Riverstone sues Tellabs for breach of contract
Riverstone Networks Inc. filed a breach of contract lawsuit against Tellabs Inc., alleging Tellabs failed to fulfill a strategic agreement the two had.
Tellabs sent Riverstone a letter earlier this week ending an alliance that was announced in November that prompted the lawsuit.
A Tellabs spokeswoman says the Riverstone lawsuit was a response to one Tellabs filed against Riverstone Tuesday, alleging among other things, that Riverstone's products didn't meet contract requirements for voice traffic and Riverstone failed to meet certain milestones under the deal.
In a statement, Tellabs says its lawsuit, filed in a Cook County, Ill., circuit court, covers breach of contract, fraud, misappropriation of trade secrets and deceptive trade practices.
Tellabs has been selling Riverstone's next-generation, router-based CMTS headend products, Riverstone says. The two agreed at the time that products resulting from the alliance would be marketed, sold and supported through Tellabs. The alliance included joint planning, development and manufacturing, Riverstone said in its November announcement.
"There were firm revenue targets in the agreement," says Riverstone spokesman Steve Garrison. He would not discuss Tellabs' letter or details, but in a conference call earlier this morning, officials estimated $100 million was involved.
The alliance had already generated $5 million in revenue for Tellabs so far, Garrison says. Ending the deal entails $60 million in penalties. Garrison would not say whether Tellabs refused in the letter to pay the fines. "You could assume that's the issue," he says.
Of the alliance, Garrison says Riverstone was disappointed. "We got off to a good start," he says of Tellabs, but notes that a lot has happened in the industry, and Tellabs refocused on its core market.
He would not comment on whether Riverston might negotiate a settlement, but did say Riverstone will focus on its other partner, Terayon, develop new relationships and take on some business directly. "We're still excited about the cable market," he says.
In a conference call, Riverstone officials said they had hired staff and arranged operations to handle the deal with Tellabs, which required significant resources. Riverstone has tried to renegotiate the deal, but Tellabs' letter said, "It wanted out," officials said.
Riverstone says in a statement the lawsuit doesn't affect its guidance.