Arista Partners On Edge After Judge Rules In Cisco's Favor In Patent Case

A ruling by the International Trade Commission that Arista Networks infringed on several Cisco patents has some Arista partners on edge, as the ruling might lead to the halting of imports of Arista networking products.

"It adds a nervous edge to business because I don't think anybody is really clear what Arista will need to do or will do if they're [forced] to stop any type of production," said one solution provider executive and Arista partner who declined to be named. "Arista is saying, 'Don't worry,' but it is a bit nerve-wracking to know Cisco wants to stop them from selling [in the U.S.]."

Administrative Law Judge David P. Shaw filed a final initial determination notice Tuesday in regard to a lawsuit Cisco filed against Arista in 2014 claiming the networking startup infringed on several Cisco patents. Shaw determined that Arista infringed in three out of five Cisco patents, with the judge clearing two of four of Arista's software features.

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The ruling says Arista infringed on Cisco's technology patents pertaining to its private VLANs, system database and externally managing router configuration data with a centralized database, according to Cisco General Counsel Mark Chandler in a blog post on Tuesday.

"This notice marks the beginning of the end for Arista's systemic copying of our intellectual property," said Chandler in the post. "Arista can no longer support claims to customers, resellers and the market that they created products from 'a clean sheet of paper.' "

Chandler also said the patents in question go to the core of Arista's products.

Arista stock dropped nearly 3 percent in a matter of minutes, from $59.34 at 3:45 p.m. Eastern to $57.25 at 3:55 p.m., after the ruling. Shares were rising slightly in after-hours trading.

Cisco is hoping the ITC will make Arista stop shipping its networking switch products into the U.S. from overseas sites until the technology is removed and modified so that they no longer infringe on Cisco patents, according to Chandler in the blog post.

"Any attempt to avoid an import ban by changing how they source and assemble products fails to acknowledge that ITC rulings cover components imported to make infringing products. This would be a cynical strategy that could expose their suppliers to liability for infringing Cisco’s patents, and validates customer and partner concerns about buying infringing products," Chandler wrote.

In a statement to CRN, Arista said: "Our primary focus is the continued supply of products to our customers. We respect the administrative process and the tireless work of the [administrative law judge] in this initial determination."

Arista partners say the ruling has them on edge, but not completely out of their seats.

"We just have to wait and see. … Customers aren't asking about it," said the executive at the solution provider, who said his Arista business is growing in "double-digits" year over year.

In a recent note from Ittai Kidron, managing director at equity search firm Oppenheimer, said he doesn't expect the litigation to impact Arista's business.

" Following detailed work and discussion with experts, we're convinced that, while Cisco will likely win in some of its patent claims, it will not disrupt Arista's business," said Kidron. "Given the length of the process and the breadth/age of the patents, we think Arista has the ability/talent to develop workarounds. … Bottom line, regardless of the outcome, we don’t think the litigation will impact Arista’s business activity."

In his blog post, Chandler said the ruling "is just the beginning."

A second ITC ruling is expected in April regarding another Cisco case against Arista alleging even more patent infringements.

"In April, we will see a ruling in the second ITC investigation, which may confirm more violations and import bans. Arista will also face two [district court] juries with these rulings on their record," said Chandler in the post.

The two companies have traded barbs around the lawsuits for nearly 14 months.