preparation would reduce the procurement timeline to approximately one to two weeks from the activation decision, ensuring that OWS can move swiftly.

B. Alternative Surety Options

In the event that Heritage National Surety Co.'s terms are unfavorable or its underwriting process encounters delays, the following alternative arrangements should be explored:

Alternative Surety Companies. Other surety companies with the capacity and experience to underwrite a federal court litigation bond in this range include Camberwell Insurance, Stonefield Mutual Insurance, and Harborview Assurance. Each of these companies is Treasury-listed and has experience with intellectual property litigation bonds. If Heritage National Surety Co. is unable to provide competitive terms, we should obtain preliminary quotes from at least two of these alternative providers.

Cash Bond or Letter of Credit Directly with the Court. As an alternative to a surety bond, OWS could post a cash bond or an irrevocable letter of credit directly with the Court. This approach bypasses the surety entirely, eliminating the premium cost, but requires OWS to immobilize capital equal to the full bond amount. For a $25 million bond, this approach may be feasible using OWS's existing revolving credit facility (the letter-of-credit fee under the Weston Fidelity facility is approximately 1.5% per annum, which is competitive with surety premiums). For a bond above $50 million, the cash or letter-of-credit approach would consume a significant portion of OWS's available liquidity and may not be practical without supplemental financing.

Ridgeline Capital Partners Backstop. Ridgeline Capital Partners, LP, as OWS's 55% equity holder, may be willing to backstop or guarantee the bond obligation. This could take the form of a guarantee on the Heritage National Surety Co. indemnity agreement (which would strengthen OWS's credit profile and potentially reduce the premium rate and collateral requirements) or a direct guarantee to the Court in lieu of a surety bond. However, this approach would require approval from Ridgeline's investment committee and board of directors, and may trigger covenants under the Weston Fidelity revolving credit facility (specifically, the negative pledge and subsidiary guarantee covenants in Sections 7.04 and 7.08 of the credit agreement). Coordination with OWS's CFO, David Leitner, and Ridgeline's portfolio company oversight team (Franklin Osei, Managing Director) would be required before pursuing this option.

C. Insurance Coverage for Bond Costs

OWS maintains directors' and officers' liability and litigation-cost insurance through Pacific Rim Insurance Group under Policy No. PLI-2023-08812. The policy provides coverage for certain litigation costs, including legal fees, expert witness fees, and related expenses incurred in connection with covered claims. It is unclear from the current policy summary whether the coverage extends to surety bond premiums and collateral costs, which are not traditional litigation expenses.

We recommend the following steps to clarify the insurance coverage:

1. Alan Ngo should send a formal coverage inquiry to Pacific Rim Insurance Group's claims department, specifically requesting confirmation of whether Policy No. PLI-2023-08812 covers (a) surety bond premiums incurred in connection with injunctive relief in the captioned patent litigation, and (b) the cost of posting collateral (whether cash or letter-of-credit fees) in connection with such a surety bond.

2. If the policy does cover bond costs, the coverage limits and any applicable deductibles or sublimits should be identified so that OWS can determine the net out-of-pocket cost.

3. If coverage is confirmed, bond costs can be absorbed within the existing insurance program rather than the $18.5 million litigation budget, reducing the financial impact on OWS and potentially avoiding the need for supplemental authorization from the Board and Ridgeline Capital Partners.

We note that even if the insurance policy covers bond premiums, it is unlikely to cover the full collateral requirement, which is a temporary capital commitment rather than an expense. The collateral would be returned to OWS upon dissolution of the bond.

VI. Bond Waiver Arguments

A. Legal Standard for Bond Waiver

Although Rule 65(c) generally requires the posting of security as a condition of a preliminary injunction, courts in the Fifth Circuit have recognized limited discretion to waive the bond requirement entirely or to set the bond at a nominal amount. Complete waiver of the bond is rare and is granted only in exceptional circumstances, but the possibility should be explored as part of OWS's bond briefing.

The Fifth Circuit has identified several circumstances in which a bond may be waived or set at a nominal amount:

(1) No realistic likelihood of harm to the defendant. A bond may be waived where the court determines that there is no realistic likelihood that the defendant will suffer harm from the injunction. This is the most commonly recognized basis for waiver and is the strongest argument available to OWS. If the Court concludes that OWS's likelihood of success on the merits is so strong that the risk of wrongful enjoinment is negligible, the bond amount may be reduced to a nominal figure or waived entirely. See Kaepa, 76 F.3d at 628 ("The district court is not required to set a bond in any specific amount; it has discretion to set the bond at a nominal amount if the circumstances so warrant."); Phelps v. Hamilton, 122 F.3d 885, 906 (10th Cir. 1997) (approving nominal bond where risk of harm to defendant was minimal).

(2) Plaintiff's inability to post the bond. A bond may be waived where the plaintiff demonstrates an inability to post the required security and the equities strongly favor injunctive relief. This argument is unavailable to OWS, which has substantial financial resources and the ability to post a significant bond. Raising an inability-to-pay argument would be inconsistent with OWS's broader litigation posture and financial representations.

(3) Defendant's egregious misconduct. In extraordinary cases, a bond may be waived where the defendant has engaged in particularly egregious conduct, such as willful infringement or deliberate destruction of evidence, that warrants depriving the defendant of the protection ordinarily afforded by the bond requirement. OWS has alleged willful infringement (Count VII of the Complaint), and if the evidence of willfulness is strong, this argument could supplement the primary no-harm argument. However, courts have been cautious about using the willfulness allegation — which is a merits issue to be resolved at trial — as a basis for waiving the bond requirement at the preliminary injunction stage.

B. Application to This Case

Applying the foregoing standards to the facts of this case, our assessment is as follows:

Full bond waiver is unlikely. Given the magnitude of Lumicore's accused-product revenue ($264.9 million annually) and the direct competitive impact of an injunction that would shut down approximately 42% of Lumicore's total product revenue, a court would be reluctant to waive the bond requirement entirely. The potential harm to Lumicore is too substantial and too concrete to support a finding that there is "no realistic likelihood of harm." Additionally, OWS's strong financial position undermines any argument that it is unable to post a bond; the equities of bond waiver are strongest when the plaintiff is a party of limited means that would be effectively denied access to injunctive relief by a bond requirement, which is not the case here.

A reduced or nominal bond is the more realistic target. For the reasons set forth in Section IV.B above, OWS's strongest arguments support a bond in the range of $5 million to $15 million — well below Lumicore's claimed harm but sufficient to provide meaningful protection. The arguments for a reduced bond are stronger than the arguments for complete waiver, and focusing on bond reduction rather than waiver is the more credible litigation position.

Phased bond as an alternative. If the Court is inclined to set a very large bond — for example, in excess of $100 million — OWS should argue in the alternative for a phased bond structure. Under a phased approach, the bond would start at a lower amount (e.g., $25 million) and increase in defined stages over the life of the preliminary injunction (e.g., increasing to $50 million after 90 days and to the full amount after 180 days). This approach allows OWS to procure surety in stages, manage the cash flow impact, and potentially resolve the case (through trial or settlement) before the bond reaches its maximum amount. Phased bond structures are not commonly ordered, but they are within the court's broad discretion under Rule 65(c) and have been approved in other complex commercial litigation. See, e.g., In re Kestrel Partners LLC Antitrust Litig., 333 F.3d 517, 526 (4th Cir. 2003) (noting courts' flexibility in structuring bond requirements).

VII. Impact on Litigation Strategy and Budget

A. Budget Implications

The $18.5 million litigation budget approved by OWS's Board of Directors and Ridgeline Capital Partners, LP, pursuant to Board Resolution No. 2024-07 dated April 2, 2024, covers attorney fees, expert witness costs, e-discovery vendor costs, travel, and related litigation expenses through trial. The approved budget does not include bond premiums or collateral costs, as the decision to pursue a preliminary injunction (and consequently incur bond obligations) was not made at the time the budget was approved.

If a preliminary injunction is pursued and a bond in the $25 million to $75 million range is required, the following additional costs would be incurred:

Annual premium: $250,000 to $2.25 million per year, depending on the bond face amount and the premium rate negotiated with Heritage National Surety Co. At the midpoint of our projected range ($50 million bond, 2% premium rate), the annual premium would be approximately $1.0 million.

