Cisco sued Arista and took the battle to the US International Trade Commission. The ITC ruled in Cisco’s favor on Friday, saying that Arista was violating three of Cisco’s patents and that Arista’s products would be banned from entering the US after a 60-day grace period. During that 60 days, the ITC president can review and overturn the finding. That rarely happens.
But Cisco first sued Arista in December 2014. So, Arista has had time to alter its products to get rid of the disputed technology. Arista says that its products, shipping since May, have already been changed.
That means that Arista is hoping that any ITC exclusion order will be short-lived. Still, if the ban takes effect, then it could still take four to six months to get it lifted, Nomura Wall Street analyst Jeffrey Kvaal warns.
So Arista has been stocking up on its products in the US, and Ullal found a US manufacturer to build the revised product locally, too, she told customers.
Arista is a hated rival of Cisco, primarily because many of Arista’s leaders and engineers are former Cisco employees, including Arista cofounder Andy Bechtolsheim and Ullal.
Arista competes with Cisco in the very important data-center network-equipment market. Facebook is, for example, an Arista customer, although Facebook has also built its own network switch.
Cisco insists that Arista is using technology invented when its founders, leaders, and employees worked at Cisco, so it wants Arista to stop using that technology. Arista disputes that.
Normally, these kinds of lawsuits are settled out of court and life goes on.
We understand from a person in contact with Cisco and Arista that, after the lawsuit hit, Ullal reached out to Cisco to negotiate a settlement but was rejected. This person believes that Cisco really wants to distract Arista with expensive legal matters for as long as it can.
Ullal wouldn’t comment on her attempt to settle, but a source close to the company tells us, “Cisco has expressed no interest in settling.”
And Arista’s lawyers have been implying the same at every possible opportunity.
In the company’s latest press release, Arista’s lawyer, Marc Taxay, did so again, saying, “Despite Cisco’s rhetoric claiming that the lawsuits are a defensive move to protect its intellectual property, these actions are clearly part of a broader effort to use litigation to preserve Cisco’s market position.”
So far, the tactic hasn’t been working. Arista continues to report significant revenue growth – 34% in the last quarter – and better than expected profits and has pretty much no debt.
But if it can’t sell its old products for longer than it planned, and Cisco won’t settle, then that’s obviously not a good thing and investors know it. A few months before the lawsuit, in September 2014, the stock was trading above $90. Today it’s closer to $60.