1014-00005 · Optiwave Semiconductor Corp · Internal Communications

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MEMORANDUM

TO: Catherine Bloom, Responsible Partner, intellectual Property Group

FROM: Alan Ngo, Billing Partner, intellectual Property Group

DATE: November 1, 2024

RE: Accounts Receivable Status & Collection Strategy — Optiwave Semiconductor Corp. (Matter No. 1014-00005)

CLASSIFICATION: PRIVILEGED & CONFIDENTIAL — INTERNAL FIRM USE ONLY

I. PURPOSE

This memorandum summarizes the current accounts receivable status for the Optiwave Semiconductor Corp. ("OWS") patent prosecution engagement (C&H Matter No. 1014-00005), analyzes the composition of the outstanding balance, recommends a phased collection strategy, and addresses the ethical considerations arising from the intersection of unpaid fees and our continuing professional obligations during the dormancy period. The purpose of this memorandum is to equip you, as the Responsible Partner on this engagement, with a complete picture of the financial exposure and the available options, and to solicit your guidance before any escalation steps are taken.

As you are aware, the matter has been dormant since Harborview Partners ("Veltrano"), the majority equity sponsor of OWS, imposed the Project Lighthouse budget freeze effective August 11, 2023. That freeze capped discretionary intellectual property expenditure across all Veltrano portfolio companies, and in practical terms brought all non-emergency prosecution activity on this docket to a standstill. The last billable activity on this matter was September 6, 2023, when Peter Vassiliev filed a two-month extension of time request for U.S. Application No. 17/672,204 (internally designated as "A1") with the United States Patent and Trademark Office.

The total outstanding balance on this matter, encompassing both unpaid invoices and unbilled work-in-progress, is $56,958.50 as of the date of this memorandum. This figure does not include costs associated with an emergency extension filing completed in October 2024, which, when invoiced, will bring the total outstanding to approximately $59,500 to $60,500. The balance has been outstanding, in whole or in part, for more than fourteen months, and despite repeated informal follow-up with the client's billing contact, no payments have been received since before the freeze.

The sections that follow provide a detailed engagement background, a line-item breakdown of the outstanding balance, a summary of collection efforts undertaken to date, a recommended phased collection strategy, and a thorough discussion of the ethical dimensions of this situation — including the firm's obligations under the California Rules of Professional Conduct, the USPTO Rules of Practice, and the practical constraints imposed by approaching statutory deadlines in the OWS patent prosecution docket.

II. ENGAGEMENT BACKGROUND

A. Engagement and Billing Structure

The firm's engagement with OWS for patent prosecution services was formalized through an engagement letter executed on February 10, 2022, which was countersigned by Marcus Whitfield, General Counsel of OWS. The engagement was formally opened in the firm's matter management system on February 14, 2022, under Matter No. 1014-00005.

The staffing and billing structure for this engagement is as follows:

• Responsible Partner: Catherine Bloom (USPTO Reg. No. 58,412)

• Billing Partner: Alan Ngo (USPTO Reg. No. 61,877)

• Lead Associate: Christy Bauer (USPTO Reg. No. 74,329)

• Working Associate: Peter Vassiliev (USPTO Reg. No. 79,514)

The client's billing address of record is 4710 Ridgeview Parkway, Suite 300, Santa Clara, California 95054. All invoices and billing correspondence have been directed to this address, to the attention of Sandra Koh, IP Manager and In-House Patent Counsel at OWS.

The fee arrangement for this engagement is structured on a standard hourly rate basis, subject to a ten percent (10%) volume discount negotiated at the inception of the engagement. The applicable rates, reflecting the volume discount, are as follows:

These discounted rates have been applied consistently across all invoices issued on this matter. No rate increases have been implemented since the engagement commenced, although the firm's standard rate schedule has been adjusted upward in both January 2023 and January 2024. The engagement letter does not contain a rate-freeze provision, but no adjustment has been communicated to OWS given the dormancy status.

During the active period of the engagement — that is, from the engagement opening in February 2022 through the imposition of the Project Lighthouse freeze in August 2023 — the pre-freeze average quarterly billing on this matter was approximately $87,400 per quarter in Calderwood & Harkness fees. This figure excludes government filing fees, foreign associate fees, and other disbursements, which were invoiced separately and generally paid on a current basis prior to the freeze. The aggregate C&H fees billed and collected during the active period were substantial, and the client relationship has historically been a productive and well-managed one. The current collection difficulties are a departure from the prior payment history.

B. Dormancy Event

On August 11, 2023, Veltrano Capital Partners imposed the Project Lighthouse budget freeze across its portfolio companies. The freeze imposed a cap on discretionary intellectual property spending of $25,000 per quarter across all outside counsel — a cap that is approximately $62,400 below the pre-freeze quarterly average spend with Calderwood & Harkness on this matter alone. It is important to note that OWS's IP prosecution docket extends beyond this firm; OWS also engages foreign counsel in connection with its EPO and JPO applications. The practical effect of the cap was to halt virtually all prosecution activity.

Upon learning of the budget freeze, the OWS docket was placed in dormant status within the firm's docket management system effective August 11, 2023. You acknowledged the dormancy in your letter to Marcus Whitfield dated September 15, 2023, in which you confirmed that the firm would cease substantive prosecution work pending further instruction from OWS but would continue to monitor and report statutory deadlines as they approached. That letter also noted the firm's ongoing obligation to protect the client's interests during any period of inactivity and requested written confirmation from OWS that it understood the consequences of deferring prosecution activity.

The last billable activity on this matter occurred on September 6, 2023, when Peter Vassiliev filed a two-month extension of time request for the A1 application (U.S. Application No. 17/672,204). The associated USPTO extension fee of $640 was advanced by the firm. No further substantive work was performed following that filing, and the docket remained in dormant status through the remainder of 2023 and substantially all of 2024.

One subsequent emergency activity occurred outside the normal dormancy protocol. On October 15, 2024, Sandra Koh contacted the undersigned and Christy Bauer to authorize, on an emergency basis, the filing of a four-month extension of time for the B1 application (U.S. Application No. 17/814,057). Sandra Koh's authorization was provided by email and confirmed verbally. The filing was completed on October 18, 2024, by Peter Vassiliev, with an associated USPTO fee of $2,560 at the small entity rate. The billing treatment of this emergency filing is addressed in greater detail in Section III.D below.

C. Client Contacts for Billing and Collection

The following individuals are the relevant contacts for billing and collection purposes on this engagement:

• Sandra Koh, IP Manager / In-House Patent Counsel, OWS. Sandra has served as the primary billing contact for this engagement since its inception. She reviews invoices, approves billing entries, and coordinates payment processing with the OWS finance department. She has been the sole point of contact for the undersigned's collection follow-up efforts. Sandra has been responsive and professional in her communications, but has been unable to secure payment authorization within the constraints of the Project Lighthouse freeze.

• Marcus Whitfield, General Counsel, OWS. Marcus countersigned the engagement letter and has been the escalation contact for matters of engagement scope and legal strategy. He has not been directly involved in billing or collection discussions to date. Any formal escalation of the collection effort should be directed to Marcus in the first instance.

• Daniel Everhart, Chief Financial Officer, OWS. Daniel holds ultimate financial authority at the company level for expenditure approvals and is the individual most directly responsible for managing the OWS budget within the parameters set by Veltrano. He has not been contacted by the firm regarding the outstanding balance. Involvement of the CFO may be necessary to secure payment authorization given the nature of the spending restrictions.

• Harborview Partners personnel:

• Christine Paulsen, Operating Partner (Technology Sector), Harborview Partners. Christine serves as the Veltrano board-level liaison for OWS and oversees operational matters, including budgetary compliance with Project Lighthouse.

• Theodore "Ted" Hargrove, Managing Partner, Harborview Partners. Ted has ultimate authority over Veltrano's portfolio-wide spending policies, including the Project Lighthouse freeze.

It is important to note that Veltrano is the majority equity sponsor of OWS, holding a 72% equity stake acquired in 2019 at an enterprise value of approximately $310 million. Veltrano is the entity that imposed the budget freeze, and any meaningful relaxation of the freeze for this matter will likely require Veltrano-level approval. The firm has not communicated directly with Veltrano personnel regarding the outstanding balance. All collection communications have been routed through Sandra Koh.

III. OUTSTANDING BALANCE — DETAILED BREAKDOWN

A. Summary. The total outstanding balance on the OWS engagement as of November 1, 2024, is composed of two categories: unbilled work-in-progress and unpaid invoices. The breakdown is as follows:

Each component is discussed in detail below.

B. Unpaid Invoices

Two invoices have been issued to OWS on this matter and remain unpaid. Both invoices were issued in the ordinary course — one immediately before and one immediately after the imposition of the Project Lighthouse freeze — and have been outstanding for over fourteen months as of the date of this memorandum.

Invoice No. 2023-07-04187 — July 2023 Billing Period

• Date Issued: August 15, 2023 (standard billing cycle)

• Amount: Included in the $22,740.00 combined total

• Status: Issued; payment past due. This invoice has been outstanding for more than fifteen months as of the date of this memorandum.

• Content: This invoice covers prosecution work performed during the month of July 2023, including preparation and filing of the B1 application (U.S. Application No. 17/814,057) and related activities, including claim drafting, specification review, and filing formalities. The invoice also includes certain docket management and deadline calendaring time entries attributable to the July period.

• Note: This invoice was issued shortly before the August 11, 2023 budget freeze took effect. No payment has been received. Sandra Koh acknowledged receipt of the invoice in her August 22, 2023 email but indicated that the newly imposed spending restrictions would delay processing.

Invoice No. 2023-08-04187 — August 2023 Billing Period

• Date Issued: September 15, 2023 (standard billing cycle)

• Amount: Included in the $22,740.00 combined total

• Status: Issued; payment past due. This invoice has been outstanding for more than fourteen months as of the date of this memorandum.

• Content: This invoice covers prosecution work performed during the month of August 2023, including the initial wind-down activities following the budget freeze. Time entries include Christy Bauer's partial work on the A1 Office Action response (subsequently suspended), docket review, and communications with Sandra Koh regarding the dormancy protocol.