Collateral: $6.25 million to $37.5 million in cash deposits or letters of credit, depending on the bond face amount and the collateral percentage required by Heritage National Surety Co. At the midpoint ($50 million bond, 37.5% collateral), the collateral requirement would be approximately $18.75 million. If collateral is posted in the form of a letter of credit under the Weston Fidelity revolving credit facility, the annual letter-of-credit fee would be approximately 1.5% of the letter-of-credit amount, or approximately $281,250 on an $18.75 million letter of credit.

Total estimated annual cost at midpoint: Premium of approximately $1.0 million, plus letter-of-credit fees of approximately $281,250, for a total annual cost of approximately $1.28 million, plus the opportunity cost of reduced borrowing capacity under the revolving credit facility.

These costs would need to be separately approved by OWS's Board of Directors and Ridgeline Capital Partners. The Ridgeline Capital Approval Letter dated April 2, 2024 (Board Resolution No. 2024-07) authorized only the $18.5 million litigation spend and did not contemplate bond-related expenditures. A supplemental authorization would be required, and the request should be coordinated through Franklin Osei, Managing Director at Ridgeline Capital Partners, who serves as the portfolio company oversight contact for the OWS investment.

Calderwood & Harkness LLP's fees incurred to date through the anticipated date of any bond procurement (approximately Q1 2025) are estimated at approximately $3.2 million, leaving approximately $15.3 million of the approved $18.5 million budget for remaining pre-trial, trial, and post-trial work. The bond costs, if incurred, would be additive to this budget.

B. Strategic Considerations

The bond analysis intersects with several broader strategic considerations that should inform the team's and client's decision-making:

Cost-Benefit of Preliminary Injunction. The cost of procuring a bond — potentially $1 million or more in annual premiums, plus $6 million to $37.5 million in immobilized collateral — may weigh against pursuing a preliminary injunction unless a clear triggering event occurs that materially changes the competitive dynamic. A triggering event that would justify activation of the PI motion (and the associated bond costs) would include Lumicore announcing a new accused product that expands the scope of infringement, Lumicore winning a major customer account that displaces OWS from a key relationship, or Lumicore taking other action that materially accelerates the irreparable harm to OWS. Absent such a triggering event, the cost of the bond may not be justified given that the permanent injunction — which requires no bond — remains the primary relief sought and is achievable at trial.

Permanent Injunction as Primary Goal. The permanent injunction remains OWS's primary injunctive relief objective. It does not require a bond, is based on a full adjudication of the merits, and provides durable protection against Lumicore's infringing conduct. The proposed permanent injunction order (Document 111) includes an 18-month sunset provision for existing customer commitments, which enhances its likelihood of surviving the Cascade Holdings public interest analysis and any challenge on appeal. The permanent injunction path should continue to be the focus of the team's injunctive relief efforts.

Settlement Implications. If the case settles before trial (or, in the PI scenario, before the PI is dissolved), any surety bond would be released, but the premiums already paid would be non-refundable. This creates a deadweight cost that reduces the net recovery from any settlement. For example, if a $50 million bond is procured at a 2% annual premium in January 2025 and the case settles in June 2025, OWS would have paid approximately $500,000 in non-refundable premiums. This cost should be factored into settlement timing considerations and communicated to the client in any settlement analysis. The settlement authority memorandum (Document 154, dated October 2024) should be updated to reflect these potential costs if the PI motion is activated.

Coordination with Other Workstreams. The bond analysis should be coordinated with several other active workstreams in the case:

• Irreparable harm evidence compilation (Document 109): The strength of OWS's irreparable harm showing is directly relevant to the bond analysis, because a strong irreparable harm case supports a strong merits case, which in turn supports a reduced bond. The irreparable harm evidence — including evidence of direct competition, lost customer wins, and price erosion — should be cross-referenced in the bond briefing.

• Settlement authority memorandum (Document 154): As noted above, potential bond costs should be incorporated into the settlement analysis if the PI motion is activated.

• Cascade Holdings analysis (Document 108): The Cascade Holdings four-factor analysis for the permanent injunction should be consistent with the arguments advanced in connection with any preliminary injunction bond briefing.

• Post-trial contingency planning (Document 113): If OWS prevails at trial and obtains a permanent injunction, Lumicore may seek a stay pending appeal under Rule 62. The post-trial contingency planning should address the possibility that the Court conditions a stay on Lumicore posting a bond — a scenario in which the bond obligation shifts to the defendant.

VIII. Recommendations and Next Steps

Based on the analysis set forth in this memorandum, I recommend the following actions:

1. No bond preparation needed for permanent injunction. The post-trial permanent injunction order (Document 111) does not require bond provisions, as Rule 65(c) does not apply to permanent injunctions. The team should confirm internally that the draft order is correctly structured and does not contain any unnecessary references to security or bond requirements. Omar Siddiqui has been asked to review Document 111 for this purpose.

2. Pre-position for preliminary injunction bond. The team should complete the application package for Heritage National Surety Co. so that it is ready for immediate submission if the PI motion is activated. This pre-positioning effort involves the following specific tasks:

a. Prepare Heritage National Surety Co. bond application. Compile the required application materials, including OWS's FY 2023 audited financial statements (prepared by Gresham & Whitfield LLP), the most recent interim financial statements, and a description of the underlying litigation. The application package should be assembled by Omar Siddiqui, with review by Wendy Schultz, and should be ready for submission within two weeks.

b. Obtain indemnity agreement template. Request the standard form of General Indemnity Agreement from Heritage National Surety Co. and review it for any objectionable provisions (particularly provisions requiring personal guarantees from OWS executives, unlimited indemnity exposure, or cross-collateralization with other obligations). Negotiate any necessary modifications before the bond is needed.

c. Coordinate with David Leitner (OWS CFO) on collateral availability. Contact David Leitner to determine the current availability under the Weston Fidelity Bank, N.A. revolving credit facility, the terms and fees for issuing a standby letter of credit as collateral, and any covenant implications of posting collateral for a litigation bond. Confirm that the credit agreement permits the issuance of a letter of credit for this purpose without requiring lender consent.

d. Obtain preliminary quotes. Request formal premium quotes from Heritage National Surety Co. for bonds at three face amounts: $25 million, $50 million, and $75 million. The quotes should specify the annual premium rate, collateral requirements, indemnity terms, and any conditions or limitations.

3. Develop bond reduction/nominal bond briefing. Draft a section of the preliminary injunction brief (Document 115) specifically addressing bond amount, incorporating the arguments outlined in Section IV.B above. The bond briefing should include:

a. A comprehensive legal argument for a nominal or reduced bond, citing OWS's financial strength, the strength of the merits case, OWS's practicing-entity status, and the availability of insurance coverage.

