We show that a nonlinear optical switch can be used to suppress the interchannel noise generated under multiuser operation within a coherent, direct-sequence optical code-division multiple-access (OCDMA) system. By incorporating a simple nonlinear optical loop mirror (NOLM) within the receiver, we demonstrate a 3.6-dB power penalty reduction in a two-channel 1.25-Gb/s 64-chip 160-Gchip/s grating-based direct-sequence OCDMA system. Even greater improvements in system performance were obtained at a data rate of 2.5 Gb/s, where the noise due to the overlap of adjacent decoded data bits also needs to be suppressed. In both instances, the system performance under two-channel operation with nonlinear filtering was shown to be comparable to that achieved under single-channel operation using the conventional matched-filter approac
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