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Technology companies often find themselves in federal court fending off rivals challenging their patents. Tessera Technologies Inc., which has just filed for a $75 million initial public offering, is no exception. The San Jose, Calif.-based semiconductor packaging company, however, plans to use a portion of the offering’s net proceeds to pay for legal expenses stemming from litigation with one of its customers, Samsung Electronics Co. Ltd. Tessera’s vice president for finance and administration, Michael Forman, said he could not comment on the litigation because of federal securities regulations. “Because we’re in the quiet period, I can’t say anything outside of the document,” he said. But, according to Tessera’s filing Thursday with the Securities and Exchange Commission, South Korea’s Samsung challenged the validity of four Tessera patents in a lawsuit in federal district court in Northern California. The dispute stems from a 1997 licensing agreement between the two companies. Tessera subsequently filed a related but separate breach of contract suit against Samsung, contending it infringed on those patents. A trial date in the federal action has been tentatively set for Nov. 1, 2004. Tessera, which plans to list on Nasdaq under the symbol TSRA, said in its SEC filing that “a court invalidation or limitation of our key patents could significantly harm our business.” If any of Tessera’s key patents are invalidated or limited, the company warned: “The likelihood that companies will take new licenses and that current licensees will continue to agree to pay under their existing licenses could be significantly reduced.” And the company has a large patent portfolio, with 266 patents issued in the United States and 34 international patents. Tessera said its products are licensed to customers and used “for miniaturization and increased performance of electronic products” such as wireless phones, video game consoles, personal computers, digital cameras and MP3 players. The company essentially connects chips to circuit boards but doesn’t make the actual chips. Founded in 1990, Tessera said its products are used in more than 2.5 billion semiconductors worldwide. And among its 44 customers are such high-tech giants as Toshiba Corp. and Intel Corp. Tessera’s biggest clients are Sharp Corp. and Texas Instruments Inc., which together accounted for 44 percent of total revenue in 2002. Both Sharp and Texas Instruments have been embroiled in similar disputes with Tessera that were eventually settled. Tessera, no stranger to patent fights with its clients, is also still being paid by Samsung under the terms of the licensing agreement despite the pending litigation. Last year, Tessera had $28.3 million in revenue and net income of $6.5 million, according to its prospectus. For the six months ended June 30, 2003, the company reported revenue of $17.4 million, with net income of $4.7 million. Tessera’s IPO is being handled by Lehman Brothers Inc., the sole book-running manager. The other underwriters are Merrill Lynch & Co., Needham & Co. Inc. and SoundView Technology Group. Copyright �2003 TDD, LLC. All rights reserved.

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