b. A proposed bond amount of $5 millio

ATTORNEY WORK PRODUCT / ATTORNEY-CLIENT PRIVILEGED — PREPARED IN ANTICIPATION OF LITIGATION
MEMORANDUM
CALDERWOOD & HARKNESS LLP Litigation Department
PRIVILEGED AND CONFIDENTIAL — ATTORNEY WORK PRODUCT This memorandum is a privileged communication prepared in anticipation of litigation. It reflects the mental impressions, opinions, and legal theories of the attorneys at Calderwood & Harkness LLP. This document should not be disclosed to any person outside the attorney-client relationship without the express written consent of the undersigned.
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I. Executive Summary
This memorandum analyzes the bond requirements that may arise in connection with Optiwave Semiconductor Corp.'s ("OWS") requests for injunctive relief against Lumicore Technologies, Inc. ("Lumicore") in the captioned patent infringement action. The analysis addresses two distinct postures: (1) the permanent injunction that OWS seeks as its primary post-trial remedy, and (2) the contingency preliminary injunction motion (Document 115 in the matter file) that has been drafted but is currently on hold per client instruction.
The central conclusions of this memorandum are as follows:
Permanent Injunction — No Bond Required. Federal Rule of Civil Procedure 65(c) requires the posting of security only in connection with preliminary injunctions and temporary restraining orders. It does not apply to permanent injunctions entered after a full adjudication on the merits. Accordingly, if OWS prevails at trial and the Court enters a permanent injunction under the Northgate Group v. MercExchange, L.L.C., 547 U.S. 388 (2006), framework, no bond will be required. This is the primary injunctive relief path, and no bond-related preparation is needed for this purpose.
Preliminary Injunction — Bond Required; Potentially Substantial. If the litigation team activates the contingency preliminary injunction motion, a bond will be required under Rule 65(c). Given the scale of Lumicore's accused-product revenue — $264.9 million in FY 2023, representing approximately 42% of Lumicore's total product revenue — the bond amount could be substantial. Our analysis projects that the Court would likely set the bond in the range of $25 million to $75 million, though OWS should argue for a bond in the range of $5 million to $15 million based on its financial strength, practicing-entity status, and the strength of its case on the merits.
Surety Identification. We have identified Heritage National Surety Co., a Connecticut-domiciled surety company headquartered in Hartford, Connecticut, as a potential surety for any bond that may be required. Heritage National Surety Co. has experience with large-scale intellectual property litigation bonds and has indicated preliminary willingness to underwrite a bond in the range contemplated, subject to completion of the standard underwriting process.
Recommendation. We recommend that the team pre-position for a preliminary injunction bond by completing the application package for Heritage National Surety Co. in advance, so that OWS can move swiftly if the decision is made to seek a preliminary injunction. Simultaneously, we should develop robust arguments for a nominal or reduced bond to minimize the financial burden on OWS. Bond-related costs were not included in the $18.5 million approved litigation budget and will require separate approval from OWS's Board of Directors and Ridgeline Capital Partners, LP, OWS's majority equity holder. The permanent injunction remains the primary injunctive relief goal and requires no bond-related preparation.
II. Procedural and Factual Background
A. The Litigation
On April 22, 2024, OWS filed suit against Lumicore in the United States District Court for the Eastern District of Texas, marshall Division. The case has been assigned to the Honorable James R. Gilstrap, United States District Judge, and is pending under Case No. 2:24-cv-00319-JRG.
The Complaint asserts four utility patents against Lumicore's optical transceiver products:
• U.S. Patent No. 10,234,847 (the "'847 Patent"), titled "Multi-Channel Coherent Optical Transceiver Architecture with Integrated Digital Signal Processing," issued on March 19, 2019, naming Dr. Rebecca Tanaka, Dr. Sundar Venkataraman, and Dr. Mei-Ling Zhou as co-inventors;
• U.S. Patent No. 10,891,193 (the "'193 Patent"), titled "High-Density Silicon Photonic Integrated Circuit for Wavelength Division Multiplexing," issued on January 12, 2021, naming Dr. Sundar Venkataraman and Dr. James Haroldson as co-inventors;
• U.S. Patent No. 9,678,562 (the "'562 Patent"), titled "Thermal Management System for High-Bandwidth Optical Transceiver Modules," issued on June 13, 2017, naming Dr. Rebecca Tanaka as sole inventor; and
• U.S. Patent No. 11,402,015 (the "'015 Patent"), titled "Low-Latency Error Correction Protocol for Multi-Mode Optical Data Links," issued on August 2, 2022, naming Dr. Mei-Ling Zhou and Dr. Kenji Watanabe as co-inventors.
The Complaint alleges seven counts: (1) direct infringement of the '847 Patent; (2) direct infringement of the '193 Patent; (3) direct infringement of the '562 Patent; (4) direct infringement of the '015 Patent; (5) induced infringement of the '847 and '193 Patents; (6) contributory infringement of the '562 Patent; and (7) willful infringement of all four asserted patents, seeking enhanced damages under 35 U.S.C. § 284.
Three Lumicore product lines are accused of infringement:
• LumiLink 400G-ZR+ — Lumicore's 400-gigabit coherent optical transceiver module, designed for metro and long-haul data center interconnect applications;
• LumiLink 800G-DR8 — Lumicore's 800-gigabit direct-detect optical transceiver module, designed for intra-data center and campus networking applications; and
• LumiEdge 1600G-LR — Lumicore's next-generation 1600-gigabit long-range optical transceiver module, which entered limited commercial availability in Q4 2023.
OWS's total damages demand is approximately $210 million, comprising approximately $128.9 million in lost profits, approximately $37.5 million in reasonable royalty damages, and approximately $43.6 million as a blended enhanced damages component attributable to the willful infringement claim. The damages theory has been developed in conjunction with OWS's testifying expert, Dr. Patricia Engelman of Meridian Economics LLC, and is detailed in her preliminary expert report (Document 122 in the matter file).
In addition to monetary damages, OWS seeks a permanent injunction barring Lumicore from making, using, selling, offering to sell, or importing any product that practices the claims of the four asserted patents, including but not limited to the three accused product lines identified above.
B. Current Injunctive Relief Posture
The litigation team has prepared two injunctive relief documents, reflecting OWS's dual-track strategy:
Permanent Injunction (Primary Relief). A draft permanent injunction order has been prepared and is maintained as Document 111 in the matter file. The proposed order would permanently enjoin Lumicore from making, using, selling, offering to sell, or importing the accused products (and any colorable imitations thereof) in the United States. In recognition of the potential disruption to existing customer relationships and ongoing supply obligations, the proposed order includes an 18-month sunset provision that would permit Lumicore to fulfill existing contractual commitments — specifically, customer purchase orders entered into prior to the date of the jury's verdict — during a defined wind-down period. This sunset provision is designed to bolster OWS's position under the public interest prong of the Cascade Holdings analysis and to reduce the likelihood of a stay pending appeal. The permanent injunction order is the primary injunctive relief document and is being prepared for post-trial submission.
Contingency Preliminary Injunction / TRO Motion (On Hold). A contingency motion for a preliminary injunction and/or temporary restraining order has been drafted and is maintained as Document 115 in the matter file. This motion has been prepared in substantively complete form, including supporting declarations from Dr. Rebecca Tanaka (OWS's Chief Technology Officer and named inventor on three of the four asserted patents), David Leitner (OWS's Chief Financial Officer), and Dr. Engelman (damages expert). The motion is currently on hold per client instruction. OWS's General Counsel, Sarah Whitfield, has directed that the motion be activated only if a specific triggering event occurs during the pendency of the suit — for example, if Lumicore announces a new accused product, secures a major customer win that displaces OWS from a key account, or takes other action that materially accelerates the competitive harm to OWS. As of the date of this memorandum, no such triggering event has occurred, and no preliminary injunction has been filed or is imminently planned.
C. Parties' Financial Profiles
Understanding the parties' financial profiles is essential to the bond analysis, as the bond amount is directly influenced by the defendant's potential harm from a wrongful injunction and the plaintiff's ability to satisfy any damages claim.
Optiwave Semiconductor Corp. (OWS). OWS is a Delaware corporation headquartered at 4810 Bayside Technology Parkway, Suite 300, Santa Clara, California 95054. OWS designs, manufactures, and sells high-bandwidth optical transceiver modules and silicon photonic integrated circuits for data center interconnect, telecommunications, and enterprise networking applications. For the fiscal year ended December 31, 2023, OWS reported total revenue of $487.3 million and net income of $61.4 million. OWS is a privately held company. Ridgeline Capital Partners, LP, a San Francisco-based private equity fund, holds a 55% equity stake in OWS, having acquired its position in 2019 for approximately $780 million. OWS's primary commercial lender is Weston Fidelity Bank, N.A., which provides a $125 million revolving credit facility (current availability of approximately $94.2 million as of the most recent draw). OWS maintains directors' and officers' liability and litigation-cost insurance through Pacific Rim Insurance Group under Policy No. PLI-2023-08812. The Board of Directors has approved a litigation budget of $18.5 million for the prosecution of this case through trial, pursuant to Board Resolution No. 2024-07, dated April 2, 2024, with corresponding authorization from Ridgeline Capital Partners.
