MediaTek to pay Zoran $85m to settle patent suit

Zoran sued MediaTek for infringing its patents on optical storage processors.

Five lawsuits between Zoran Corporation (Nasdaq: ZRAN) and MediaTek Corp. (Taiwan:2454) were concluded today in an out-of-court settlement, after two years. MediaTek will pay Zoran $85 million, including $55 million in a one-time payment, and $30 million in royalties over the next 30 months.

A string of lawsuits between the companies commenced in early 2004, when Zoran sued MediaTek for patent infringement on processors for optical storage systems in PCs, drives for DVD recorders and players, drives for CD recorders and players, and other devices. Mediatek earned approximately $500 million a year from the sale of these processors.

Zoran does not actually develop processors for storage systems. The patents are for processors developed by Oak Technology, acquired by Zoran in May 2003 for $358 million. Zoran obtained the patents as part of the acquisition, even though Oak Technology had halted its storage processor activities six months previously. Zoran operates in high-growth sectors, and since optical storage systems processors are not perceived as having particularly high growth rates, Zoran had no interest in the business.

Nevertheless, Zoran obtained ownership of Oak Technology’s patents when it acquired the company. When Zoran concluded that MediaTek had infringed the patents, it sued MediaTek in a US court. MediaTek, one of the world’s largest fabless semiconductor companies, waged a bitter legal battle against Zoran, filed countersuits in China and the US for patent infringement on DVDs. The result was five simultaneous lawsuits and countersuits between the companies over the past two years.

In the first court hearing of MediaTek’s lawsuit against Zoran, a court already ruled that Zoran proved that it had not infringed MediaTek’s patents, and that the latter’s patents were invalid in any case.

In the out-of-court settlement, MediaTek and Zoran have withdrawn all claims against each other. MediaTek will therefore receive licenses from Zoran to develop storage processors, paying, as mentioned above, $55 million in a one-time payment, and $30 million in royalties over the next 30 months.

Zoran is also suing MediaTek in a separate case filed by Oak Technology in 1997. This is a business dispute, in which Oak Technology (now Zoran) accuses MediaTek of violating a commercial contract. This case is not part of the settlement in the patent infringement lawsuits. Zoran believes that the parties will settle this lawsuit within 30 days.

Published by Globes [online], Israel business news - - on January 26, 2006

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