• Note: This invoice was issued after the freeze took effect. No payment has been received. Sandra Koh indicated in her October 2023 response to the undersigned's follow-up inquiry that payment for this invoice would require approval at a level above her authority, given the Project Lighthouse restrictions.

The combined unpaid invoice total is $22,740.00. Both invoices were prepared and issued in accordance with the firm's standard billing procedures and the terms of the engagement letter. No substantive billing disputes have been raised by OWS; the non-payment is attributable solely to the spending restrictions imposed by the PE sponsor.

C. Unbilled Work-in-Progress

In addition to the two unpaid invoices, the matter carries a work-in-progress balance of $34,218.50. This WIP balance represents time and disbursements that accrued during the August–September 2023 period but had not yet been invoiced at the time the dormancy protocol was implemented. In the interest of not exacerbating the billing situation during the early weeks of the freeze, the undersigned made the decision to defer invoicing of this WIP pending further clarity on the client's payment posture. That decision, made in good faith, has resulted in a substantial balance remaining in unbilled status for over thirteen months.

The WIP balance includes the following components:

• Partial drafting of the A1 (U.S. App. No. 17/672,204) Office Action response by Christy Bauer. Christy had commenced drafting a response to the outstanding Office Action on A1 prior to the budget freeze. The draft was incomplete at the time work was suspended and had not yet undergone partner review. The time entries associated with this drafting work represent a material portion of the WIP balance.

• September 6, 2023 extension filing by Peter Vassiliev. Peter's time for preparing and filing the two-month extension of time request for A1, together with the associated $640 USPTO extension fee advanced by the firm, is included in the WIP balance. This extension was the last billable activity on the matter prior to the current dormancy.

• Docket review, deadline calendaring, and dormancy protocol implementation time. Several time entries were recorded by Christy Bauer and Peter Vassiliev in connection with the implementation of the dormancy protocol, including review of the full OWS docket to identify and calendar all pending and upcoming deadlines, preparation of the dormancy status summary, and related administrative tasks. While these activities were necessary to ensure the responsible management of the docket during the dormancy period, the associated time has not been invoiced.

A decision is required regarding the disposition of this WIP balance. As discussed in Section V below, the undersigned recommends that the WIP be finalized and issued as a formal invoice to convert the balance to a documented receivable and to commence any applicable late-payment provisions under the engagement letter. Continued deferral of invoicing serves no collection purpose and creates unnecessary accounting complexity.

D. Emergency B1 Extension (October 2024)

As noted in Section II.B above, an emergency exception to the dormancy protocol occurred in October 2024 in connection with the B1 application (U.S. Application No. 17/814,057).

On October 15, 2024, Sandra Koh contacted the undersigned and Christy Bauer to authorize the firm to file a four-month extension of time for B1 as an emergency exception to the Project Lighthouse freeze. Sandra's authorization was provided via email and confirmed by telephone. The authorization was specific: it covered the extension filing and the associated USPTO fee but did not authorize any broader resumption of prosecution activity on the OWS docket. Christy Bauer confirmed the authorization and billing treatment in her October 16, 2024 internal email to the undersigned, copies of which are maintained in the matter file.

The filing was completed on October 18, 2024, by Peter Vassiliev. The associated USPTO fee was $2,560 at the small entity rate, and was advanced by the firm. Attorney time for this filing is modest — estimated at approximately 1.0 to 2.0 hours of associate time — and the relevant time entries have been entered to the matter in the firm's time and billing system but have not yet been invoiced.

The $2,560 USPTO fee was advanced by the firm as a disbursement and should be invoiced to OWS promptly, together with the associated attorney time. The emergency nature of the filing and the specific client authorization support issuing a standalone invoice for this work.

It is important to note that the emergency B1 extension charges are not included in the $56,958.50 outstanding balance figure cited throughout this memorandum. When invoiced, the emergency filing will increase the total outstanding to approximately $59,500 to $60,500, depending on the final calculation of attorney time.

IV. COLLECTION EFFORTS TO DATE

A. Billing Communications Sent

The firm's collection efforts on this matter to date have been limited to standard billing transmittals and informal follow-up, as summarized below:

• Standard invoice transmittals. Invoice No. 2023-07-04187 and Invoice No. 2023-08-04187 were transmitted to Sandra Koh at the client billing address in the ordinary course upon issuance in August and September 2023, respectively. Each transmittal was accompanied by the firm's standard cover letter requesting payment within thirty (30) days.

• Informal follow-up. The undersigned has made informal follow-up inquiries to Sandra Koh on a periodic basis since the invoices became past due. Specifically:

• In Q4 2023, the undersigned contacted Sandra Koh by email and by telephone to inquire about the status of payment for both outstanding invoices. Sandra acknowledged the outstanding balance and attributed the delay to the Project Lighthouse spending restrictions. She indicated that she was working with internal stakeholders to seek an exception or a phased payment arrangement but could not provide a timeline.

• In Q1 2024, the undersigned followed up again by email. Sandra reiterated the same position — that the spending restrictions remained in effect and that she had not yet received payment authorization from the OWS finance department or from Veltrano. She expressed appreciation for the firm's patience and indicated that she hoped the freeze would be relaxed in the second half of 2024.

• In Q2 2024, the undersigned made one additional follow-up inquiry by email. Sandra's response was consistent with her prior communications: the freeze remained in effect, internal escalation had not yielded results, and she was hopeful that the situation would improve as OWS's financial performance stabilized. She did not provide a specific payment commitment or timeline.

• No formal demand letter. No formal demand letter, statement of account, or written collection notice (beyond the standard invoice transmittals) has been sent to OWS. The undersigned has deliberately refrained from escalating the tone or formality of the collection communications out of respect for the ongoing client relationship and in recognition of the fact that the non-payment is attributable to the PE sponsor's policy rather than any dissatisfaction with the firm's work.

• No escalation beyond Sandra Koh. All collection communications have been directed to and through Sandra Koh. No communication regarding the unpaid invoices has been sent directly to Marcus Whitfield (General Counsel), Daniel Everhart (CFO), or any Veltrano personnel. While Sandra has been cooperative and transparent, it is evident that the collection effort has reached the limit of what can be accomplished at her level within the organization.

B. Client Financial Context

In evaluating the collectability of the outstanding balance, it is useful to understand OWS's current financial position and the economic environment that gave rise to the budget freeze:

• Revenue decline. OWS's fiscal year 2023 revenue was $47.3 million, representing a decline of approximately 30.5% from fiscal year 2022 revenue of $68.1 million — a year-over-year decrease of $20.8 million. This decline reflects the sector-wide downturn in the semiconductor industry that began in late 2022 and persisted through 2023, affecting OWS's core photonics and optical interconnect product lines. The revenue decline was the proximate cause of Veltrano's decision to implement the Project Lighthouse spending restrictions across its portfolio.

• Credit facility. OWS maintains a $55 million senior secured revolving credit facility with Meridian National Bank, N.A. As of the most recently available information (estimated as of December 31, 2023, based on publicly available filings and client communications), OWS had approximately $32.5 million drawn on the facility, with approximately $22.5 million remaining undrawn. While the undrawn capacity suggests that OWS has liquidity available to satisfy the outstanding balance, access to the revolver is subject to borrowing base and covenant requirements that may constrain discretionary spending.

• Nature of the freeze. The Project Lighthouse budget freeze is a Veltrano portfolio-wide initiative and is not specific to OWS or to any dissatisfaction with Calderwood & Harkness's work, billing practices, or the quality of the patent prosecution services provided. Sandra Koh has confirmed on multiple occasions that OWS values the firm's work and that the non-payment is entirely attributable to the spending restrictions imposed by the PE sponsor.

• Ability to pay. Based on the available information, there is no indication that OWS lacks the financial ability to pay the outstanding $56,958.50 balance. The non-payment appears to be a policy-driven spending restriction imposed at the PE sponsor level rather than a reflection of OWS's inability to satisfy its obligations. This distinction is significant for purposes of both collection strategy and the ethical analysis in Section VI.

V. RECOMMENDED COLLECTION STEPS

Based on the foregoing analysis, the undersigned recommends a phased collection strategy designed to escalate the firm's collection efforts in a manner that is proportionate, professional, and consistent with the firm's ongoing obligations to OWS as a client. The recommended steps are organized into immediate, medium-term, and avoidance categories.

A. Immediate Actions (November–December 2024)

The following steps should be taken promptly:

1. Finalize and issue the WIP invoice. The $34,218.50 in unbilled work-in-progress should be converted to a formal invoice — proposed Invoice No. 2024-11-04187 — and transmitted to OWS in the standard manner. Finalizing the WIP will formalize the receivable, bring the full outstanding balance into the firm's accounts receivable tracking system, and start the clock on any applicable late-payment provisions under the engagement letter. There is no strategic benefit to continuing to hold the WIP in unbilled status, and doing so creates unnecessary ambiguity in the firm's financial reporting and in any collection communications with the client. The undersigned proposes to prepare the invoice for your review and approval before issuance.

2. Invoice the emergency B1 extension. A separate invoice should be issued for the October 18, 2024 emergency extension filing, including the $2,560 USPTO disbursement and the associated attorney time (estimated at 1.0 to 2.0 hours of associate time at $427.50/hour). This invoice should reference Sandra Koh's October 15, 2024 email authorization and should be transmitted promptly. Given that this work was performed on an emergency basis at the specific request of the client's authorized representative, there is a strong basis for expecting prompt payment of this invoice separate from the resolution of the older outstanding balance.

3. Escalate to General Counsel. A formal written collection letter should be sent from the undersigned to Marcus Whitfield, General Counsel of OWS, with a copy to Sandra Koh, summarizing all outstanding amounts, attaching copies of the unpaid invoices, and requesting payment within thirty (30) days. The letter should be professional in tone and should emphasize the following points:

• The firm's continued commitment to supporting OWS's patent prosecution needs;

• The length of time the outstanding balance has been unpaid;

• The aggregate amount outstanding, including the newly issued WIP invoice and the emergency extension invoice;

• The firm's hope that the matter can be resolved amicably and without further escalation; and

• A request for a meeting or call to discuss the outstanding balance and the path forward.

The letter should not threaten withdrawal, lien assertion, or litigation at this stage. The objective is to elevate the collection effort to an appropriate decision-maker within OWS without damaging the relationship.