Lumicore Technologies, Inc. Lumicore is a Delaware corporation headquartered at 9200 Spectrum Boulevard, Building C, Austin, Texas 78759. Lumicore designs and sells optical transceiver modules and photonic integrated circuits for data center, enterprise, and edge computing applications. Lumicore conducted an initial public offering on the Nasdaq Stock Market in March 2022, pricing at $24.00 per share. As of the date OWS filed its Complaint (April 22, 2024), Lumicore's common stock was trading at approximately $37.00 per share, giving the company an approximate market capitalization of $3.4 billion based on approximately 91.8 million shares outstanding. Lumicore's estimated FY 2023 total revenue was $312.6 million (based on Lumicore's 10-K filing with the Securities and Exchange Commission, as adjusted for segment reporting changes identified in discovery). Lumicore employs approximately 870 people across its Austin headquarters, its fabrication partnership facilities, and its global sales offices.
Accused Product Revenue. Based on discovery produced to date — including Lumicore's audited financial statements, internal revenue segmentation reports, and product-line profitability analyses (all designated "Highly Confidential — Attorneys' Eyes Only" under the Protective Order) — the accused product lines generated the following FY 2023 revenue:
The accused products collectively represent approximately 84.7% of Lumicore's optical transceiver module revenue and approximately 42% of Lumicore's total product revenue across all segments (including its non-accused sensing and industrial photonics lines). Lumicore has represented in discovery responses that a redesign to avoid the asserted patents would require an estimated 18 to 24 months, encompassing new silicon photonic chip tape-outs, firmware requalification, customer re-certification, and regulatory compliance testing. This redesign timeline is a critical input to the bond analysis, as it affects Lumicore's ability to mitigate harm during any preliminary injunction period.
III. Legal Framework: Bond Requirements Under Fed. R. Civ. P. 65(c)
A. Text of Rule 65(c)
Federal Rule of Civil Procedure 65(c) provides the governing standard for injunction bond requirements. The Rule states in full:
"The court may issue a preliminary injunction or a temporary restraining order only if the movant gives security in an amount that the court considers proper to pay the costs and damages sustained by any party found to have been wrongfully enjoined or restrained. The United States, its officers, and its agencies are not required to give security."
Several features of this text are significant for our analysis. First, and most critically, Rule 65(c) applies by its express terms only to "a preliminary injunction or a temporary restraining order." The Rule does not reference permanent injunctions. This textual limitation is not merely incidental; it reflects a fundamental distinction between preliminary relief (which is granted before the merits have been fully adjudicated and therefore carries a risk that the defendant may be "wrongfully enjoined") and permanent relief (which is granted after a full trial on the merits, substantially eliminating the risk of wrongful enjoinment).
Second, the Rule vests the court with broad discretion over the amount of the bond. The security must be "in an amount that the court considers proper," and the stated purpose of the bond is "to pay the costs and damages sustained by any party found to have been wrongfully enjoined or restrained." This language means the bond is designed to protect the defendant against the specific category of harm arising from a wrongful injunction — not against all possible litigation costs or the entire value of the claim.
Third, the use of the word "may" at the beginning of the Rule ("The court may issue...") does not make the bond requirement itself discretionary. Rather, as the Fifth Circuit has interpreted the Rule, the "may" refers to the court's discretion to issue the injunction in the first place; the bond requirement is mandatory as a condition of issuance. See Kaepa, Inc. v. Achilles Corp., 76 F.3d 624, 628 (5th Cir. 1996) (stating that the Rule "invest[s] the district court with discretion as to the amount of security required, if any, but the court should not normally set bond at zero"). Nevertheless, the Fifth Circuit has recognized limited exceptions permitting waiver or nominal bonds in appropriate circumstances, as discussed in Section VI below.
B. Application to Permanent Injunctions
Rule 65(c) does not require a bond for a permanent injunction. This conclusion follows directly from the text of the Rule, which limits the bond requirement to preliminary injunctions and temporary restraining orders, and is well-supported by the case law.
A permanent injunction is entered after the merits of the case have been fully adjudicated — typically after a jury trial on infringement and damages, followed by the court's determination that injunctive relief is appropriate under the Cascade Holdings four-factor test. At that stage, the plaintiff has demonstrated by a preponderance of the evidence that the defendant infringed, and the court has determined that (1) the plaintiff has suffered an irreparable injury; (2) remedies available at law, such as monetary damages, are inadequate to compensate for that injury; (3) considering the balance of hardships between the plaintiff and defendant, a remedy in equity is warranted; and (4) the public interest would not be disserved by a permanent injunction. Cascade Holdings, 547 U.S. at 391. Because the merits have been resolved, the "wrongful enjoinment" risk that the bond is designed to address is largely eliminated. The defendant is not "wrongfully enjoined" when a court enters a permanent injunction based on a finding of liability.
This principle is well-established in the Fifth Circuit. See, e.g., Walgreen Co. v. Sara Creek Prop. Co., 966 F.2d 273, 278–79 (7th Cir. 1992) (Posner, J.) (distinguishing permanent injunctions from preliminary injunctions and noting the different procedural requirements applicable to each); see also 11A Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 2973 (3d ed.) ("Rule 65(c) does not apply to permanent injunctions. A bond is required only when the court issues preliminary injunctive relief."). Courts in the Eastern District of Texas have applied this principle consistently. See, e.g., Paice LLC v. Northpoint Enterprises Motor Corp., No. 2:04-cv-211-DF, 2006 WL 2385139, at 5 (E.D. Tex. Aug. 16, 2006) (entering permanent injunction without bond requirement); Ashgrove & Co. Servs. Corp. v. Vonage Holdings Corp.*, 503 F.3d 1295, 1310 (Fed. Cir. 2007) (affirming permanent injunction in patent case without discussion of bond requirement).
It is important to note one caveat. In rare circumstances, a court may stay a permanent injunction pending appeal and condition the stay on the posting of a bond by the defendant. This procedure is governed not by Rule 65(c), but by Federal Rule of Civil Procedure 62, which addresses stays of enforcement of judgments pending appeal. Under Rule 62, it is the defendant — the party seeking the stay — that bears the burden of posting security, not the plaintiff. A Rule 62 stay-pending-appeal analysis is beyond the scope of this memorandum but is addressed in the post-trial contingency planning document (Document 113 in the matter file).
Conclusion for permanent injunction: No bond is required. If the jury finds infringement and the Court enters a permanent injunction under the Cascade Holdings factors (the Cascade Holdings analysis is detailed separately in Document 108), OWS will not need to post security. No bond-related preparation is necessary for the permanent injunction.
C. Application to Preliminary Injunctions
If the litigation team activates the contingency preliminary injunction motion (Document 115), a bond will be required under Rule 65(c) as a precondition to the Court's issuance of the injunction. The critical question in that scenario is not whether a bond is required — it is — but rather the amount of the bond.
Discretion of the Court. The amount of the bond is committed to the sound discretion of the district court. Kaepa, 76 F.3d at 628. The bond should be set at an amount sufficient to compensate the defendant for "costs and damages sustained" if the defendant is ultimately "found to have been wrongfully enjoined or restrained." Fed. R. Civ. P. 65(c). The bond amount thus functions as a ceiling on the defendant's recovery for wrongful enjoinment; the defendant cannot recover more than the bond amount for harm caused by a wrongful injunction. See Buddy Sys., Inc. v. Exer-Genie, Inc., 545 F.2d 1164, 1167 (9th Cir. 1976); W.R. Grace & Co. v. Local Union 759, Int'l Union of United Rubber Workers, 461 U.S. 757, 770 n.14 (1983).
Fifth Circuit Precedent on Bond Amount. The Fifth Circuit has instructed that the bond amount should reflect the potential harm to the defendant during the period the injunction is in effect, rather than the total value of the litigation or the full scope of the defendant's business. See Corrigan Dispatch Co. v. Casa Guzman, S.A., 569 F.2d 300, 303 (5th Cir. 1978); see also Kaepa, 76 F.3d at 628 (reviewing bond amount for abuse of discretion). The relevant period is from the date the preliminary injunction is issued through its resolution — either at trial (where it merges into a permanent injunction or is dissolved) or on appeal.
