Arista Stock Falls 12 Percent As It Faces Setback In Legal Battle With Cisco

Arista Networks stock dropped 12 percent Tuesday, hitting a two-month low, as the networking startup hit a setback in its ongoing patent infringement lawsuit battle with rival Cisco Systems.

In November, Arista stock hit an all-time high as a temporary ban of its products was lifted after the U.S. Customs and Border Protection agency determined that Arista had sufficiently redesigned its products so that they no longer infringed on Cisco's patents, allowing the Santa Clara, Calif.-based company to resume importing its redesigned products and related components into the U.S.

Last week, however, the agency revoked its finding because of what it said were "concerns" about whether its earlier decision was incorrect, and reinstated the ban pending further deliberation.

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"This means that Arista has lost the authorization to import or continue selling its products in the U.S., or to import components to build those products," said Mark Chandler, Cisco's general counsel, in a blog post. "The revocation covers all Arista products."

Arista's stock dropped from $100.27 per share on Jan. 13 to $88.23 late Tuesday. Cisco's stock has hovered at around $30 per share for the past week.

Chandler called on Arista to stop importing its products or their components; halt the sale of products imported or manufactured under the lawsuit; and recall any products sold in the U.S. since August, when the International Trade Commission ordered a temporary ban on Arista's products.

"Our view is that the 'redesign' is a sham," said Chandler. "If the [International Trade Commission] concurs that the 'redesign' does not avoid the patent, our enforcement action that is pending before the ITC can result in Arista’s forfeiture of all revenue from the sale of products since last August."

In a statement to CRN, Arista said the U.S. Customs and Border Protection agency has not ruled that Arista's products infringe. "Instead, [the agency] has expressed concern that its original ruling was incorrect, based on input provided by Cisco. It is equally important to understand that Arista has not yet responded to Cisco's arguments and has not yet had an opportunity to address any concerns Customs may have as a result of those arguments."

Arista partners have said that the ongoing litigation and various rulings have yet to affect their business.

Chris Becerra, president and CEO of Terrapin Systems, a Morgan Hill, Calif.-based Arista partner, said the new ruling by the U.S. Customs and Border Protection agency won't hurt the company's Arista's business.

"Customers aren't paying much attention to this [lawsuit] right now so our business hasn't been affected," said Becerra. "They've been going back and forth with Cisco for years, and I don't believe we've had any hiccups because of it. … I'm sure there's plenty of legal [litigation] ahead that's going to go back and forth. So right now, we're still running business as usual unless Arista says otherwise."

For more than two years, Cisco and Arista have been engaged in a heated patent infringement lawsuit battle.

In February, the International Trade Commission ruled in one lawsuit that Arista had infringed on three out of five Cisco patents, clearing two of four of Arista's software features. The International Trade Commission recommended, then eventually imposed, a limited ban on imports of Arista switching and components that contained the infringing technology – which included Arista's EOS networking operating system.

Arista created a new version of EOS with new designs for what had been deemed to have infringed on the patents.

The San Jose, Calif.-based networking giant also sued Arista for allegedly infringing on more than 500 of Cisco's copyrighted user commands for networking, seeking hundreds of millions in damages. Last month, Arista scored a win as a U.S. jury ruled that it owed no damages over Cisco’s copyright infringement allegations.