4. Confirm billing contact with the CFO's office. The escalation letter to Marcus Whitfield should include a request that he involve Daniel Everhart (CFO) in the payment discussion. The budget freeze is fundamentally a financial and PE-driven constraint, and resolution will likely require the CFO's involvement and, potentially, an exception request to Veltrano. Sandra Koh has been unable to secure payment authorization at her level; engaging the CFO directly is the logical next step.

B. Medium-Term Actions (Q1 2025)

If the immediate actions do not result in full payment of the outstanding balance, the following medium-term steps should be considered:

1. Structured payment plan. If full immediate payment is not feasible given the ongoing spending restrictions, the firm should propose a structured payment plan to OWS. A reasonable arrangement might include three equal monthly installments over a ninety-day period, designed to clear the outstanding balance by the end of Q1 2025. The payment plan should be documented in writing and should include an acknowledgment of the full balance owed, a schedule of payments, and a commitment from OWS to remain current on any new invoices issued during the payment period.

2. Tie collection to reactivation. The imminent critical deadlines in the OWS patent prosecution docket — most notably, the A1 absolute deadline of March 9, 2025, and the B1 deadline of April 21, 2025 — will likely require substantial additional expenditure. Based on our assessment of the scope of the required Office Action responses, the A1 response alone is likely to require $22,000 to $30,000 in attorney fees and associated costs. Any budget authorization from OWS and Veltrano for reactivation work should be expressly conditioned on the resolution of the existing outstanding balance. The firm should not agree to perform substantial new work on this docket while a significant receivable from prior work remains unpaid and unaddressed.

3. Engagement letter review. The February 10, 2022 engagement letter should be reviewed in detail for any provisions relating to:

• Late-payment interest or finance charges;

• The firm's right to suspend services in the event of non-payment;

• Retainer or deposit requirements that may be invoked prospectively; and

• Any other contractual remedies available to the firm.

If the engagement letter contains a late-payment interest provision, interest should be calculated and included in future invoices or demand communications. If the engagement letter permits the firm to require a retainer deposit as a condition of continued representation, this provision should be invoked in connection with any docket reactivation.

C. Actions to Avoid at This Time

The undersigned recommends that the following actions not be taken at this time:

1. Referral to an outside collection agency. Referral to a third-party collection agency would be disproportionate for an outstanding balance of this magnitude, would likely generate a negative reaction from OWS and Veltrano, and could irreparably damage the client relationship. The firm has historically had a positive and productive relationship with OWS, and the non-payment is policy-driven rather than reflective of any intent to avoid payment. Collection agency involvement is not warranted at this stage.

2. Filing of any lien (including a charging lien on work product). Assertion of a retaining lien or a charging lien on prosecution work product is premature and raises significant ethical complications. As discussed in Section VI and Section VII below, the firm has ongoing obligations to the client with respect to the prosecution files, and asserting a lien over those files while statutory deadlines are pending could expose the firm to disciplinary and malpractice liability. No lien should be asserted at this time.

VI. ETHICAL CONSIDERATIONS — WITHDRAWAL VS. CONTINUED REPRESENTATION

A. The Core Tension

The outstanding balance on this matter presents a tension that is common in patent prosecution engagements but that carries particularly acute consequences here: the firm has not been paid for more than fourteen to fifteen months on the outstanding invoices, and the total receivable is now approaching $60,000. Under ordinary circumstances, persistent non-payment of this nature and duration would constitute grounds for permissive withdrawal under the applicable rules of professional conduct. However, the OWS docket contains imminent, irrevocable statutory deadlines that would make withdrawal at this time — without careful planning and adequate client notification — a potential source of material and irreversible harm to the client's patent rights.

The most critical of these deadlines is the absolute March 9, 2025 deadline for the A1 application (U.S. Application No. 17/672,204). This is the final deadline for filing a response to the outstanding Office Action; no further extensions of time are available. If this deadline is missed, the A1 application will be deemed abandoned by the USPTO. A1 is OWS's foundational United States patent application covering the tapered impedance-matching design-around architecture, and its loss would represent a significant and irreversible diminution of OWS's intellectual property portfolio.

Withdrawal at this stage, without adequate notice and sufficient time for OWS to identify, retain, and onboard successor patent counsel, could result in the loss of A1 and potentially other applications in the docket. The complexity of the docket — twelve applications spanning three jurisdictions (USPTO, EPO, and JPO) — means that successor counsel would require significant lead time to come up to speed on the technology, review the prosecution history, and assume responsibility for pending deadlines.

B. California Rules of Professional Conduct

The following provisions of the California Rules of Professional Conduct are directly relevant to the ethical analysis:

Rule 1.3 (Diligence). A lawyer shall not intentionally, repeatedly, or with gross negligence fail to act with reasonable diligence in representing a client. The duty of diligence is not suspended during a period of dormancy. Even where the client has directed the firm to pause substantive prosecution work, and even where the client has failed to pay for prior work, the firm retains a duty to act with reasonable diligence in protecting the client's interests. In the context of this engagement, the duty of diligence requires, at minimum, that the firm continue to monitor and track statutory deadlines and that it take affirmative steps to communicate approaching deadlines to the client in a timely manner. A failure to do so — whether motivated by frustration over non-payment or by simple inattention — could constitute a violation of Rule 1.3.

Rule 1.4 (Communication). A lawyer shall reasonably inform the client of significant developments in the representation, including the approaching loss of rights due to inaction. The approaching absolute deadline on A1 is precisely the type of development that triggers the duty of communication under Rule 1.4. Calderwood & Harkness has an affirmative obligation to warn OWS, clearly and in writing, of each upcoming statutory deadline and the consequences of failing to take action before that deadline, regardless of the payment status. The duty to communicate is independent of the fee dispute. Even if the firm were to withdraw, the duty to provide adequate notice of impending deadlines would persist through the effective date of withdrawal and arguably beyond.

Rule 1.16(b) (Permissive Withdrawal). A lawyer may withdraw from representation if the client's conduct renders it unreasonably difficult for the lawyer to carry out the representation effectively (Rule 1.16(b)(5)), or if other good cause for withdrawal exists (Rule 1.16(b)(9)). Persistent non-payment for more than fourteen months, combined with the client's inability to secure budget authorization for ongoing prosecution activities, may constitute good cause for withdrawal. However, permissive withdrawal is not automatic: the lawyer must consider whether withdrawal can be accomplished without material adverse effect to the client's interests. Given the imminent statutory deadlines on this docket, withdrawal cannot be accomplished without material adverse effect unless the client is given adequate time to retain successor counsel and transfer the prosecution files.

Rule 1.16(d) (Duties Upon Termination). Upon termination of representation, whether by withdrawal or discharge, a lawyer shall take steps to the extent reasonably practicable to protect the client's interests. These steps include giving reasonable notice to the client, allowing time for the client to retain other counsel, and surrendering papers and property to which the client is entitled. The breadth of this obligation is significant: it encompasses not only the physical file transfer but also the communication of all relevant deadlines, the status of each application, and any pending actions or responses. In the context of a twelve-application prosecution docket, compliance with Rule 1.16(d) would require a comprehensive transition memorandum and potentially a period of cooperation with successor counsel.

C. USPTO Rules of Practice

As registered practitioners before the United States Patent and Trademark Office, the attorneys staffed on this engagement — Catherine Bloom (Reg. No. 58,412), Alan Ngo (Reg. No. 61,877), Christy Bauer (Reg. No. 74,329), and Peter Vassiliev (Reg. No. 79,514) — are independently subject to the USPTO Rules of Practice, which impose obligations that are substantially parallel to, and in some cases more specific than, the state-law rules.

37 C.F.R. § 11.103 (Diligence). Practitioners before the USPTO must act with reasonable diligence and promptness in representing a client. This obligation extends to the monitoring of deadlines and the timely filing of extensions, responses, and other documents necessary to preserve the client's rights. The duty is personal to each registered practitioner and is not discharged by the dormancy of the engagement or the non-payment of fees.

37 C.F.R. § 11.104 (Communication). Practitioners must keep the client reasonably informed about the status of the matter and promptly comply with reasonable requests for information. The requirement to inform the client of approaching deadlines and the consequences of inaction is particularly critical in the patent prosecution context, where the loss of a filing deadline can result in the permanent forfeiture of patent rights.

37 C.F.R. § 11.116 (Declining or Terminating Representation). This provision substantially mirrors the state-law withdrawal framework set forth in California Rule 1.16. Withdrawal is permitted under certain circumstances, but the practitioner must take reasonable steps to protect the client's interests upon withdrawal, including providing notice of pending deadlines, returning files and work product, and allowing adequate time for the client to engage successor counsel.

Each of the four registered practitioners on this engagement bears independent professional responsibility for compliance with these provisions. A failure by the firm to monitor and communicate deadlines could expose individual practitioners to disciplinary proceedings before the USPTO Office of Enrollment and Discipline, separate from and in addition to any state-bar disciplinary exposure.

D. Practical Conclusions on Withdrawal

In light of the foregoing ethical framework, the undersigned reaches the following practical conclusions regarding the withdrawal question:

1. Calderwood & Harkness cannot ethically withdraw without providing OWS with clear, written notice of every pending deadline and adequate time to engage successor counsel. The twelve-application, three-jurisdiction scope of this docket, combined with the technical complexity of the underlying technology and the need for successor counsel to review extensive prosecution histories, means that a transition to new counsel cannot be accomplished overnight. Given the earliest absolute deadline of March 9, 2025 (the A1 response deadline), any withdrawal notice should be provided no later than mid-January 2025 to afford OWS a reasonable opportunity — approximately six to eight weeks — to retain and onboard successor counsel. Potential successor counsel may include Kessler & Morin LLP, which served as OWS's patent prosecution counsel prior to the engagement of Calderwood & Harkness in 2022 and which may be able to assume responsibility for the docket more quickly than a counsel without prior familiarity with OWS's technology and patent portfolio.