E.D. Tex. Practice. Judge Gilstrap has broad discretion on bond amounts. A review of recent patent cases in the Eastern District of Texas reveals considerable variation in bond amounts, reflecting the case-specific nature of the inquiry. In technology and semiconductor matters involving substantial accused-product revenue, bonds have ranged from nominal amounts (in cases where the movant's likelihood of success was overwhelming) to tens of millions of dollars (in cases involving significant revenue at risk). The most analogous case we have identified is Marlowe Holdings v. Pemberton Corporation, No. 2:17-cv-00812-JRG (E.D. Tex.), where Judge Gilstrap required a $30 million bond in connection with a preliminary injunction affecting approximately $180 million in annual accused-product revenue — a ratio of approximately 16.7% of annual revenue. If a similar ratio were applied here, the bond could be approximately $44 million based on $264.9 million in accused-product revenue. However, significant factual differences between the cases caution against mechanical application of any ratio.
The bond amount is further influenced by the length of the anticipated preliminary injunction period. In this case, we estimate that a preliminary injunction, if granted, would remain in effect for approximately 12 to 18 months before resolution at trial. The Markman hearing has not yet occurred, and the current trial setting is December 2025; depending on the timing of the PI motion, the PI period could extend from approximately early 2025 through the December 2025 trial date.
IV. Bond Amount Analysis for Preliminary Injunction Scenario
A. Estimating Lumicore's Potential Harm from a Wrongful Preliminary Injunction
The bond amount analysis requires an estimate of the harm Lumicore would sustain if a preliminary injunction were granted and subsequently determined to have been wrongfully issued — that is, if OWS ultimately does not prevail on the merits at trial or the injunction is reversed on appeal. In that scenario, Lumicore would be entitled to recover damages caused by the wrongful injunction, up to the bond amount.
The harm categories are as follows:
Revenue Impact. The accused products generated $264.9 million in FY 2023 revenue. If a preliminary injunction barred Lumicore from selling the accused products for a 12- to 18-month period, Lumicore's revenue loss during that period could be substantial. Assuming flat revenue (no growth), a 12-month PI period would result in approximately $264.9 million in lost revenue; an 18-month period would result in approximately $397.4 million. However, these figures overstate the likely harm, because (1) Lumicore may be able to partially mitigate by redirecting customers to non-accused products or by accelerating the redesign effort, and (2) the bond is intended to cover damages, not gross revenue — Lumicore's recovery would be measured by lost profits, not lost revenue. Additionally, the optical transceiver market is experiencing robust growth, with industry analysts projecting compound annual growth rates of 18–22% through 2027. If market growth is factored in, Lumicore's claimed revenue loss during a PI period could exceed $300 million to $400 million or more.
Profit Impact. A more meaningful measure of Lumicore's harm is its lost gross profits during the PI period. Lumicore's accused-product gross margins, as disclosed in discovery documents designated "Highly Confidential — Attorneys' Eyes Only" under the Protective Order, range from 52.1% for the LumiLink 400G-ZR+ to 55.7% for the LumiLink 800G-DR8 to 58.3% for the LumiEdge 1600G-LR. Applying these margins to FY 2023 revenue yields the following lost gross profit estimates for a 12-month PI period:
For an 18-month PI period, the estimated lost gross profits would scale proportionally to approximately $217.8 million, before accounting for market growth. These figures represent gross profits and do not account for fixed costs that Lumicore would continue to incur regardless of the injunction (e.g., facility costs, executive salaries, certain R&D expenditures), which would reduce the net harm. Accordingly, Lumicore's actual lost net profits during a 12-month PI period would likely fall in the range of $140 million to $155 million, and could exceed this range in a growth scenario.
Additional Harm Categories. Beyond direct lost profits, Lumicore could claim additional categories of harm from a wrongful preliminary injunction, including:
• Customer relationship losses: Lumicore's customers — including major hyperscale cloud computing operators and telecommunications carriers — may shift their purchasing to OWS or other competitors during the PI period, and those customer relationships may not be fully recoverable even after the injunction is dissolved. Lumicore has identified several multi-year supply agreements with major customers that could be disrupted.
• Loss of market position: In the rapidly evolving optical transceiver market, a 12- to 18-month absence from the market could result in permanent loss of market share. Lumicore has positioned itself as a leading challenger to OWS in the 400G and 800G segments, and a forced withdrawal from the market could allow OWS (and other competitors) to consolidate their positions.
• Employee attrition: Lumicore employs approximately 870 people total. A significant portion of these employees are directly involved in the design, manufacturing support, sales, and customer engineering of the accused products. A prolonged injunction could lead to attrition of key engineering talent, which would be difficult and expensive to replace.
• Reputational harm: A public injunction barring Lumicore from selling its flagship products could damage Lumicore's reputation in the industry and among investors, potentially affecting its ability to raise capital, recruit talent, and secure customer commitments.
• Inability to fulfill existing contracts: Lumicore has existing purchase orders and supply agreements with customers that may not be subject to any sunset or transition provision in a preliminary injunction order. Failure to fulfill these contracts could expose Lumicore to breach-of-contract claims from its own customers.
These additional harm categories are potentially compensable but are more difficult to quantify precisely and are subject to mitigation arguments. A court setting the bond amount may give these categories some weight but is unlikely to attempt a precise quantification; rather, the court is likely to set the bond at a level that broadly encompasses both the direct profit impact and some cushion for additional harms.
Realistic Bond Amount Range. Based on the foregoing analysis, Lumicore will likely argue for a bond in the range of $100 million to $200 million or more, reflecting the full scope of its estimated lost profits and additional harms. We assess that the Court is likely to set the bond in the range of $50 million to $150 million, depending on its assessment of the likelihood that the injunction will ultimately be determined to have been wrongfully issued (which in turn depends on the Court's preliminary assessment of the strength of OWS's case on the merits) and the degree to which Lumicore's claimed harms are supported by evidence and subject to mitigation.
B. Arguments for a Reduced or Nominal Bond
OWS should advance multiple arguments for a bond set at a nominal amount or at a level significantly below Lumicore's full claimed harm. The strongest arguments are as follows:
OWS's Financial Strength. OWS is a financially robust company with FY 2023 revenue of $487.3 million, net income of $61.4 million, and access to a $125 million revolving credit facility with Weston Fidelity Bank, N.A. (with approximately $94.2 million in current availability). OWS is majority-owned by Ridgeline Capital Partners, LP, a well-capitalized private equity sponsor that acquired its 55% stake for $780 million in 2019. OWS's financial strength means that its ability to pay damages if Lumicore is wrongfully enjoined is not in doubt. The bond requirement is designed to protect the defendant against the risk that a judgment for wrongful enjoinment will be uncollectible; where the plaintiff's financial capacity to satisfy such a judgment is clear, a nominal bond serves the purpose of the Rule. See, e.g., Corrigan Dispatch, 569 F.2d at 303 (noting the court's discretion to consider the plaintiff's financial condition in setting bond amount); International Controls Corp. v. Vesco, 490 F.2d 1334, 1356 (2d Cir. 1974) (approving a reduced bond where the plaintiff was financially capable of satisfying any damages award).
Strength of OWS's Case on the Merits. To obtain a preliminary injunction, OWS must demonstrate a "substantial likelihood of success on the merits" — a high threshold that, if met, correspondingly reduces the risk of wrongful enjoinment. If the Court grants the preliminary injunction, it will have already determined that OWS is substantially likely to prevail at trial. The bond should be calibrated to the risk of wrongful enjoinment, not the quantum of harm assuming wrongful enjoinment; and a strong showing of likelihood of success reduces that risk considerably. See Mead Johnson & Co. v. Abbottott Labs., 201 F.3d 883, 888 (7th Cir. 2000) (noting the inverse relationship between the strength of the merits showing and the appropriate bond amount).
Patent Cases Often Involve Reduced Bonds. Courts have recognized that patent cases present a distinct context for bond analysis. Where the plaintiff is a practicing entity that competes directly with the defendant in the marketplace, the plaintiff's own competitive losses serve as a natural check on the risk of wrongful enjoinment. If OWS were to wrongfully enjoin Lumicore and subsequently lose at trial, OWS would have gained a temporary competitive advantage — but OWS would also be exposed to claims for wrongful enjoinment, and its own investment in the preliminary injunction (including legal fees, bond costs, and opportunity costs) would be lost. This natural alignment of incentives reduces the need for a large bond. See Abbottott Labs. v. Andrx Pharm., Inc., 452 F.3d 1331, 1347 (Fed. Cir. 2006) (discussing bond requirements in patent cases involving competing products).
