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Broadcom-Emulex Issue Partly Settled

Zacks Equity Research

Recently, Broadcom Corporation (BRCM) announced that the company entered into a partial settlement and worldwide patent license agreement regarding the ongoing patent litigation with Emulex Corporation (ELX).

The company has been involved in a patent infringement suit with Emulex since 2009.  In September 2009, Broadcom filed a complaint against Emulex Corporation, wherein it alleged that the latter infringed ten of its patents relating to networking technologies.

Later, in subsequent filings, Broadcom added two additional patents but withdrew six patents, bringing the total to six asserted patents. Emulex denied the charges stating that the asserted patents are invalid and not infringed.

As per the settlement agreement, certain of Broadcom's infringement claims against Emulex will be dismissed.  In addition, Emulex also received a license for Broadcom U.S. Patents Nos. 7,471,691; 7,058,150; 6,424,194 and related families for certain fields of use, including Fibre Channel applications.

Management stated that Patent No. 7,058,150 relates to the use of a phase interpolator to optimize clock and data recovery in a high speed chip. However, Patent No. 7,471,691 relates to the techniques used in Fibre Channel Loop networking.

The fields of use licensed to Emulex are related to the company’s existing portfolio and Emulex will release and license fee of $58 million in cash to Broadcom. Other terms of the agreement continue to be confidential while the remainder of the existing litigation between the parties regarding certain of Broadcom's U.S. Patents was not dismissed.

Earlier on March 19, Broadcom Corporation announced that the United States District Court for the Central District of California has issued an order, whereby the court granted Broadcom a permanent injunction against certain products of Emulex Corporation (ELX).

We continue to maintain a Neutral recommendation on Broadcom Corporation. Our Neutral recommendation is supported by Zacks #3 Rank, which translates into a short-term rating of Hold. 

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