2. Calderwood & Harkness must continue to monitor and report deadlines regardless of payment status. The duty to communicate impending deadlines is independent of the fee dispute and cannot be suspended or deferred pending payment. The firm's obligation to notify OWS of the March 9, 2025 A1 deadline, the April 21, 2025 B1 deadline, and all subsequent statutory deadlines persists regardless of whether the outstanding $56,958.50 balance is paid. A failure to notify OWS of these deadlines could expose the firm to malpractice liability and could expose individual practitioners to disciplinary proceedings. This obligation applies even during the dormancy period and even in the event that the firm ultimately decides to withdraw.

3. Withdrawal is not recommended at this time. Taking into account the imminent statutory deadlines, the complexity of the docket, the strength and longevity of the client relationship, and the likelihood that the Project Lighthouse budget freeze may be partially lifted for critical filings — as demonstrated by Sandra Koh's October 2024 authorization of the emergency B1 extension — the undersigned does not recommend withdrawal at this time. The outstanding $56,958.50 balance, while meaningful and worthy of active collection efforts, does not justify the risk to the client's patent rights or to the firm's professional reputation and exposure. Withdrawal in the face of imminent, irreversible deadlines would be a disproportionate response to a collection problem that is, in the undersigned's assessment, amenable to resolution through escalation and negotiation.

4. If payment is not resolved by Q1 2025, the firm should reassess. Should OWS fail to authorize payment of the outstanding balance and fail to authorize budget for the critical A1 and B1 responses by early February 2025, the calculus may change. At that point, the firm should prepare a formal withdrawal notice with comprehensive deadline disclosure — including a detailed schedule of all pending deadlines, the status of each application, and the consequences of inaction — to be delivered with sufficient lead time before the March 9, 2025 absolute deadline. The withdrawal notice should be prepared in consultation with the firm's general counsel and risk management team to ensure compliance with all applicable rules and to minimize the firm's exposure. However, even in this scenario, the firm should explore every available avenue for resolution before transmitting a withdrawal notice.

VII. ADDITIONAL CONSIDERATIONS

A. Lien on Work Product

Under California law, Calderwood & Harkness may have a retaining lien on work product in its possession, including the incomplete A1 Office Action response draft prepared by Christy Bauer before the dormancy period. A retaining lien is a common-law right that permits an attorney to retain possession of a client's papers and documents until the attorney's fees are paid. In principle, this lien could be asserted as leverage in the collection effort.

However, exercising a retaining lien over patent prosecution files when statutory deadlines are imminent raises significant ethical concerns. California Rule of Professional Conduct 1.16(d) requires that, upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect the client's interests, including surrendering papers and property to which the client is entitled. Courts and ethics authorities have consistently held that an attorney may not assert a retaining lien in a manner that would cause material harm to the client's interests, particularly where the client's rights are time-sensitive and could be permanently lost.

In the patent prosecution context, the assertion of a retaining lien over prosecution files — including office action responses, draft claims, prior art search results, inventor declarations, and other prosecution documents — while statutory response deadlines are pending would likely be viewed as a violation of Rule 1.16(d) and could expose the firm to disciplinary sanctions, malpractice claims, and potential liability for the value of the lost patent rights.

Recommendation: Do not assert any retaining lien or charging lien on prosecution work product at this time. If withdrawal becomes necessary, all files — including the incomplete A1 Office Action response draft, all prosecution histories, all docket records, and all client documents — should be released promptly and completely to OWS or its designated successor counsel, without condition. The firm's collection rights can be preserved through other means, including the continued pursuit of unpaid invoices through normal collection channels.

B. Impact of Graystone Valuation on Collection Posture

In April 2023, Graystone Valuation Advisors, LLC conducted a comprehensive portfolio valuation of OWS's intellectual property assets in connection with Veltrano's annual portfolio review. The Graystone valuation, dated April 28, 2023, attributed a total fair market value of $38.5 million to the OWS patent portfolio, allocated as follows:

• Issued patents (31 U.S. and foreign patents): $26.3 million

• Pending patent application family (12 applications): $12.2 million

The pending application family that is the subject of Calderwood & Harkness's prosecution engagement was thus valued at $12.2 million — a figure that underscores the significant economic value at stake if prosecution deadlines are missed and applications are abandoned.

The outstanding balance of $56,958.50 represents less than 0.5% of the Graystone-assessed value of the pending applications alone. This framing may be useful in escalation communications to Veltrano and OWS to contextualize the modest cost of resolving the outstanding balance relative to the substantial asset value that would be placed at risk by any disruption to the prosecution effort. A well-crafted escalation letter to Marcus Whitfield — or, if necessary, a communication to Christine Paulsen at Veltrano — could reference the Graystone valuation to illustrate the risk-reward imbalance of maintaining the budget freeze on this matter.

C. Meridian National Bank Covenant Implications

OWS's $55 million Revolving Credit Facility with Meridian National Bank, N.A. contains intellectual property prosecution covenants that have direct relevance to the situation described in this memorandum. Specifically, Section 5.15 of the credit agreement requires OWS to maintain and prosecute its Material intellectual Property, a defined term that encompasses any intellectual property asset that is material to the conduct of OWS's business or that has been identified as collateral for the credit facility.

The pending patent application family — including A1, B1, and the remaining applications in the docket — has been identified as Material intellectual Property in the schedules to the credit agreement. If Calderwood & Harkness were to withdraw from the engagement and OWS were unable to retain successor counsel in time to preserve the pending deadlines, the resulting patent abandonments could constitute a breach of the Section 5.15 covenant. A covenant breach of this nature could trigger an event of default under the credit agreement, potentially accelerating the $32.5 million currently drawn on the revolving credit facility.

While the undersigned does not have access to the full text of the credit agreement and cannot render a definitive opinion on the covenant implications, the interconnected risk is significant and further supports the conclusion that continued engagement and active collection — rather than withdrawal — is the appropriate course of action. The potential for a covenant default adds an additional dimension of harm that would flow from a disruption to the prosecution effort and should be communicated to OWS as part of the firm's deadline notification obligations.

VIII. SUMMARY AND RECOMMENDATIONS

Based on the analysis set forth in this memorandum, the undersigned respectfully recommends the following course of action:

1. Finalize and issue the WIP invoice immediately. The $34,218.50 in unbilled work-in-progress should be converted to a formal invoice (proposed Invoice No. 2024-11-04187) and transmitted to OWS without further delay. The undersigned will prepare the invoice for your review and approval.

2. Invoice the October 2024 emergency B1 extension. A separate invoice should be issued for the emergency extension filing completed on October 18, 2024, including the $2,560 USPTO disbursement and associated attorney time, with reference to Sandra Koh's October 15, 2024 email authorization.

3. Send a formal collection letter to Marcus Whitfield. A formal written collection letter should be sent from the undersigned to Marcus Whitfield, General Counsel of OWS, escalating the $56,958.50 outstanding balance (plus the emergency extension charges) and requesting payment within thirty (30) days. The letter should be professional in tone, should emphasize the firm's continued commitment to the client relationship, and should request a meeting or call to discuss the path forward. A copy should be provided to Sandra Koh.

4. Continue deadline monitoring and client notification. The firm must continue to monitor and communicate all pending statutory deadlines through the critical March–July 2025 deadline window, regardless of payment status. This obligation is independent of the fee dispute and must not be deferred or conditioned on payment.

5. Do not pursue withdrawal at this time. For the reasons discussed in Section VI, withdrawal from the OWS engagement is not recommended at this time. The firm should reassess the withdrawal question in early February 2025 if no meaningful progress has been made on either payment of the outstanding balance or budget authorization for the critical A1 and B1 responses.

6. Prepare a comprehensive deadline warning letter. Catherine Bloom should separately prepare and transmit a comprehensive deadline warning letter to OWS — with a suggested target delivery date of December 2024 — documenting all imminent statutory deadlines, the consequences of inaction, and the actions required to preserve OWS's patent rights. This letter will serve the dual purpose of fulfilling the firm's communication obligations under California Rule 1.4 and 37 C.F.R. § 11.104, and creating a contemporaneous record that will protect the firm from potential malpractice exposure in the event that OWS fails to act.

7. Coordinate collection strategy with docket reactivation. Any collection efforts should be coordinated with any forthcoming docket reactivation proposal to Veltrano and OWS. The imminent deadlines will force a decision point for OWS and its PE sponsor, and the resolution of the outstanding balance should be integrated into any discussion of budget authorization for new prosecution work. The firm should not agree to perform substantial new work on this docket while the existing receivable remains unresolved.

CLOSING

I respectfully request your review and approval of the recommended collection steps outlined in Section VIII above. I believe the phased approach described herein appropriately balances the firm's financial interests with our ongoing professional obligations to OWS and the practical realities of the dormancy situation.

I would welcome the opportunity to schedule a meeting at your earliest convenience to discuss the next steps in detail. In particular, I believe we should coordinate on the timing of the escalation letter to Marcus Whitfield and its relationship to any planned communications to OWS or Veltrano regarding budget reactivation and the approaching A1 and B1 deadlines. I am available at your convenience and can prepare drafts of the escalation letter and the WIP invoice for your review on short notice.

Please do not hesitate to reach out with any questions or comments.

Alan Ngo Billing Partner, intellectual Property Group Calderwood & Harkness LLP

Direct: (415) 555-2847

Email: ango@calderwoodharkness.com

CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED — INTERNAL FIRM USE ONLY

This memorandum is a privileged and confidential internal communication of Calderwood & Harkness LLP. It is prepared for the exclusive use of the addressee in connection with the management of the firm's engagement with Optiwave Semiconductor Corp. and should not be distributed, copied, or disclosed to any person outside the firm without the prior written approval of the undersigned or the Responsible Partner.