OWS Is a Practicing Entity. OWS is not a non-practicing entity or patent assertion entity. OWS manufactures and sells optical transceiver products that compete directly with Lumicore's accused products, including:
• The OWS-400ZR transceiver module family, which competes directly with the LumiLink 400G-ZR+;
• The OWS-800XR transceiver module family, which competes directly with the LumiLink 800G-DR8; and
• The OWS-1600DR transceiver module family, which competes directly with the LumiEdge 1600G-LR.
Because OWS has its own market share and customer relationships at stake, it has strong incentives not to pursue a wrongful injunction. If the injunction is ultimately dissolved and OWS is found to have wrongfully enjoined Lumicore, OWS's temporary market gains would be reversed, and OWS would face reputational consequences in the marketplace. These natural incentives support a reduced bond.
Insurance Coverage. OWS maintains litigation-cost insurance under Pacific Rim Insurance Group, Policy No. PLI-2023-08812, which may provide coverage for bond obligations. If the policy covers bond premiums and collateral costs, OWS's financial exposure is further reduced, and the Court can be assured that any damages arising from wrongful enjoinment will be covered. Coverage confirmation is pending (see Section V.C below), but the existence of the insurance program is itself a factor supporting a reduced bond.
C. Arguments Against a Nominal Bond (Anticipated from Lumicore)
We should anticipate the following arguments from Lumicore in opposition to a nominal or reduced bond:
Massive Revenue at Stake. Lumicore will emphasize that its accused products generated $264.9 million in FY 2023 revenue, and that the injunction would effectively shut down approximately 42% of Lumicore's total product revenue. Lumicore will argue that a nominal bond would leave it without meaningful protection against this extraordinary potential harm. Lumicore will contend that the purpose of the bond is to ensure that the defendant can be made whole if the injunction is wrongfully issued, and that a nominal bond in the face of hundreds of millions of dollars of potential harm is inconsistent with that purpose.
Inability to Quickly Mitigate Harm. Lumicore has represented in discovery that a redesign to avoid the asserted patents would require 18 to 24 months. This extended redesign timeline means that Lumicore cannot quickly pivot to non-infringing alternatives if a preliminary injunction is granted. During the entire PI period, Lumicore would be unable to sell its most important product lines, with no meaningful ability to mitigate the resulting harm. This inability to mitigate supports a larger bond.
Public Company Status and Shareholder Impact. Lumicore is a publicly traded company with approximately 91.8 million shares outstanding and a market capitalization of approximately $3.4 billion (based on a stock price of approximately $37.00 per share as of the complaint filing date). Lumicore will argue that a wrongful preliminary injunction could materially impact its stock price, causing significant harm to its public shareholders. A nominal bond would provide no protection to these shareholders. Lumicore may cite securities law obligations and the potential for shareholder derivative suits arising from the company's inability to recover meaningful damages from a wrongful injunction.
Employee and Customer Commitments. Lumicore will point to its approximately 870 employees, a significant number of whom are directly involved in the accused-product lines, and argue that a wrongful injunction could lead to layoffs, employee attrition, and loss of institutional knowledge. Lumicore will also identify specific customer commitments and supply agreements that would be disrupted, and argue that the resulting breach-of-contract exposure and customer relationship damage warrant a substantial bond.
Distinguishing OWS's Financial Strength Argument. Lumicore will argue that OWS's financial strength is not a substitute for an adequate bond. Even if OWS has the resources to satisfy a damages judgment, the bond serves as a liquid, immediately available source of recovery that does not require Lumicore to litigate a separate wrongful-enjoinment action to collect. Without an adequate bond, Lumicore would face the risk and expense of pursuing a second lawsuit against OWS to recover damages from wrongful enjoinment, with no guarantee of recovery.
D. Recommended Bond Amount Position
Based on the foregoing analysis, our recommended approach is as follows:
Primary position: Argue for a bond in the range of $5 million to $15 million. OWS should present a comprehensive brief arguing that a bond in this range is sufficient to protect Lumicore's interests, emphasizing OWS's financial strength and ability to satisfy any damages judgment, the strength of OWS's case on the merits (as demonstrated by the Court's own finding of a substantial likelihood of success), OWS's status as a practicing entity with its own competitive incentives, and the availability of insurance coverage. OWS should present evidence that the risk of wrongful enjoinment is low given the strength of its patent portfolio and the evidence of infringement.
Realistic expectation: Prepare for the Court to set the bond in the range of $25 million to $75 million. Based on our review of E.D. Tex. practice, the scale of the accused products, and the anticipated opposition from Lumicore, we assess that the Court is most likely to set the bond in this range. The lower end of this range ($25 million) would apply if the Court is persuaded by OWS's financial strength and merits arguments; the upper end ($75 million) would apply if the Court gives significant weight to Lumicore's claimed lost profits and redesign timeline.
Alternative position: If the Court is inclined to set a bond above $50 million, argue for a phased bond structure. OWS should request that the bond increase over time — for example, $25 million in the first 90 days, increasing to $50 million after 90 days, and to the full amount after 180 days — to allow OWS to procure surety in stages and manage the cash flow impact. A phased structure also reflects the reality that Lumicore's harm accumulates over time rather than all at once.
Threshold consideration: If the Court sets a bond above $50 million, the team and client should carefully evaluate whether the cost of procuring the bond — including annual premiums, collateral requirements, and the opportunity cost of immobilized capital — is justified relative to the strategic benefit of the preliminary injunction. The permanent injunction remains the primary injunctive relief goal and requires no bond. A preliminary injunction is a powerful strategic tool, but its value must be weighed against the financial burden of a large bond.
V. Surety Identification and Bond Procurement
A. Heritage National Surety Co.
Identification. Heritage National Surety Co., a Connecticut-domiciled surety company headquartered in Hartford, Connecticut, has been identified as a potential surety for any injunction bond that may be required in connection with a preliminary injunction motion. Heritage National Surety Co. is a subsidiary of Heritage National Financial Group, Inc., and is rated A+ (Superior) by AM Best Company for financial strength. The company has been in continuous operation since 1927 and has substantial experience with federal court litigation bonds, including in large-scale intellectual property disputes.
Qualifications. Heritage National Surety Co. is authorized to issue federal court bonds and is listed on the U.S. Department of the Treasury's Listing of Certified Companies (commonly known as "Treasury Circular 570"), which confirms its authorization to provide suretyship on federal bonds. Heritage National Surety Co. has underwritten litigation bonds in patent infringement cases in the Eastern District of Texas and other federal courts, and its bonds have been accepted by courts in cases of comparable magnitude. The company's single-bond limit is $250 million, and its aggregate bond capacity is $1.2 billion, meaning a bond in the $25 million to $75 million range is well within its underwriting capacity.
Preliminary Contact. Calderwood & Harkness LLP has made preliminary inquiries with Heritage National Surety Co. through our contacts at the company's Specialty Bonds Division. Heritage National Surety Co. has indicated its willingness in principle to underwrite a bond in the range contemplated, subject to the following conditions: (1) review and approval of OWS's audited financial statements for FY 2023 (prepared by Gresham & Whitfield LLP, OWS's independent auditor); (2) execution of a general indemnity agreement by OWS and, potentially, by Ridgeline Capital Partners, LP, as the majority equity holder; and (3) satisfaction of collateral requirements. Heritage National Surety Co. has assigned a designated underwriter, Patricia Liang, to the account, and she is available to begin the formal underwriting process upon receipt of the application package.
Premium Estimate. Surety bond premiums for federal court litigation bonds of this type and magnitude typically range from 1% to 3% of the bond face amount, charged annually for the duration the bond remains in effect. The premium rate within this range depends on the applicant's creditworthiness, the nature and complexity of the underlying litigation, and the collateral posted. Based on OWS's financial profile, Heritage National Surety Co. has indicated that OWS would likely qualify for a premium rate at the lower to mid-range of this scale. The following table illustrates the estimated annual premium costs at various bond levels:
