Combative Strategy Payoff: OC Suit to Federal Court
By ANDREW SIMONS
The lawsuit pitting Orange County Performing Arts Center board members against Broadcom Corp. is one step closer to being dismissed, an attorney for the Irvine-based chipmaker contends.
The suit, filed in Orange County Superior Court in February by a group of local Broadcom investors, has been shifted to federal court where a similar suit against Broadcom was dismissed in March.
The move is seen as a setback for the plaintiffs, who had bet on better odds in state court. Recent changes to federal law restrict “discovery”,the ability of plaintiffs to subpoena documents and interview company officials under oath in preparing for trial.
Attorneys for the OC plaintiffs didn’t return calls for this story.
The two shareholder suits charge Broadcom with boosting sales and profits by improperly accounting for expenses. That allowed founders Henry Nicholas and Henry Samueli and financial chief William Reuhle to cash in on an artificially inflated stock price, they argue.
The suits center on how Broadcom accounted for warrants issued by companies it acquired to customers in return for their business. Broadcom chalked up the warrants as goodwill, a special charge, rather than as discounts or rebates against sales.
The OC suit sparked uproar among philanthropists and prompted Samueli and Nicholas to quit the board of the Performing Arts Center, where Samueli has given $10 million of the $96 million raised so far for a new concert hall.
Center chairman-designate and plantiff Tom Tierney withdrew from consideration following the turmoil over the lawsuit.
The OC suit faces an uphill battle in federal court. In March, U.S. District Court Judge Gary Taylor dismissed a similar case saying he saw no evidence Broadcom conspired to defraud investors.
The plaintiff in the federal suit,-Minnesota’s State Board of Investment, whose chairman is Gov. Jesse Ventura,re-filed its suit with changes in April. Broadcom attorney Daniel Tyukody said the company is seeking to have the new version dismissed too,without the option of re-filing.
In throwing out the suit the first time, the judge asked the plaintiffs to show how the stock trading practices of Broadcom executives were different during the time the plaintiffs said the executives made their profits.
“Completely ignoring what the court said they had to plea plaintiffs instead did not add a word about defendants past trading practices,” Broadcom attorneys said in their dismissal request.
If the new version of the Minnesota suit is dismissed at a hearing set for July 22, the OC case could suffer the same fate.
Some observers had predicted both cases would be settled because shareholder suits require too much money and time to fight. Some 90% of all such cases are settled, according to attorneys.
But OC lawyers and businesspeople say the moves reflect Broadcom’s combative style, whether in business or in the courtroom.
“It says a lot about the type of people they are,” said one chip industry source who asked not to be named. “To me it says they have balls.”
Observers also point to Broadcom’s decision to fight a patent suit by Intel Corp. Some legal and industry sources call it a “bet the company” move, though Broadcom officials may not have had much of a choice. Settling would mean hefty royalty payments to Intel.
The Intel case, which was broken into two phases to make it easier on jury members, charged Broadcom with infringing on five patents covering the majority of Broadcom’s products and a big part of its annual sales.
In December, Broadcom prevailed in the first part of the case over networking chips and a video decompression chip. A jury found Broadcom hadn’t violated one of the patents and declared the other invalid.
The second trial on Intel’s remaining claims is pending and could start this summer.
“It’s unbelievable they took that to a jury,” a chip industry source said. “Juries can really go either way on those issues. The National Law Journal, a specialty publication for attorneys, even ranked the case in its top defense verdicts for 2001.”
Here’s what the National Law Journal had to say about the case:
“The term ‘bet-the-company lawsuit’ is bandied about pretty freely in high-stakes litigation, but in this patent infringement action against Broadcom Corp., losing would have clearly put the company into get-out-the-lifeboats mode.”
BROADCOM’S DOCKET
& #149; In December prevailed in Intel suit alleging violation of networking, video processing patents
& #149; Second trial pending over Intel’s remaining patent claims, Broadcom counterclaims of inequitable conduct, unfair business practices, industry standards abuse by Intel
& #149; 2000 countersuit still pending against Intel over Broadcom graphics, memory management, networking patents
& #149; Suit filed earlier this year by prominent OC shareholders recently removed to federal court
& #149; Suit brought by Gov. Jesse Ventura, others at Minnesota’s State Board of Investment dismissed in March, re-filed in April
& #149; Sued in August by 3Com over interest on $21 million promissory note. Broadcom denies any amount due
& #149; Filed patent countersuit earlier this month against Plano, Texas-based Microtune, which sued Broadcom last year over patents