Calderwood & Harkness LLP 555 California Street, 42nd Floor San Francisco, CA 94104

Timekeeper Level	Standard Rate	Discounted Rate (10%)
Partner	$895.00/hr	$805.50/hr
Senior Associate	$625.00/hr	$562.50/hr
Associate	$475.00/hr	$427.50/hr
Category	Amount
Unbilled Work-in-Progress (WIP)	$34,218.50
Unpaid Invoices (Accounts Receivable)	$22,740.00
Total Outstanding	$56,958.50

MEMORANDUM
TO: Catherine Bloom, Responsible Partner, intellectual Property Group
FROM: Alan Ngo, Billing Partner, intellectual Property Group
DATE: November 1, 2024
RE: Accounts Receivable Status & Collection Strategy — Optiwave Semiconductor Corp. (Matter No. 1014-00005)
CLASSIFICATION: PRIVILEGED & CONFIDENTIAL — INTERNAL FIRM USE ONLY
I. PURPOSE
This memorandum summarizes the current accounts receivable status for the Optiwave Semiconductor Corp. ("OWS") patent prosecution engagement (C&H Matter No. 1014-00005), analyzes the composition of the outstanding balance, recommends a phased collection strategy, and addresses the ethical considerations arising from the intersection of unpaid fees and our continuing professional obligations during the dormancy period. The purpose of this memorandum is to equip you, as the Responsible Partner on this engagement, with a complete picture of the financial exposure and the available options, and to solicit your guidance before any escalation steps are taken.
As you are aware, the matter has been dormant since Harborview Partners ("Veltrano"), the majority equity sponsor of OWS, imposed the Project Lighthouse budget freeze effective August 11, 2023. That freeze capped discretionary intellectual property expenditure across all Veltrano portfolio companies, and in practical terms brought all non-emergency prosecution activity on this docket to a standstill. The last billable activity on this matter was September 6, 2023, when Peter Vassiliev filed a two-month extension of time request for U.S. Application No. 17/672,204 (internally designated as "A1") with the United States Patent and Trademark Office.
The total outstanding balance on this matter, encompassing both unpaid invoices and unbilled work-in-progress, is $56,958.50 as of the date of this memorandum. This figure does not include costs associated with an emergency extension filing completed in October 2024, which, when invoiced, will bring the total outstanding to approximately $59,500 to $60,500. The balance has been outstanding, in whole or in part, for more than fourteen months, and despite repeated informal follow-up with the client's billing contact, no payments have been received since before the freeze.
The sections that follow provide a detailed engagement background, a line-item breakdown of the outstanding balance, a summary of collection efforts undertaken to date, a recommended phased collection strategy, and a thorough discussion of the ethical dimensions of this situation — including the firm's obligations under the California Rules of Professional Conduct, the USPTO Rules of Practice, and the practical constraints imposed by approaching statutory deadlines in the OWS patent prosecution docket.
II. ENGAGEMENT BACKGROUND
A. Engagement and Billing Structure
The firm's engagement with OWS for patent prosecution services was formalized through an engagement letter executed on February 10, 2022, which was countersigned by Marcus Whitfield, General Counsel of OWS. The engagement was formally opened in the firm's matter management system on February 14, 2022, under Matter No. 1014-00005.
The staffing and billing structure for this engagement is as follows:
• Responsible Partner: Catherine Bloom (USPTO Reg. No. 58,412)
• Billing Partner: Alan Ngo (USPTO Reg. No. 61,877)
• Lead Associate: Christy Bauer (USPTO Reg. No. 74,329)
• Working Associate: Peter Vassiliev (USPTO Reg. No. 79,514)
The client's billing address of record is 4710 Ridgeview Parkway, Suite 300, Santa Clara, California 95054. All invoices and billing correspondence have been directed to this address, to the attention of Sandra Koh, IP Manager and In-House Patent Counsel at OWS.
The fee arrangement for this engagement is structured on a standard hourly rate basis, subject to a ten percent (10%) volume discount negotiated at the inception of the engagement. The applicable rates, reflecting the volume discount, are as follows:
These discounted rates have been applied consistently across all invoices issued on this matter. No rate increases have been implemented since the engagement commenced, although the firm's standard rate schedule has been adjusted upward in both January 2023 and January 2024. The engagement letter does not contain a rate-freeze provision, but no adjustment has been communicated to OWS given the dormancy status.
During the active period of the engagement — that is, from the engagement opening in February 2022 through the imposition of the Project Lighthouse freeze in August 2023 — the pre-freeze average quarterly billing on this matter was approximately $87,400 per quarter in Calderwood & Harkness fees. This figure excludes government filing fees, foreign associate fees, and other disbursements, which were invoiced separately and generally paid on a current basis prior to the freeze. The aggregate C&H fees billed and collected during the active period were substantial, and the client relationship has historically been a productive and well-managed one. The current collection difficulties are a departure from the prior payment history.
B. Dormancy Event
On August 11, 2023, Veltrano Capital Partners imposed the Project Lighthouse budget freeze across its portfolio companies. The freeze imposed a cap on discretionary intellectual property spending of $25,000 per quarter across all outside counsel — a cap that is approximately $62,400 below the pre-freeze quarterly average spend with Calderwood & Harkness on this matter alone. It is important to note that OWS's IP prosecution docket extends beyond this firm; OWS also engages foreign counsel in connection with its EPO and JPO applications. The practical effect of the cap was to halt virtually all prosecution activity.
Upon learning of the budget freeze, the OWS docket was placed in dormant status within the firm's docket management system effective August 11, 2023. You acknowledged the dormancy in your letter to Marcus Whitfield dated September 15, 2023, in which you confirmed that the firm would cease substantive prosecution work pending further instruction from OWS but would continue to monitor and report statutory deadlines as they approached. That letter also noted the firm's ongoing obligation to protect the client's interests during any period of inactivity and requested written confirmation from OWS that it understood the consequences of deferring prosecution activity.
The last billable activity on this matter occurred on September 6, 2023, when Peter Vassiliev filed a two-month extension of time request for the A1 application (U.S. Application No. 17/672,204). The associated USPTO extension fee of $640 was advanced by the firm. No further substantive work was performed following that filing, and the docket remained in dormant status through the remainder of 2023 and substantially all of 2024.
One subsequent emergency activity occurred outside the normal dormancy protocol. On October 15, 2024, Sandra Koh contacted the undersigned and Christy Bauer to authorize, on an emergency basis, the filing of a four-month extension of time for the B1 application (U.S. Application No. 17/814,057). Sandra Koh's authorization was provided by email and confirmed verbally. The filing was completed on October 18, 2024, by Peter Vassiliev, with an associated USPTO fee of $2,560 at the small entity rate. The billing treatment of this emergency filing is addressed in greater detail in Section III.D below.
C. Client Contacts for Billing and Collection
The following individuals are the relevant contacts for billing and collection purposes on this engagement:
• Sandra Koh, IP Manager / In-House Patent Counsel, OWS. Sandra has served as the primary billing contact for this engagement since its inception. She reviews invoices, approves billing entries, and coordinates payment processing with the OWS finance department. She has been the sole point of contact for the undersigned's collection follow-up efforts. Sandra has been responsive and professional in her communications, but has been unable to secure payment authorization within the constraints of the Project Lighthouse freeze.
• Marcus Whitfield, General Counsel, OWS. Marcus countersigned the engagement letter and has been the escalation contact for matters of engagement scope and legal strategy. He has not been directly involved in billing or collection discussions to date. Any formal escalation of the collection effort should be directed to Marcus in the first instance.
• Daniel Everhart, Chief Financial Officer, OWS. Daniel holds ultimate financial authority at the company level for expenditure approvals and is the individual most directly responsible for managing the OWS budget within the parameters set by Veltrano. He has not been contacted by the firm regarding the outstanding balance. Involvement of the CFO may be necessary to secure payment authorization given the nature of the spending restrictions.
• Harborview Partners personnel:
• Christine Paulsen, Operating Partner (Technology Sector), Harborview Partners. Christine serves as the Veltrano board-level liaison for OWS and oversees operational matters, including budgetary compliance with Project Lighthouse.
• Theodore "Ted" Hargrove, Managing Partner, Harborview Partners. Ted has ultimate authority over Veltrano's portfolio-wide spending policies, including the Project Lighthouse freeze.
It is important to note that Veltrano is the majority equity sponsor of OWS, holding a 72% equity stake acquired in 2019 at an enterprise value of approximately $310 million. Veltrano is the entity that imposed the budget freeze, and any meaningful relaxation of the freeze for this matter will likely require Veltrano-level approval. The firm has not communicated directly with Veltrano personnel regarding the outstanding balance. All collection communications have been routed through Sandra Koh.
III. OUTSTANDING BALANCE — DETAILED BREAKDOWN
A. Summary. The total outstanding balance on the OWS engagement as of November 1, 2024, is composed of two categories: unbilled work-in-progress and unpaid invoices. The breakdown is as follows:
Each component is discussed in detail below.
B. Unpaid Invoices
Two invoices have been issued to OWS on this matter and remain unpaid. Both invoices were issued in the ordinary course — one immediately before and one immediately after the imposition of the Project Lighthouse freeze — and have been outstanding for over fourteen months as of the date of this memorandum.
Invoice No. 2023-07-04187 — July 2023 Billing Period
• Date Issued: August 15, 2023 (standard billing cycle)
• Amount: Included in the $22,740.00 combined total
• Status: Issued; payment past due. This invoice has been outstanding for more than fifteen months as of the date of this memorandum.
• Content: This invoice covers prosecution work performed during the month of July 2023, including preparation and filing of the B1 application (U.S. Application No. 17/814,057) and related activities, including claim drafting, specification review, and filing formalities. The invoice also includes certain docket management and deadline calendaring time entries attributable to the July period.
• Note: This invoice was issued shortly before the August 11, 2023 budget freeze took effect. No payment has been received. Sandra Koh acknowledged receipt of the invoice in her August 22, 2023 email but indicated that the newly imposed spending restrictions would delay processing.
Invoice No. 2023-08-04187 — August 2023 Billing Period
• Date Issued: September 15, 2023 (standard billing cycle)
• Amount: Included in the $22,740.00 combined total
• Status: Issued; payment past due. This invoice has been outstanding for more than fourteen months as of the date of this memorandum.
• Content: This invoice covers prosecution work performed during the month of August 2023, including the initial wind-down activities following the budget freeze. Time entries include Christy Bauer's partial work on the A1 Office Action response (subsequently suspended), docket review, and communications with Sandra Koh regarding the dormancy protocol.
• Note: This invoice was issued after the freeze took effect. No payment has been received. Sandra Koh indicated in her October 2023 response to the undersigned's follow-up inquiry that payment for this invoice would require approval at a level above her authority, given the Project Lighthouse restrictions.