Collateral Requirements. Heritage National Surety Co. has indicated that it may require OWS to post collateral equal to a portion of the bond face amount, typically in the range of 25% to 50%. Acceptable forms of collateral include cash deposits, irrevocable letters of credit, and certain investment-grade securities. OWS's $125 million revolving credit facility with Weston Fidelity Bank, N.A. (with approximately $94.2 million in current availability) could be used to issue a standby letter of credit as collateral, though this would reduce OWS's available borrowing capacity under the facility. The following table illustrates the estimated collateral requirements at various bond levels:
Timeline. Based on Heritage National Surety Co.'s guidance, bond procurement typically takes two to four weeks from submission of a completed application package, including underwriting review, execution of the indemnity agreement, posting of collateral, and issuance of the bond. Given the contingent nature of the PI motion, we recommend preparing the complete application package now — including OWS's financial statements, a draft indemnity agreement, and collateral arrangements with Weston Fidelity Bank — so that it is ready for immediate submission if and when the decision is made to activate the PI motion. This advance preparation would reduce the procurement timeline to approximately one to two weeks from the activation decision, ensuring that OWS can move swiftly.
B. Alternative Surety Options
In the event that Heritage National Surety Co.'s terms are unfavorable or its underwriting process encounters delays, the following alternative arrangements should be explored:
Alternative Surety Companies. Other surety companies with the capacity and experience to underwrite a federal court litigation bond in this range include Camberwell Insurance, Stonefield Mutual Insurance, and Harborview Assurance. Each of these companies is Treasury-listed and has experience with intellectual property litigation bonds. If Heritage National Surety Co. is unable to provide competitive terms, we should obtain preliminary quotes from at least two of these alternative providers.
Cash Bond or Letter of Credit Directly with the Court. As an alternative to a surety bond, OWS could post a cash bond or an irrevocable letter of credit directly with the Court. This approach bypasses the surety entirely, eliminating the premium cost, but requires OWS to immobilize capital equal to the full bond amount. For a $25 million bond, this approach may be feasible using OWS's existing revolving credit facility (the letter-of-credit fee under the Weston Fidelity facility is approximately 1.5% per annum, which is competitive with surety premiums). For a bond above $50 million, the cash or letter-of-credit approach would consume a significant portion of OWS's available liquidity and may not be practical without supplemental financing.
Ridgeline Capital Partners Backstop. Ridgeline Capital Partners, LP, as OWS's 55% equity holder, may be willing to backstop or guarantee the bond obligation. This could take the form of a guarantee on the Heritage National Surety Co. indemnity agreement (which would strengthen OWS's credit profile and potentially reduce the premium rate and collateral requirements) or a direct guarantee to the Court in lieu of a surety bond. However, this approach would require approval from Ridgeline's investment committee and board of directors, and may trigger covenants under the Weston Fidelity revolving credit facility (specifically, the negative pledge and subsidiary guarantee covenants in Sections 7.04 and 7.08 of the credit agreement). Coordination with OWS's CFO, David Leitner, and Ridgeline's portfolio company oversight team (Franklin Osei, Managing Director) would be required before pursuing this option.
C. Insurance Coverage for Bond Costs
OWS maintains directors' and officers' liability and litigation-cost insurance through Pacific Rim Insurance Group under Policy No. PLI-2023-08812. The policy provides coverage for certain litigation costs, including legal fees, expert witness fees, and related expenses incurred in connection with covered claims. It is unclear from the current policy summary whether the coverage extends to surety bond premiums and collateral costs, which are not traditional litigation expenses.
We recommend the following steps to clarify the insurance coverage:
1. Alan Ngo should send a formal coverage inquiry to Pacific Rim Insurance Group's claims department, specifically requesting confirmation of whether Policy No. PLI-2023-08812 covers (a) surety bond premiums incurred in connection with injunctive relief in the captioned patent litigation, and (b) the cost of posting collateral (whether cash or letter-of-credit fees) in connection with such a surety bond.
2. If the policy does cover bond costs, the coverage limits and any applicable deductibles or sublimits should be identified so that OWS can determine the net out-of-pocket cost.
3. If coverage is confirmed, bond costs can be absorbed within the existing insurance program rather than the $18.5 million litigation budget, reducing the financial impact on OWS and potentially avoiding the need for supplemental authorization from the Board and Ridgeline Capital Partners.
We note that even if the insurance policy covers bond premiums, it is unlikely to cover the full collateral requirement, which is a temporary capital commitment rather than an expense. The collateral would be returned to OWS upon dissolution of the bond.
VI. Bond Waiver Arguments
A. Legal Standard for Bond Waiver
Although Rule 65(c) generally requires the posting of security as a condition of a preliminary injunction, courts in the Fifth Circuit have recognized limited discretion to waive the bond requirement entirely or to set the bond at a nominal amount. Complete waiver of the bond is rare and is granted only in exceptional circumstances, but the possibility should be explored as part of OWS's bond briefing.
The Fifth Circuit has identified several circumstances in which a bond may be waived or set at a nominal amount:
(1) No realistic likelihood of harm to the defendant. A bond may be waived where the court determines that there is no realistic likelihood that the defendant will suffer harm from the injunction. This is the most commonly recognized basis for waiver and is the strongest argument available to OWS. If the Court concludes that OWS's likelihood of success on the merits is so strong that the risk of wrongful enjoinment is negligible, the bond amount may be reduced to a nominal figure or waived entirely. See Kaepa, 76 F.3d at 628 ("The district court is not required to set a bond in any specific amount; it has discretion to set the bond at a nominal amount if the circumstances so warrant."); Phelps v. Hamilton, 122 F.3d 885, 906 (10th Cir. 1997) (approving nominal bond where risk of harm to defendant was minimal).
(2) Plaintiff's inability to post the bond. A bond may be waived where the plaintiff demonstrates an inability to post the required security and the equities strongly favor injunctive relief. This argument is unavailable to OWS, which has substantial financial resources and the ability to post a significant bond. Raising an inability-to-pay argument would be inconsistent with OWS's broader litigation posture and financial representations.
(3) Defendant's egregious misconduct. In extraordinary cases, a bond may be waived where the defendant has engaged in particularly egregious conduct, such as willful infringement or deliberate destruction of evidence, that warrants depriving the defendant of the protection ordinarily afforded by the bond requirement. OWS has alleged willful infringement (Count VII of the Complaint), and if the evidence of willfulness is strong, this argument could supplement the primary no-harm argument. However, courts have been cautious about using the willfulness allegation — which is a merits issue to be resolved at trial — as a basis for waiving the bond requirement at the preliminary injunction stage.
B. Application to This Case
Applying the foregoing standards to the facts of this case, our assessment is as follows:
Full bond waiver is unlikely. Given the magnitude of Lumicore's accused-product revenue ($264.9 million annually) and the direct competitive impact of an injunction that would shut down approximately 42% of Lumicore's total product revenue, a court would be reluctant to waive the bond requirement entirely. The potential harm to Lumicore is too substantial and too concrete to support a finding that there is "no realistic likelihood of harm." Additionally, OWS's strong financial position undermines any argument that it is unable to post a bond; the equities of bond waiver are strongest when the plaintiff is a party of limited means that would be effectively denied access to injunctive relief by a bond requirement, which is not the case here.
A reduced or nominal bond is the more realistic target. For the reasons set forth in Section IV.B above, OWS's strongest arguments support a bond in the range of $5 million to $15 million — well below Lumicore's claimed harm but sufficient to provide meaningful protection. The arguments for a reduced bond are stronger than the arguments for complete waiver, and focusing on bond reduction rather than waiver is the more credible litigation position.
Phased bond as an alternative. If the Court is inclined to set a very large bond — for example, in excess of $100 million — OWS should argue in the alternative for a phased bond structure. Under a phased approach, the bond would start at a lower amount (e.g., $25 million) and increase in defined stages over the life of the preliminary injunction (e.g., increasing to $50 million after 90 days and to the full amount after 180 days). This approach allows OWS to procure surety in stages, manage the cash flow impact, and potentially resolve the case (through trial or settlement) before the bond reaches its maximum amount. Phased bond structures are not commonly ordered, but they are within the court's broad discretion under Rule 65(c) and have been approved in other complex commercial litigation. See, e.g., In re Kestrel Partners LLC Antitrust Litig., 333 F.3d 517, 526 (4th Cir. 2003) (noting courts' flexibility in structuring bond requirements).
