Arista Files Antitrust Suit, Says Cisco 'Punished' Customers For Going Multi-Vendor

Arista has filed an antitrust suit claiming Cisco is using its high-priced SmartNet maintenance contracts to punish customers that buy alternative network switches.

Fast-growing Santa Clara, Calif.-based Arista is claiming that the San Jose, Calif.-based networking giant is engaging in "anti-competitive" bundling of SmartNet maintenance. Specifically, Cisco is charging a SmartNet "tax" penalty for organizations that go "multi-vendor," the suit alleges.

"Cisco has punished customers who seek to purchase Ethernet switches from other vendors by increasing the price it charges for the maintenance and service of its products [through SmartNet]," said Arista in its suit. "If customers purchase competitive Ethernet switches," the suit says, Cisco has charged "significantly more" for renewing SmartNet maintenance and service, "far more than any measure of any added cost, and as much as the total cost of a customer's potential purchase of competitive hardware, and the total cost of Cisco hardware."

[Related: Will The Cisco Buying Spree Continue? Analysts Predict 10 Possible Acquisitions]

Arista says when Cisco SmartNet contracts have come up for renewal, Cisco has negotiated the renewed rates in tandem with the purchase of new switches. This forces competitors to lower prices and hinders innovation, according to the allegations in the filing.

"Specifically, if a customer wishes to choose a competitor for a new Ethernet switch purchase, the customer has incurred a penalty on its SMARTnet rate," said the filing. "Cisco's practice of bundling SMARTnet renewals with new purchase of Ethernet switches has been widespread such that a significant portion of new sales opportunities have been foreclosed from Cisco's competition."

Cisco's SmartNet, which can run as high as a 30 percent annual fee of the total cost of the product, is a sore spot for customers anxious to reduce the amount they are spending annually on maintenance, said Bob Venero, CEO of Holbrook, N.Y.-based solution provider Future Tech, No. 234 on CRN's 2015 Solution Provider 500, said

"SmartNet has always been one of those pain points for customers who are always looking at ways to not incur those costs," he said. "What companies are doing is trying to figure out how to reduce that SmartNet spend so they can put more into proactive technology solutions that bring them a competitive advantage and better [return on investment] over just maintenance on a switch."

Some Future Tech customers have opted to buy an extra switch as a "self spare" rather than buying SmartNet so if "there is a problem with the unit, they just swap it out," said Venero.

The high price of SmartNet has also created a "whole gray market" around used switches and services that are putting customers and partners at risk, said Venero. He said Future Tech itself has created its own internal counterfeit unit to "validate" that all Cisco switches purchased are not counterfeit or gray market products. "All of this behavior is the result of Cisco from a SmartNet perspective being too expensive and too aggressive," he said.

Venero said he sees the Arista antitrust suit as simply a Cisco rival saying "enough is enough" and taking on the networking leader in the legal arena.

"The proof will be in the pudding as to whether there is merit to their case," he said. "But anytime a smaller person stands up to a potential bully, I applaud that. If the court rules in Arista's favor, it is going to open the market to other small companies that see Cisco as vulnerable."

Cisco referred request for comments on the allegations to a blog post on Monday from Mark Chandler, senior vice president, general counsel and chief compliance officer at Cisco, who calls the allegations "bogus."

"We welcome the opportunity to show that Cisco’s business practices are consistent with a highly competitive and vibrant industry," wrote Chandler. "Arista’s filing of bogus antitrust claims today is not accidental or a coincidence. The claims … are a smokescreen to divert attention from the important ruling expected from the International Trade Commission later this week."

Arista's antitrust lawsuit comes just two days before an expected ruling in a patent infringement lawsuit Cisco filed in December 2014 against Arista, alleging that Arista infringed on a number of its patents and had stolen Cisco copyrighted material.

Arista filed the counterclaim in the U.S. district court for the Northern District of California on Monday for antitrust and unfair competition against Cisco -- calling the networking giant a "monopolist."

"At Arista, we believe that a free and competitive marketplace best serves the needs of our customers and should be built upon open standards," said Arista in a statement to CRN. "When a monopolist reverses course after many years and asserts proprietary ownership of industry standards in order to protect its dominant market position and crush innovative competition, it harms the entire industry."

The two rivals have been trading shots at each other over the past 13 months.

In the most recent jab, Chandler posted a blog that included a sound bite he attributes to Arista co-founder and Chief Technology Officer Kenneth Duda in which Duda apparently says that Arista "slavishly" copied a command line interface (CLI), presumably market-leader Cisco's.

Arista's stock took a hit Monday after the announcement of the suit against Cisco, dropping nearly 7 percent, to $59.90.

STEVEN BURKE CONTRIBUTED TO THIS STORY.