Mentor loses 2 rounds to Quickturn in court

Electronic News, August 11, 1997 by Dylan McGrath

Wilsonville, Ore.--Mentor Graphics suffered a pair of legal setbacks this month in ongoing patent litigation with Quickturn Design Systems.

One setback came when Judge James Redden of the U.S. District Court in Portland, Ore., granted Quickturn's motion for a preliminary injunction against Mentor's SimExpress verification product. Quickturn had asked the court to forbid Mentor from manufacturing or selling emulation products in the U.S., believing that Mentor's products infringe patents held by Quickturn. While the exact scope of the preliminary injunction will not be known until the court issues an opinion, some industry analysts say it could be the beginning of the end for SimExpress.

"It looks like Mentor has some serious legal problems with this product," said Rita Glover of the EDA Today market research firm. "It's just another strike that they can ill afford. I expect that Quickturn's stock will go up and that Mentor's stock will go down as a result of this."

The preliminary injunction is in effect pending the outcome of a patent infringement lawsuit to be heard by the District Court early next year. "We're still looking at a jury trial in February, at which point we expect to be vindicated," said Dean Freed, Mentor Graphics' general counsel.

Mentor was dealt a second blow the same day when administrative law judge Paul Luckern of the International Trade Commission (ITC) recommended that the ITC issue an order prohibiting Mentor from importing its SimExpress software to the U.S. The 400-page opinion also included an initial determination that SimExpress infringes five Quickturn patents. The recommendation is not enforceable until it is approved by the full ITC.

According to Mr. Freed, this ruling was less detrimental because Mentor no longer sells SimExpress products produced in France, the location of its subsidiary, Meta Systems, to U.S. customers. "This ruling was not a surprise to us," Mr. Freed said. "We're no longer importing product into this country. We elected to forego additional legal battle about that."

Since April, Mentor Graphics has been shipping SimExpress hardware verification accelerators made in the U.S. by Benchmark Electronics (EN, April 7). This followed another ITC temporary exclusion order against Mentor (EN, Aug. 12, 1996). Mentor signed the manufacturing agreement with Benchmark to circumvent the ITC's ruling, but the latest ruling from the District Court could mean that Mentor will have to abandon selling SimExpress to U.S. customers altogether.

"Emulation accounts for only 5-6 percent of Mentor's product sales, so it's certainly not devastating to Mentor as a company," according to Robertson, Stephens & Co. EDA analyst Jennifer Smith. "But it is unfortunate, because SimExpress is one of their flagship products and one they would like to be able to sell to U.S. customers."

Ms. Glover agreed. "SimExpress is only a small part of Mentor's business, but it's an important part of its verification strategy," she said. "Without this product, they are going to have to rethink their entire verification strategy."

Mr. Freed said Mentor has sold only "a handful" of SimExpress units in the U.S., noting that most of Mentor's SimExpress business comes from overseas. "We think it could really put our U.S. customers at a disadvantage, because they may no longer have access to what we feel is the top product on the market," he said. "As a result, it will be more difficult for them to compete with overseas companies who have that technology."

According to Raymond Ostby, Quickturn's CFO, the Aug. 1 events represent a clear victory for Quickturn. "We are very pleased with the way it has gone so far. We've told them, both formally and informally, to stop infringing on our patents. Nobody should be coming to the party in our dress."

A news release issued by Quickturn last week said Judge Luckern had issued a series of related rulings finding that Mentor and its attorneys "had engaged in improper and bad faith discovery conduct during the course of the ITC investigation," and provided inaccurate and misleading information. Responding to the wording in the Quickturn release, Mr. Freed said, "We strongly disagree with the wording of that document and its implications that Mentor or its attorneys have done something illegal. I think if you would read the entire 400-page recommendation that Judge Luckern wrote, you would get a much different sense of what went on."