VII. Impact on Litigation Strategy and Budget
A. Budget Implications
The $18.5 million litigation budget approved by OWS's Board of Directors and Ridgeline Capital Partners, LP, pursuant to Board Resolution No. 2024-07 dated April 2, 2024, covers attorney fees, expert witness costs, e-discovery vendor costs, travel, and related litigation expenses through trial. The approved budget does not include bond premiums or collateral costs, as the decision to pursue a preliminary injunction (and consequently incur bond obligations) was not made at the time the budget was approved.
If a preliminary injunction is pursued and a bond in the $25 million to $75 million range is required, the following additional costs would be incurred:
Annual premium: $250,000 to $2.25 million per year, depending on the bond face amount and the premium rate negotiated with Heritage National Surety Co. At the midpoint of our projected range ($50 million bond, 2% premium rate), the annual premium would be approximately $1.0 million.
Collateral: $6.25 million to $37.5 million in cash deposits or letters of credit, depending on the bond face amount and the collateral percentage required by Heritage National Surety Co. At the midpoint ($50 million bond, 37.5% collateral), the collateral requirement would be approximately $18.75 million. If collateral is posted in the form of a letter of credit under the Weston Fidelity revolving credit facility, the annual letter-of-credit fee would be approximately 1.5% of the letter-of-credit amount, or approximately $281,250 on an $18.75 million letter of credit.
Total estimated annual cost at midpoint: Premium of approximately $1.0 million, plus letter-of-credit fees of approximately $281,250, for a total annual cost of approximately $1.28 million, plus the opportunity cost of reduced borrowing capacity under the revolving credit facility.
These costs would need to be separately approved by OWS's Board of Directors and Ridgeline Capital Partners. The Ridgeline Capital Approval Letter dated April 2, 2024 (Board Resolution No. 2024-07) authorized only the $18.5 million litigation spend and did not contemplate bond-related expenditures. A supplemental authorization would be required, and the request should be coordinated through Franklin Osei, Managing Director at Ridgeline Capital Partners, who serves as the portfolio company oversight contact for the OWS investment.
Calderwood & Harkness LLP's fees incurred to date through the anticipated date of any bond procurement (approximately Q1 2025) are estimated at approximately $3.2 million, leaving approximately $15.3 million of the approved $18.5 million budget for remaining pre-trial, trial, and post-trial work. The bond costs, if incurred, would be additive to this budget.
B. Strategic Considerations
The bond analysis intersects with several broader strategic considerations that should inform the team's and client's decision-making:
Cost-Benefit of Preliminary Injunction. The cost of procuring a bond — potentially $1 million or more in annual premiums, plus $6 million to $37.5 million in immobilized collateral — may weigh against pursuing a preliminary injunction unless a clear triggering event occurs that materially changes the competitive dynamic. A triggering event that would justify activation of the PI motion (and the associated bond costs) would include Lumicore announcing a new accused product that expands the scope of infringement, Lumicore winning a major customer account that displaces OWS from a key relationship, or Lumicore taking other action that materially accelerates the irreparable harm to OWS. Absent such a triggering event, the cost of the bond may not be justified given that the permanent injunction — which requires no bond — remains the primary relief sought and is achievable at trial.
Permanent Injunction as Primary Goal. The permanent injunction remains OWS's primary injunctive relief objective. It does not require a bond, is based on a full adjudication of the merits, and provides durable protection against Lumicore's infringing conduct. The proposed permanent injunction order (Document 111) includes an 18-month sunset provision for existing customer commitments, which enhances its likelihood of surviving the Cascade Holdings public interest analysis and any challenge on appeal. The permanent injunction path should continue to be the focus of the team's injunctive relief efforts.
Settlement Implications. If the case settles before trial (or, in the PI scenario, before the PI is dissolved), any surety bond would be released, but the premiums already paid would be non-refundable. This creates a deadweight cost that reduces the net recovery from any settlement. For example, if a $50 million bond is procured at a 2% annual premium in January 2025 and the case settles in June 2025, OWS would have paid approximately $500,000 in non-refundable premiums. This cost should be factored into settlement timing considerations and communicated to the client in any settlement analysis. The settlement authority memorandum (Document 154, dated October 2024) should be updated to reflect these potential costs if the PI motion is activated.
Coordination with Other Workstreams. The bond analysis should be coordinated with several other active workstreams in the case:
• Irreparable harm evidence compilation (Document 109): The strength of OWS's irreparable harm showing is directly relevant to the bond analysis, because a strong irreparable harm case supports a strong merits case, which in turn supports a reduced bond. The irreparable harm evidence — including evidence of direct competition, lost customer wins, and price erosion — should be cross-referenced in the bond briefing.
• Settlement authority memorandum (Document 154): As noted above, potential bond costs should be incorporated into the settlement analysis if the PI motion is activated.
• Cascade Holdings analysis (Document 108): The Cascade Holdings four-factor analysis for the permanent injunction should be consistent with the arguments advanced in connection with any preliminary injunction bond briefing.
• Post-trial contingency planning (Document 113): If OWS prevails at trial and obtains a permanent injunction, Lumicore may seek a stay pending appeal under Rule 62. The post-trial contingency planning should address the possibility that the Court conditions a stay on Lumicore posting a bond — a scenario in which the bond obligation shifts to the defendant.
VIII. Recommendations and Next Steps
Based on the analysis set forth in this memorandum, I recommend the following actions:
1. No bond preparation needed for permanent injunction. The post-trial permanent injunction order (Document 111) does not require bond provisions, as Rule 65(c) does not apply to permanent injunctions. The team should confirm internally that the draft order is correctly structured and does not contain any unnecessary references to security or bond requirements. Omar Siddiqui has been asked to review Document 111 for this purpose.
2. Pre-position for preliminary injunction bond. The team should complete the application package for Heritage National Surety Co. so that it is ready for immediate submission if the PI motion is activated. This pre-positioning effort involves the following specific tasks:
a. Prepare Heritage National Surety Co. bond application. Compile the required application materials, including OWS's FY 2023 audited financial statements (prepared by Gresham & Whitfield LLP), the most recent interim financial statements, and a description of the underlying litigation. The application package should be assembled by Omar Siddiqui, with review by Wendy Schultz, and should be ready for submission within two weeks.
b. Obtain indemnity agreement template. Request the standard form of General Indemnity Agreement from Heritage National Surety Co. and review it for any objectionable provisions (particularly provisions requiring personal guarantees from OWS executives, unlimited indemnity exposure, or cross-collateralization with other obligations). Negotiate any necessary modifications before the bond is needed.
c. Coordinate with David Leitner (OWS CFO) on collateral availability. Contact David Leitner to determine the current availability under the Weston Fidelity Bank, N.A. revolving credit facility, the terms and fees for issuing a standby letter of credit as collateral, and any covenant implications of posting collateral for a litigation bond. Confirm that the credit agreement permits the issuance of a letter of credit for this purpose without requiring lender consent.
d. Obtain preliminary quotes. Request formal premium quotes from Heritage National Surety Co. for bonds at three face amounts: $25 million, $50 million, and $75 million. The quotes should specify the annual premium rate, collateral requirements, indemnity terms, and any conditions or limitations.
3. Develop bond reduction/nominal bond briefing. Draft a section of the preliminary injunction brief (Document 115) specifically addressing bond amount, incorporating the arguments outlined in Section IV.B above. The bond briefing should include:
a. A comprehensive legal argument for a nominal or reduced bond, citing OWS's financial strength, the strength of the merits case, OWS's practicing-entity status, and the availability of insurance coverage.
b. A proposed bond amount of $5 millio

ATTORNEY WORK PRODUCT / ATTORNEY-CLIENT PRIVILEGED — PREPARED IN ANTICIPATION OF LITIGATION

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