The combined unpaid invoice total is $22,740.00. Both invoices were prepared and issued in accordance with the firm's standard billing procedures and the terms of the engagement letter. No substantive billing disputes have been raised by OWS; the non-payment is attributable solely to the spending restrictions imposed by the PE sponsor.
C. Unbilled Work-in-Progress
In addition to the two unpaid invoices, the matter carries a work-in-progress balance of $34,218.50. This WIP balance represents time and disbursements that accrued during the August–September 2023 period but had not yet been invoiced at the time the dormancy protocol was implemented. In the interest of not exacerbating the billing situation during the early weeks of the freeze, the undersigned made the decision to defer invoicing of this WIP pending further clarity on the client's payment posture. That decision, made in good faith, has resulted in a substantial balance remaining in unbilled status for over thirteen months.
The WIP balance includes the following components:
• Partial drafting of the A1 (U.S. App. No. 17/672,204) Office Action response by Christy Bauer. Christy had commenced drafting a response to the outstanding Office Action on A1 prior to the budget freeze. The draft was incomplete at the time work was suspended and had not yet undergone partner review. The time entries associated with this drafting work represent a material portion of the WIP balance.
• September 6, 2023 extension filing by Peter Vassiliev. Peter's time for preparing and filing the two-month extension of time request for A1, together with the associated $640 USPTO extension fee advanced by the firm, is included in the WIP balance. This extension was the last billable activity on the matter prior to the current dormancy.
• Docket review, deadline calendaring, and dormancy protocol implementation time. Several time entries were recorded by Christy Bauer and Peter Vassiliev in connection with the implementation of the dormancy protocol, including review of the full OWS docket to identify and calendar all pending and upcoming deadlines, preparation of the dormancy status summary, and related administrative tasks. While these activities were necessary to ensure the responsible management of the docket during the dormancy period, the associated time has not been invoiced.
A decision is required regarding the disposition of this WIP balance. As discussed in Section V below, the undersigned recommends that the WIP be finalized and issued as a formal invoice to convert the balance to a documented receivable and to commence any applicable late-payment provisions under the engagement letter. Continued deferral of invoicing serves no collection purpose and creates unnecessary accounting complexity.
D. Emergency B1 Extension (October 2024)
As noted in Section II.B above, an emergency exception to the dormancy protocol occurred in October 2024 in connection with the B1 application (U.S. Application No. 17/814,057).
On October 15, 2024, Sandra Koh contacted the undersigned and Christy Bauer to authorize the firm to file a four-month extension of time for B1 as an emergency exception to the Project Lighthouse freeze. Sandra's authorization was provided via email and confirmed by telephone. The authorization was specific: it covered the extension filing and the associated USPTO fee but did not authorize any broader resumption of prosecution activity on the OWS docket. Christy Bauer confirmed the authorization and billing treatment in her October 16, 2024 internal email to the undersigned, copies of which are maintained in the matter file.
The filing was completed on October 18, 2024, by Peter Vassiliev. The associated USPTO fee was $2,560 at the small entity rate, and was advanced by the firm. Attorney time for this filing is modest — estimated at approximately 1.0 to 2.0 hours of associate time — and the relevant time entries have been entered to the matter in the firm's time and billing system but have not yet been invoiced.
The $2,560 USPTO fee was advanced by the firm as a disbursement and should be invoiced to OWS promptly, together with the associated attorney time. The emergency nature of the filing and the specific client authorization support issuing a standalone invoice for this work.
It is important to note that the emergency B1 extension charges are not included in the $56,958.50 outstanding balance figure cited throughout this memorandum. When invoiced, the emergency filing will increase the total outstanding to approximately $59,500 to $60,500, depending on the final calculation of attorney time.
IV. COLLECTION EFFORTS TO DATE
A. Billing Communications Sent
The firm's collection efforts on this matter to date have been limited to standard billing transmittals and informal follow-up, as summarized below:
• Standard invoice transmittals. Invoice No. 2023-07-04187 and Invoice No. 2023-08-04187 were transmitted to Sandra Koh at the client billing address in the ordinary course upon issuance in August and September 2023, respectively. Each transmittal was accompanied by the firm's standard cover letter requesting payment within thirty (30) days.
• Informal follow-up. The undersigned has made informal follow-up inquiries to Sandra Koh on a periodic basis since the invoices became past due. Specifically:
• In Q4 2023, the undersigned contacted Sandra Koh by email and by telephone to inquire about the status of payment for both outstanding invoices. Sandra acknowledged the outstanding balance and attributed the delay to the Project Lighthouse spending restrictions. She indicated that she was working with internal stakeholders to seek an exception or a phased payment arrangement but could not provide a timeline.
• In Q1 2024, the undersigned followed up again by email. Sandra reiterated the same position — that the spending restrictions remained in effect and that she had not yet received payment authorization from the OWS finance department or from Veltrano. She expressed appreciation for the firm's patience and indicated that she hoped the freeze would be relaxed in the second half of 2024.
• In Q2 2024, the undersigned made one additional follow-up inquiry by email. Sandra's response was consistent with her prior communications: the freeze remained in effect, internal escalation had not yielded results, and she was hopeful that the situation would improve as OWS's financial performance stabilized. She did not provide a specific payment commitment or timeline.
• No formal demand letter. No formal demand letter, statement of account, or written collection notice (beyond the standard invoice transmittals) has been sent to OWS. The undersigned has deliberately refrained from escalating the tone or formality of the collection communications out of respect for the ongoing client relationship and in recognition of the fact that the non-payment is attributable to the PE sponsor's policy rather than any dissatisfaction with the firm's work.
• No escalation beyond Sandra Koh. All collection communications have been directed to and through Sandra Koh. No communication regarding the unpaid invoices has been sent directly to Marcus Whitfield (General Counsel), Daniel Everhart (CFO), or any Veltrano personnel. While Sandra has been cooperative and transparent, it is evident that the collection effort has reached the limit of what can be accomplished at her level within the organization.
B. Client Financial Context
In evaluating the collectability of the outstanding balance, it is useful to understand OWS's current financial position and the economic environment that gave rise to the budget freeze:
• Revenue decline. OWS's fiscal year 2023 revenue was $47.3 million, representing a decline of approximately 30.5% from fiscal year 2022 revenue of $68.1 million — a year-over-year decrease of $20.8 million. This decline reflects the sector-wide downturn in the semiconductor industry that began in late 2022 and persisted through 2023, affecting OWS's core photonics and optical interconnect product lines. The revenue decline was the proximate cause of Veltrano's decision to implement the Project Lighthouse spending restrictions across its portfolio.
• Credit facility. OWS maintains a $55 million senior secured revolving credit facility with Meridian National Bank, N.A. As of the most recently available information (estimated as of December 31, 2023, based on publicly available filings and client communications), OWS had approximately $32.5 million drawn on the facility, with approximately $22.5 million remaining undrawn. While the undrawn capacity suggests that OWS has liquidity available to satisfy the outstanding balance, access to the revolver is subject to borrowing base and covenant requirements that may constrain discretionary spending.
• Nature of the freeze. The Project Lighthouse budget freeze is a Veltrano portfolio-wide initiative and is not specific to OWS or to any dissatisfaction with Calderwood & Harkness's work, billing practices, or the quality of the patent prosecution services provided. Sandra Koh has confirmed on multiple occasions that OWS values the firm's work and that the non-payment is entirely attributable to the spending restrictions imposed by the PE sponsor.
• Ability to pay. Based on the available information, there is no indication that OWS lacks the financial ability to pay the outstanding $56,958.50 balance. The non-payment appears to be a policy-driven spending restriction imposed at the PE sponsor level rather than a reflection of OWS's inability to satisfy its obligations. This distinction is significant for purposes of both collection strategy and the ethical analysis in Section VI.
V. RECOMMENDED COLLECTION STEPS
Based on the foregoing analysis, the undersigned recommends a phased collection strategy designed to escalate the firm's collection efforts in a manner that is proportionate, professional, and consistent with the firm's ongoing obligations to OWS as a client. The recommended steps are organized into immediate, medium-term, and avoidance categories.
A. Immediate Actions (November–December 2024)
The following steps should be taken promptly:
1. Finalize and issue the WIP invoice. The $34,218.50 in unbilled work-in-progress should be converted to a formal invoice — proposed Invoice No. 2024-11-04187 — and transmitted to OWS in the standard manner. Finalizing the WIP will formalize the receivable, bring the full outstanding balance into the firm's accounts receivable tracking system, and start the clock on any applicable late-payment provisions under the engagement letter. There is no strategic benefit to continuing to hold the WIP in unbilled status, and doing so creates unnecessary ambiguity in the firm's financial reporting and in any collection communications with the client. The undersigned proposes to prepare the invoice for your review and approval before issuance.
2. Invoice the emergency B1 extension. A separate invoice should be issued for the October 18, 2024 emergency extension filing, including the $2,560 USPTO disbursement and the associated attorney time (estimated at 1.0 to 2.0 hours of associate time at $427.50/hour). This invoice should reference Sandra Koh's October 15, 2024 email authorization and should be transmitted promptly. Given that this work was performed on an emergency basis at the specific request of the client's authorized representative, there is a strong basis for expecting prompt payment of this invoice separate from the resolution of the older outstanding balance.
3. Escalate to General Counsel. A formal written collection letter should be sent from the undersigned to Marcus Whitfield, General Counsel of OWS, with a copy to Sandra Koh, summarizing all outstanding amounts, attaching copies of the unpaid invoices, and requesting payment within thirty (30) days. The letter should be professional in tone and should emphasize the following points:
• The firm's continued commitment to supporting OWS's patent prosecution needs;
• The length of time the outstanding balance has been unpaid;
• The aggregate amount outstanding, including the newly issued WIP invoice and the emergency extension invoice;
• The firm's hope that the matter can be resolved amicably and without further escalation; and
• A request for a meeting or call to discuss the outstanding balance and the path forward.
The letter should not threaten withdrawal, lien assertion, or litigation at this stage. The objective is to elevate the collection effort to an appropriate decision-maker within OWS without damaging the relationship.
