Arista Violates Cisco Patents, Int’l Trade Commission Judge Rules
An International Trade Commission (ITC) judge Tuesday ruled against Arista Networks ( ANET ) in a patent infringement case brought by Cisco Systems ( CSCO ) that Cisco’s top lawyer called “the beginning of the end for Arista’s systemic copying of our intellectual property.” The stocks of both companies closed down similarly, with Arista down 2.7% to 57.64 and Cisco down 2.8% to 22.83. ITC Administrative Law Judge David Shaw issued a “Final Initial Determination” in favor of Cisco for 17 claims of Arista violating Section 337 of the Tariff Act but found no violation in 15 other claims. The final determination will be available in 30 days, he said. The judge said that he “determined that a violation of Section 337 has occurred in the importation into the United States, the sale for importation, or the sale within the United State after importation, of certain network devices, related software and components.” Mark Chandler, Cisco’s general counsel, called the ruling only “the first of (ITC’s) investigations into Arista.” He said that Arista violated three patents, one for externally managing router configuration data with a centralized database and two for violating private virtual local area network (VLAN) patents. He said that the judge’s order “foreshadows an exclusion order banning imports of all Arista switches (and) installs a challenging ITC review process for any new designs (the result of not bringing evidence of new designs to the ITC hearing).” Said an Arista spokeswoman: “Our primary focus is the continued supply of products to our customers. We respect the administrative process and the tireless work of the (judge) in this initial determination.” Two related lawsuits that Cisco brought against Arista are tracking in U.S. District Court. One awaits the ITC decision; the other, including a counterclaim against Cisco, is scheduled for jury selection in November. “Arista can no longer support claims to customers, resellers and the market that they created products from ‘a clean sheet of paper,’ ” Chandler posted on a Cisco blog. “The patents in question go to the core of Arista’s products. One of those found to infringe covers Cisco’s proprietary ‘SysDB.’ Arista’s CEO has previously referred to ‘SysDB’ as Arista’s ‘secret sauce’ and more recently, the architecture on which NetDB is built. “None of the patents have been proposed for or adopted as industry standards. And all patents that we asserted against Arista were invented either by Cisco employees who became Arista executives or by engineers who worked for Arista executives when employed at Cisco. “We seek fair competition but will take action against those who misappropriate our technology and use it to compete against us.” FBR Capital Markets analyst Daniel Ives, who covers both companies, said that such patent fights are “common across the technology landscape.” “Investors are laser focused (on whether) traditional stalwarts such as Cisco, IBM ( IBM ), and Oracle ( ORCL ), among others, can reinvigorate growth back into their stories,” Ives said. “The jury is still out on how this ruling will have implications across the tech space going forward.” Chandler said Arista has four options, to “withdraw the products … modify the products so they no longer infringe … face an exclusion order … (or) evade the ITC exclusion order.” With a market cap of $115.8 billion, Cisco is the largest member of IBD’s Computer-Networking industry group. Arista is the fourth largest, with a $3.9 billion market value. Image provided by Shutterstock .