NPE Tessera to Manufacture Next Generation Miniature Cameras

Tessera Technologies, Inc. (NASDAQ: TSRA) announced yesterday that its wholly-owned subsidiary, DigitalOptics CorporationTM (“DOC”), has completed its acquisition of some of the assets of Vista Point Technologies, a Tier One qualified camera module manufacturing business, from Flextronics International Ltd. (NASDAQ: FLEX). DOC expects to acquire additional assets from Flextronics at a second closing, which is scheduled to occur on or before March 31, 2013.

Yesterday’s announcement follows the Tessera announcement made onMarch 2, 2012, announcing the signing of the definitive agreement to acquire the assets mentioned above.

What is this all about? There is an ongoing, yet largely under the radar, war being waged against innovative companies that do not also manufacture. As if merely innovating is something evil, those in Silicon Valley that choose infringement over designing around or licensing constantly seek to whittle away at patent rights and constantly attempt to make patent enforcement more difficult. So is this Tessera’s response to the claims that they merely innovate and don’t manufacture?

In March 2012, it was announced that DOC would pay approximately $23 million in cash, subject to certain adjustments and costs at closing, for certain assets of Flextronics’s camera module business located in Zhuhai, China, along with the equity interests of a wholly-owned foreign enterprise that will own those assets (together, the “Zhuhai Camera Module Business”). The transaction, round 1 of which just closed, includes existing customer contracts and a lease to an approximately 135,000-square-foot facility. DOC anticipates that the business will have a capacity to manufacture approximately 50 million camera module units per year.

“The Zhuhai Camera Module Business will allow us to drive rapid market introduction of DOC’s next-generation technology in a manner that complements our existing collaborations with camera module makers. We believe our approach is the best way to address the requirements of Tier One OEM manufacturers, which require that camera modules be delivered through dual sourcing from high-volume manufacturing facilities,” said Robert A. Young, president and chief executive officer, Tessera Technologies, Inc.

“This transaction is a critical step in our strategy of transforming DOC from an optical and image enhancement software and components business into a Tier One qualified, vertically integrated supplier of next-generation camera modules to the $9-billion market for mobile cameras,” Young continued. “In parallel, we continue to have active discussions with multiple Tier One OEM manufacturers of mobile phones regarding our MEMS autofocus product, and remain on track to obtain a design win in the first half of 2012 and to begin high-volume manufacturing in the fourth quarter of 2012,” said Young. “We believe our disruptive MEMS autofocus technology will offer a uniquely competitive replacement for the magnetic voice coils in use today, while enabling cameras that are thinner, faster, have more accurate lens positioning and use far less battery power. Our goal is for DOC to become profitable in 2013.”

“These assets will enable DigitalOptics Corporation to significantly increase sales of the imaging technologies we’ve acquired and developed over the past five years. Our strategy is to combine our breakthrough autofocus solutions with our other proprietary technologies so that DOC will become a leading supplier of integrated camera modules in the mobile phone market,” said Bob Roohparvar, president of DigitalOptics Corporation. “The acquisition of the Tier One qualified Zhuhai Camera Module Business provides DOC with a world-class, cost competitive facility that has the necessary production capabilities for DOC to assemble camera modules in volume, and a well-trained team of engineers and manufacturing employees.”

Of course, a benefit of this transaction will be to get Tessera into the manufacturing business, which could bring with it large profits.  It will also help insulate them against the whining of the Silicon Valley elite who would rather infringe patents. Tessera will be in the business of making things, which means at least one arrow has been (or will be) removed from the quiver of the “we infringe because we can” faction of the Silicon Valley elite.

But wait, there is more.  In addition to developing technologies to enhance optical imaging – including software that helps mobile phone cameras to correct hand motion or to improve the autofocus functions – DOC has been developing its capacity to oversee the high-volume manufacturing operations required by mobile phone makers. DOC’s steps in the past year have included hiring more than a dozen executives and managers who have experience in engineering scale-up as well as in manufacturing at similar facilities.  They have been busy indeed.

“By adding this manufacturing capability, we will improve our ability to make and sell unique mobile camera modules with differentiated technology that can generate superior market demand,” said Roohparvar. “As we take control of this existing operation, we will have greater ability to predictably develop and ramp new generations of products.”

In February 2012, Bernie Cassidy wrote several op ed articles published on IPWatchdog.com relating to efforts to make it more difficult for innovators at the International Trade Commission.  In the first of this two op ads Cassidy wrote:

Exactly why NPEs should have their constitutionally-protected rights curbed will not be made very clear. Instead, efficient infringement representatives will try to delegitimize the entire class of inventors who have neither the capital nor the business model to commercialize their own inventions by name-calling. They will call such inventors and their agents “patent trolls.”

The entire campaign to make identity-based determinations of intellectual property rights is a vast effort to transfer wealth in a manner contrary to our nation’s fundamental principles and historical economic success. For it turns out that NPEs are as American as apple pie and have always been central to U.S. economic growth. Indeed, patent and legal records from the golden age of American invention in the 19th century indicate that more than two-thirds of the 160 so-called “great inventors” of the Industrial Revolution — including Thomas Edison — were NPEs.

See Will the ITC Lose its Patent Jurisdiction.

Indeed, Thomas Edison today would be vilified by some as a patent troll, or by others as an NPE — non-practicing entity.  In fact, Edison was the premier innovator of his generation and still regarded as the most successful American inventor ever.  Was Thomas Edison a patent troll or an NPE?  I suppose if you consider those that are merely innovators as patent trolls and NPEs then he would be guilty as charged.  Absurd!

While it likely wasn’t the only motivation, it would be naive not to recognize the obvious reality that while this will significantly raise their bottom line it will also provide litigation advantages.   Nevertheless, the reality is that Tessera and others shouldn’t have to explore manufacturing solely for the purpose of insulating themselves from ridiculous, asinine arguments by those in Silicon Valley who couldn’t innovate their way out of a wet paper bag.  Having said that, if you are merely an innovator, patent troll, NPE or whatever you want to call it you really need to consider developing at least some manufacturing capabilities.

If you are a NPE, patent troll or just a mere innovator and you are not pursuing at least some manufacturing capabilities what exactly are you doing? Not having a strategy is simply not an option for innovators in an age where merely innovating is regarded with derision.