Arista Networks Stock Soars As Product Import Ban From Cisco Suit Is Lifted

Shares of Arista Networks closed at an all-time high on Monday as an import ban on its products was lifted as part of the company's ongoing patent infringement battle with networking rival Cisco.

The temporary ban, which included Arista's EOS networking operating system, was imposed on Aug. 22 after the International Trade Commission ruled that Arista networking switches infringed on three of the five patents cited in a lawsuit filed by Cisco in December, 2014.

"It's always better for business to have something like this lifted," said Chris Becerra, president and CEO of Terrapin Systems, a San Jose, Calif.-based solution provider and Arista partner. "Although we didn’t see any customers that had a major problem with it, I'm sure (Arista) did somewhere along the lines. So, I'm excited for Arista."

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On Nov. 18, Arista received a letter from the U.S. Customs and Border Protection (CBP) determining that Arista had redesigned its products enough – which were launched after Cisco filed the lawsuits – that they did not infringe on Cisco's patents and that Arista can immediately resume importing its redesigned products and related components into the US, according to an 8-K Form Arista filed to the Securities and Exchange Commission on Nov. 21.

"[Arista's] current products which contain its redesigned Extensible Operating System (EOS) are not within the scope of the limited exclusion order issued by the U.S. International Trade Commission," said Arista in its 8-K. "CBP has issued instructions to the U.S. ports to permit entry of the Company's redesigned products for consumption and sales in the United States."

Arista's stock rose $6.50 (7.39%) to $94.48 on Monday.

Santa Clara, Calif.-based Arista became a public company in July 2014 with shares starting at $55. Before Monday, Arista's stock hit its highest mark in September 2014 at $91.12 per share, while its lowest point came in February 2016 when shares were selling at $56.24.

In a statement to CRN, Cisco said it filed an enforcement complaint with the ITC in August, "which notes our testing of allegedly redesigned products and why we believe, 'the claim of a workaround is a thin veil to cover Arista's ongoing infringement and convince its customers, many of whom have strongly supported protection of intellectual property rights, that they are buying a product that is non-infringing."

Cisco said the enforcement case continues with an initial ruling expected in June 2017 and that the ITC is not bound by the CBP's decision. Additionally, the San Jose, Calif.-based networking giant said it is "awaiting the ITC action" in a separate investigation involving additional patents Cisco believes Arista infringed upon, "which has been awaiting a decision for approximately a year."

The CBP's ruling may be modified or revoked if found to be in error, not in accordance with the current views of CBP or in conflict with any future ITC findings, according to the 8-K form.

In a statement to CRN, Marc Taxay, senior vice president and General Counsel for Arista, said "We appreciate the hard work and thoroughness of U.S. Customs and Border Protection in reaching this decision which validates our good-faith efforts to address the ITC’s findings. We look forward to resuming the importation of our redesigned products into the United States."

Cisco filed its lawsuit against Arista in December 2014, alleging that the networking startup had infringed on its patents and also stolen copyrighted materials.

The networking giant also alleges that Arista president and CEO Jayshree Ullal -- who was once senior vice president of Cisco's data center switching business -- is illegally using 12 separate Cisco switching features covered by 14 different U.S. patents.

Terrapin's Becerra said he's only seen one customer ask about the Cisco-Arista lawsuit over the years.

"We only have one customer comment on it and they wanted a quick explanation, so along with the Arista team we provided one to the customer, and they were satisfied with it … I wouldn't say it affected our business with them at all," said Becerra.

"I'm very bullish on what they have been coming out and what they had out recently the Jericho 7280E [Series] 100 gigabits, capable switches – that technology is resonating very well in the data center," said Becerra. "I'm very bullish on what Arista is doing from a technology perspective."