4. Confirm billing contact with the CFO's office. The escalation letter to Marcus Whitfield should include a request that he involve Daniel Everhart (CFO) in the payment discussion. The budget freeze is fundamentally a financial and PE-driven constraint, and resolution will likely require the CFO's involvement and, potentially, an exception request to Veltrano. Sandra Koh has been unable to secure payment authorization at her level; engaging the CFO directly is the logical next step.
B. Medium-Term Actions (Q1 2025)
If the immediate actions do not result in full payment of the outstanding balance, the following medium-term steps should be considered:
1. Structured payment plan. If full immediate payment is not feasible given the ongoing spending restrictions, the firm should propose a structured payment plan to OWS. A reasonable arrangement might include three equal monthly installments over a ninety-day period, designed to clear the outstanding balance by the end of Q1 2025. The payment plan should be documented in writing and should include an acknowledgment of the full balance owed, a schedule of payments, and a commitment from OWS to remain current on any new invoices issued during the payment period.
2. Tie collection to reactivation. The imminent critical deadlines in the OWS patent prosecution docket — most notably, the A1 absolute deadline of March 9, 2025, and the B1 deadline of April 21, 2025 — will likely require substantial additional expenditure. Based on our assessment of the scope of the required Office Action responses, the A1 response alone is likely to require $22,000 to $30,000 in attorney fees and associated costs. Any budget authorization from OWS and Veltrano for reactivation work should be expressly conditioned on the resolution of the existing outstanding balance. The firm should not agree to perform substantial new work on this docket while a significant receivable from prior work remains unpaid and unaddressed.
3. Engagement letter review. The February 10, 2022 engagement letter should be reviewed in detail for any provisions relating to:
• Late-payment interest or finance charges;
• The firm's right to suspend services in the event of non-payment;
• Retainer or deposit requirements that may be invoked prospectively; and
• Any other contractual remedies available to the firm.
If the engagement letter contains a late-payment interest provision, interest should be calculated and included in future invoices or demand communications. If the engagement letter permits the firm to require a retainer deposit as a condition of continued representation, this provision should be invoked in connection with any docket reactivation.
C. Actions to Avoid at This Time
The undersigned recommends that the following actions not be taken at this time:
1. Referral to an outside collection agency. Referral to a third-party collection agency would be disproportionate for an outstanding balance of this magnitude, would likely generate a negative reaction from OWS and Veltrano, and could irreparably damage the client relationship. The firm has historically had a positive and productive relationship with OWS, and the non-payment is policy-driven rather than reflective of any intent to avoid payment. Collection agency involvement is not warranted at this stage.
2. Filing of any lien (including a charging lien on work product). Assertion of a retaining lien or a charging lien on prosecution work product is premature and raises significant ethical complications. As discussed in Section VI and Section VII below, the firm has ongoing obligations to the client with respect to the prosecution files, and asserting a lien over those files while statutory deadlines are pending could expose the firm to disciplinary and malpractice liability. No lien should be asserted at this time.
VI. ETHICAL CONSIDERATIONS — WITHDRAWAL VS. CONTINUED REPRESENTATION
A. The Core Tension
The outstanding balance on this matter presents a tension that is common in patent prosecution engagements but that carries particularly acute consequences here: the firm has not been paid for more than fourteen to fifteen months on the outstanding invoices, and the total receivable is now approaching $60,000. Under ordinary circumstances, persistent non-payment of this nature and duration would constitute grounds for permissive withdrawal under the applicable rules of professional conduct. However, the OWS docket contains imminent, irrevocable statutory deadlines that would make withdrawal at this time — without careful planning and adequate client notification — a potential source of material and irreversible harm to the client's patent rights.
The most critical of these deadlines is the absolute March 9, 2025 deadline for the A1 application (U.S. Application No. 17/672,204). This is the final deadline for filing a response to the outstanding Office Action; no further extensions of time are available. If this deadline is missed, the A1 application will be deemed abandoned by the USPTO. A1 is OWS's foundational United States patent application covering the tapered impedance-matching design-around architecture, and its loss would represent a significant and irreversible diminution of OWS's intellectual property portfolio.
Withdrawal at this stage, without adequate notice and sufficient time for OWS to identify, retain, and onboard successor patent counsel, could result in the loss of A1 and potentially other applications in the docket. The complexity of the docket — twelve applications spanning three jurisdictions (USPTO, EPO, and JPO) — means that successor counsel would require significant lead time to come up to speed on the technology, review the prosecution history, and assume responsibility for pending deadlines.
B. California Rules of Professional Conduct
The following provisions of the California Rules of Professional Conduct are directly relevant to the ethical analysis:
Rule 1.3 (Diligence). A lawyer shall not intentionally, repeatedly, or with gross negligence fail to act with reasonable diligence in representing a client. The duty of diligence is not suspended during a period of dormancy. Even where the client has directed the firm to pause substantive prosecution work, and even where the client has failed to pay for prior work, the firm retains a duty to act with reasonable diligence in protecting the client's interests. In the context of this engagement, the duty of diligence requires, at minimum, that the firm continue to monitor and track statutory deadlines and that it take affirmative steps to communicate approaching deadlines to the client in a timely manner. A failure to do so — whether motivated by frustration over non-payment or by simple inattention — could constitute a violation of Rule 1.3.
Rule 1.4 (Communication). A lawyer shall reasonably inform the client of significant developments in the representation, including the approaching loss of rights due to inaction. The approaching absolute deadline on A1 is precisely the type of development that triggers the duty of communication under Rule 1.4. Calderwood & Harkness has an affirmative obligation to warn OWS, clearly and in writing, of each upcoming statutory deadline and the consequences of failing to take action before that deadline, regardless of the payment status. The duty to communicate is independent of the fee dispute. Even if the firm were to withdraw, the duty to provide adequate notice of impending deadlines would persist through the effective date of withdrawal and arguably beyond.
Rule 1.16(b) (Permissive Withdrawal). A lawyer may withdraw from representation if the client's conduct renders it unreasonably difficult for the lawyer to carry out the representation effectively (Rule 1.16(b)(5)), or if other good cause for withdrawal exists (Rule 1.16(b)(9)). Persistent non-payment for more than fourteen months, combined with the client's inability to secure budget authorization for ongoing prosecution activities, may constitute good cause for withdrawal. However, permissive withdrawal is not automatic: the lawyer must consider whether withdrawal can be accomplished without material adverse effect to the client's interests. Given the imminent statutory deadlines on this docket, withdrawal cannot be accomplished without material adverse effect unless the client is given adequate time to retain successor counsel and transfer the prosecution files.
Rule 1.16(d) (Duties Upon Termination). Upon termination of representation, whether by withdrawal or discharge, a lawyer shall take steps to the extent reasonably practicable to protect the client's interests. These steps include giving reasonable notice to the client, allowing time for the client to retain other counsel, and surrendering papers and property to which the client is entitled. The breadth of this obligation is significant: it encompasses not only the physical file transfer but also the communication of all relevant deadlines, the status of each application, and any pending actions or responses. In the context of a twelve-application prosecution docket, compliance with Rule 1.16(d) would require a comprehensive transition memorandum and potentially a period of cooperation with successor counsel.
C. USPTO Rules of Practice
As registered practitioners before the United States Patent and Trademark Office, the attorneys staffed on this engagement — Catherine Bloom (Reg. No. 58,412), Alan Ngo (Reg. No. 61,877), Christy Bauer (Reg. No. 74,329), and Peter Vassiliev (Reg. No. 79,514) — are independently subject to the USPTO Rules of Practice, which impose obligations that are substantially parallel to, and in some cases more specific than, the state-law rules.
37 C.F.R. § 11.103 (Diligence). Practitioners before the USPTO must act with reasonable diligence and promptness in representing a client. This obligation extends to the monitoring of deadlines and the timely filing of extensions, responses, and other documents necessary to preserve the client's rights. The duty is personal to each registered practitioner and is not discharged by the dormancy of the engagement or the non-payment of fees.
37 C.F.R. § 11.104 (Communication). Practitioners must keep the client reasonably informed about the status of the matter and promptly comply with reasonable requests for information. The requirement to inform the client of approaching deadlines and the consequences of inaction is particularly critical in the patent prosecution context, where the loss of a filing deadline can result in the permanent forfeiture of patent rights.
37 C.F.R. § 11.116 (Declining or Terminating Representation). This provision substantially mirrors the state-law withdrawal framework set forth in California Rule 1.16. Withdrawal is permitted under certain circumstances, but the practitioner must take reasonable steps to protect the client's interests upon withdrawal, including providing notice of pending deadlines, returning files and work product, and allowing adequate time for the client to engage successor counsel.
Each of the four registered practitioners on this engagement bears independent professional responsibility for compliance with these provisions. A failure by the firm to monitor and communicate deadlines could expose individual practitioners to disciplinary proceedings before the USPTO Office of Enrollment and Discipline, separate from and in addition to any state-bar disciplinary exposure.
D. Practical Conclusions on Withdrawal
In light of the foregoing ethical framework, the undersigned reaches the following practical conclusions regarding the withdrawal question:
1. Calderwood & Harkness cannot ethically withdraw without providing OWS with clear, written notice of every pending deadline and adequate time to engage successor counsel. The twelve-application, three-jurisdiction scope of this docket, combined with the technical complexity of the underlying technology and the need for successor counsel to review extensive prosecution histories, means that a transition to new counsel cannot be accomplished overnight. Given the earliest absolute deadline of March 9, 2025 (the A1 response deadline), any withdrawal notice should be provided no later than mid-January 2025 to afford OWS a reasonable opportunity — approximately six to eight weeks — to retain and onboard successor counsel. Potential successor counsel may include Kessler & Morin LLP, which served as OWS's patent prosecution counsel prior to the engagement of Calderwood & Harkness in 2022 and which may be able to assume responsibility for the docket more quickly than a counsel without prior familiarity with OWS's technology and patent portfolio.
