In The Shadows: The Rise And Fall Of Torrey Point

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For example, one invoice from PHW shows an order for $900,821 worth of Juniper products, including networking line cards for its MX series routers, for Cisco in June 2010. Another invoice from June 2011 shows $48,450 for QFabric-related products ordered by Cisco.

The document also included a purchase order from Cisco. One such order, dated January 2012, totaled $258,500 for additional MX series products. The shipment was sent to a Cisco office in Milpitas, Calif., and received by a Cisco marketing engineer. The order was fulfilled by PHW.

PHW, however, is not an authorized Juniper reseller. In fact, it's not a reseller of any kind. According to the company's website, PHW is "a boutique private equity investment and management firm specializing in the technology industry." There are no executive officers or managers listed by name on the website, but the company's phone number is the same as another company called PreOwned Hardware. (The automated answering system for the number simply says, "Welcome to PHW.")

PreOwned Hardware, according to the company website, specializes in selling and purchasing used and refurbished IT equipment and lists Juniper, Cisco and Alcatel-Lucent as its primary vendors. The website even has a "pre-owned hardware specials" section that lists dozens of Juniper and Cisco networking products.

In addition, one of the contacts listed on the PHW invoices and purchasing orders is Jeremy Biggs, who worked at Torrey Point and is the brother-in-law of Fazio. Biggs confirmed to CRN that PHW was part of Torrey Point and that the company was used to sell Juniper products to Cisco.

In some cases, Torrey Point, through PHW, sold Juniper products to Cisco that were still in beta or pre-release phases and were not yet commercially available, according to multiple sources with direct knowledge of the matter. While the majority of product Torrey Point sold to Cisco through PHW was from Juniper, the solution provider also shipped equipment from two of its other vendor partners, Arista Networks and Alcatel-Lucent. According to the documents, PHW moved more than $2 million worth of Juniper, Arista and Alcatel-Lucent products to Cisco in 2011 alone.

Cisco, meanwhile, said the purchasing of Juniper, Arista and Alcatel-Lucent products was for legitimate purposes and maintains that there was no wrongdoing on its part.

"We regularly buy our competitors' equipment for testing and to independently verify some of their technical claims," said Cisco spokesperson John Earnhardt. 
"This is a common practice by most IT vendors. Additionally, these purchases also help us ensure that our intellectual property is protected."

In essence, Cisco said it was buying Juniper gear not to obtain its competitor's IP, but to ensure Juniper wasn't stealing Cisco's IP. Dr. Bruce Abramson, an attorney and expert in technology IP law, said there's no criminal wrongdoing on Cisco's part because the purchases made through Cisco were finished products and not trade secrets or IP. "There's a line between business intelligence and corporate espionage," he said. "It doesn't matter if the product was commercially available or not. It matters if it was legally available."

Nevertheless, Abramson said the practice could be detrimental to Juniper and other vendors. "Is there damage by having a product end up in the hands of competitors before it's even released? Yes, potentially," Abramson said. "The competitor can work on a direct response product faster or they could develop advertising or marketing to undermine the original company's product."

Ivan Zatkovich, principal consultant at eComp Consultants and an expert in IP and technology, also said the practice could have harmful effects for a manufacturer if its products in question are falling into the hands of the competition before they're even commercially available.

"That could give a competitor a potential six-month jump, depending on the testing cycle of the product, on their ability to catch up and replicate the [technology] advances and compete better against the original manufacturer," Zatkovich said. "That could potentially mean lost future revenue."

But Abramson said purchasing a competitor's products for testing and reverse engineering is not only a common and accepted practice, but "an important component of entrepreneurial capitalism" in the IT industry. "This is part of what makes markets work," he said. "You're supposed to know how your competitor's products work and incorporate as much as you can to make the next generation of your product better."

NEXT: A 'Cardinal Sin'

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