2. Calderwood & Harkness must continue to monitor and report deadlines regardless of payment status. The duty to communicate impending deadlines is independent of the fee dispute and cannot be suspended or deferred pending payment. The firm's obligation to notify OWS of the March 9, 2025 A1 deadline, the April 21, 2025 B1 deadline, and all subsequent statutory deadlines persists regardless of whether the outstanding $56,958.50 balance is paid. A failure to notify OWS of these deadlines could expose the firm to malpractice liability and could expose individual practitioners to disciplinary proceedings. This obligation applies even during the dormancy period and even in the event that the firm ultimately decides to withdraw.
3. Withdrawal is not recommended at this time. Taking into account the imminent statutory deadlines, the complexity of the docket, the strength and longevity of the client relationship, and the likelihood that the Project Lighthouse budget freeze may be partially lifted for critical filings — as demonstrated by Sandra Koh's October 2024 authorization of the emergency B1 extension — the undersigned does not recommend withdrawal at this time. The outstanding $56,958.50 balance, while meaningful and worthy of active collection efforts, does not justify the risk to the client's patent rights or to the firm's professional reputation and exposure. Withdrawal in the face of imminent, irreversible deadlines would be a disproportionate response to a collection problem that is, in the undersigned's assessment, amenable to resolution through escalation and negotiation.
4. If payment is not resolved by Q1 2025, the firm should reassess. Should OWS fail to authorize payment of the outstanding balance and fail to authorize budget for the critical A1 and B1 responses by early February 2025, the calculus may change. At that point, the firm should prepare a formal withdrawal notice with comprehensive deadline disclosure — including a detailed schedule of all pending deadlines, the status of each application, and the consequences of inaction — to be delivered with sufficient lead time before the March 9, 2025 absolute deadline. The withdrawal notice should be prepared in consultation with the firm's general counsel and risk management team to ensure compliance with all applicable rules and to minimize the firm's exposure. However, even in this scenario, the firm should explore every available avenue for resolution before transmitting a withdrawal notice.
VII. ADDITIONAL CONSIDERATIONS
A. Lien on Work Product
Under California law, Calderwood & Harkness may have a retaining lien on work product in its possession, including the incomplete A1 Office Action response draft prepared by Christy Bauer before the dormancy period. A retaining lien is a common-law right that permits an attorney to retain possession of a client's papers and documents until the attorney's fees are paid. In principle, this lien could be asserted as leverage in the collection effort.
However, exercising a retaining lien over patent prosecution files when statutory deadlines are imminent raises significant ethical concerns. California Rule of Professional Conduct 1.16(d) requires that, upon termination of representation, a lawyer shall take steps to the extent reasonably practicable to protect the client's interests, including surrendering papers and property to which the client is entitled. Courts and ethics authorities have consistently held that an attorney may not assert a retaining lien in a manner that would cause material harm to the client's interests, particularly where the client's rights are time-sensitive and could be permanently lost.
In the patent prosecution context, the assertion of a retaining lien over prosecution files — including office action responses, draft claims, prior art search results, inventor declarations, and other prosecution documents — while statutory response deadlines are pending would likely be viewed as a violation of Rule 1.16(d) and could expose the firm to disciplinary sanctions, malpractice claims, and potential liability for the value of the lost patent rights.
Recommendation: Do not assert any retaining lien or charging lien on prosecution work product at this time. If withdrawal becomes necessary, all files — including the incomplete A1 Office Action response draft, all prosecution histories, all docket records, and all client documents — should be released promptly and completely to OWS or its designated successor counsel, without condition. The firm's collection rights can be preserved through other means, including the continued pursuit of unpaid invoices through normal collection channels.
B. Impact of Graystone Valuation on Collection Posture
In April 2023, Graystone Valuation Advisors, LLC conducted a comprehensive portfolio valuation of OWS's intellectual property assets in connection with Veltrano's annual portfolio review. The Graystone valuation, dated April 28, 2023, attributed a total fair market value of $38.5 million to the OWS patent portfolio, allocated as follows:
• Issued patents (31 U.S. and foreign patents): $26.3 million
• Pending patent application family (12 applications): $12.2 million
The pending application family that is the subject of Calderwood & Harkness's prosecution engagement was thus valued at $12.2 million — a figure that underscores the significant economic value at stake if prosecution deadlines are missed and applications are abandoned.
The outstanding balance of $56,958.50 represents less than 0.5% of the Graystone-assessed value of the pending applications alone. This framing may be useful in escalation communications to Veltrano and OWS to contextualize the modest cost of resolving the outstanding balance relative to the substantial asset value that would be placed at risk by any disruption to the prosecution effort. A well-crafted escalation letter to Marcus Whitfield — or, if necessary, a communication to Christine Paulsen at Veltrano — could reference the Graystone valuation to illustrate the risk-reward imbalance of maintaining the budget freeze on this matter.
C. Meridian National Bank Covenant Implications
OWS's $55 million Revolving Credit Facility with Meridian National Bank, N.A. contains intellectual property prosecution covenants that have direct relevance to the situation described in this memorandum. Specifically, Section 5.15 of the credit agreement requires OWS to maintain and prosecute its Material intellectual Property, a defined term that encompasses any intellectual property asset that is material to the conduct of OWS's business or that has been identified as collateral for the credit facility.
The pending patent application family — including A1, B1, and the remaining applications in the docket — has been identified as Material intellectual Property in the schedules to the credit agreement. If Calderwood & Harkness were to withdraw from the engagement and OWS were unable to retain successor counsel in time to preserve the pending deadlines, the resulting patent abandonments could constitute a breach of the Section 5.15 covenant. A covenant breach of this nature could trigger an event of default under the credit agreement, potentially accelerating the $32.5 million currently drawn on the revolving credit facility.
While the undersigned does not have access to the full text of the credit agreement and cannot render a definitive opinion on the covenant implications, the interconnected risk is significant and further supports the conclusion that continued engagement and active collection — rather than withdrawal — is the appropriate course of action. The potential for a covenant default adds an additional dimension of harm that would flow from a disruption to the prosecution effort and should be communicated to OWS as part of the firm's deadline notification obligations.
VIII. SUMMARY AND RECOMMENDATIONS
Based on the analysis set forth in this memorandum, the undersigned respectfully recommends the following course of action:
1. Finalize and issue the WIP invoice immediately. The $34,218.50 in unbilled work-in-progress should be converted to a formal invoice (proposed Invoice No. 2024-11-04187) and transmitted to OWS without further delay. The undersigned will prepare the invoice for your review and approval.
2. Invoice the October 2024 emergency B1 extension. A separate invoice should be issued for the emergency extension filing completed on October 18, 2024, including the $2,560 USPTO disbursement and associated attorney time, with reference to Sandra Koh's October 15, 2024 email authorization.
3. Send a formal collection letter to Marcus Whitfield. A formal written collection letter should be sent from the undersigned to Marcus Whitfield, General Counsel of OWS, escalating the $56,958.50 outstanding balance (plus the emergency extension charges) and requesting payment within thirty (30) days. The letter should be professional in tone, should emphasize the firm's continued commitment to the client relationship, and should request a meeting or call to discuss the path forward. A copy should be provided to Sandra Koh.
4. Continue deadline monitoring and client notification. The firm must continue to monitor and communicate all pending statutory deadlines through the critical March–July 2025 deadline window, regardless of payment status. This obligation is independent of the fee dispute and must not be deferred or conditioned on payment.
5. Do not pursue withdrawal at this time. For the reasons discussed in Section VI, withdrawal from the OWS engagement is not recommended at this time. The firm should reassess the withdrawal question in early February 2025 if no meaningful progress has been made on either payment of the outstanding balance or budget authorization for the critical A1 and B1 responses.
6. Prepare a comprehensive deadline warning letter. Catherine Bloom should separately prepare and transmit a comprehensive deadline warning letter to OWS — with a suggested target delivery date of December 2024 — documenting all imminent statutory deadlines, the consequences of inaction, and the actions required to preserve OWS's patent rights. This letter will serve the dual purpose of fulfilling the firm's communication obligations under California Rule 1.4 and 37 C.F.R. § 11.104, and creating a contemporaneous record that will protect the firm from potential malpractice exposure in the event that OWS fails to act.
7. Coordinate collection strategy with docket reactivation. Any collection efforts should be coordinated with any forthcoming docket reactivation proposal to Veltrano and OWS. The imminent deadlines will force a decision point for OWS and its PE sponsor, and the resolution of the outstanding balance should be integrated into any discussion of budget authorization for new prosecution work. The firm should not agree to perform substantial new work on this docket while the existing receivable remains unresolved.
CLOSING
I respectfully request your review and approval of the recommended collection steps outlined in Section VIII above. I believe the phased approach described herein appropriately balances the firm's financial interests with our ongoing professional obligations to OWS and the practical realities of the dormancy situation.
I would welcome the opportunity to schedule a meeting at your earliest convenience to discuss the next steps in detail. In particular, I believe we should coordinate on the timing of the escalation letter to Marcus Whitfield and its relationship to any planned communications to OWS or Veltrano regarding budget reactivation and the approaching A1 and B1 deadlines. I am available at your convenience and can prepare drafts of the escalation letter and the WIP invoice for your review on short notice.
Please do not hesitate to reach out with any questions or comments.
Alan Ngo Billing Partner, intellectual Property Group Calderwood & Harkness LLP
Direct: (415) 555-2847
Email: ango@calderwoodharkness.com
CONFIDENTIAL — ATTORNEY-CLIENT PRIVILEGED — INTERNAL FIRM USE ONLY
This memorandum is a privileged and confidential internal communication of Calderwood & Harkness LLP. It is prepared for the exclusive use of the addressee in connection with the management of the firm's engagement with Optiwave Semiconductor Corp. and should not be distributed, copied, or disclosed to any person outside the firm without the prior written approval of the undersigned or the Responsible Partner.
Calderwood & Harkness LLP 555 California Street, 42nd Floor San Francisco, CA 94104
Timekeeper Level | Standard Rate | Discounted Rate (10%)
Partner | $895.00/hr | $805.50/hr
Senior Associate | $625.00/hr | $562.50/hr
Associate | $475.00/hr | $427.50/hr
Category | Amount
Unbilled Work-in-Progress (WIP) | $34,218.50
Unpaid Invoices (Accounts Receivable) | $22,740.00
Total Outstanding | $56,958.50

MEMORANDUM

I. PURPOSE

II. ENGAGEMENT BACKGROUND

IV. COLLECTION EFFORTS TO DATE

V. RECOMMENDED COLLECTION STEPS

VII. ADDITIONAL CONSIDERATIONS

VIII. SUMMARY AND RECOMMENDATIONS

CLOSING

Record

Parties

Dates

Amounts