Arista agrees to pay $400 million to Cisco
Cisco and Arista have ended a 4-year-old legal conflict over networking patents. Arista is set to pay Cisco a total of $400 million in damages in order in order to settle the dispute. The two companies have decided to use an arbitration process to address any patent issues which arise regarding new products that come out in the next three years.
In a joint statement, they stated - “Cisco and Arista have come to an agreement which resolves existing litigation and demonstrates their commitment to the principles of IP protection. They have agreed that, with limited exceptions, no new litigation will be brought over patents or copyrights to existing products, for five years.” (source)
Arista was founded by former Cisco employees who were directly and confidentially familiar with Cisco’s patented networking technologies, including those protected by patents. Eventually, Aristo arrived as Cisco’s potential competitor in the multibillion-dollar market for Ethernet switches used in data centers. In the complaint against Arista filed in 2014, Cisco has deeply expressed how Arista, instead of building its products and services based on new technologies, has merely taken a shortcut by using innovative networking technologies designed, developed, and patented by Cisco. Arista however, came forward and agreed upon the possibility, that had they tried to legitimately compete with Cisco, it would have taken a substantial investment in time and employment.
Arista’s President and Chief Executive Officer, former Cisco employee Jayshree Ullal stated:
“Since I helped build the enterprise [at Cisco], I would never compete with Cisco directly in the enterprise in a conventional way. It makes no sense. It would take me 15 years and 15,000 engineers, and that’s not a recipe for success.”
Cisco sued Arista, claiming that it had blatantly copied software that runs switching products and other technology protected by patents and copyrights. Arista denied these allegations, accusing Cisco of abusing its monopoly to repress the competition to sustain its dominance in the market.
In 2016, the U.S ITC ruled in favor of Cisco, that Arista infringed three patents, and suggested a limited ban on Arista’s products that infringe the patents. Arista complied with this by redesigning its technology by eliminating the factors that infringed on Cisco’s patents. This improvement worked and led to Arista’s victory as a U.S jury in 2016 said that it owed zero damages over Cisco’s claims of copyright infringement.
It didn’t end here. An antitrust lawsuit was filed by Arista shortly after the settlement, alleging Cisco of first letting its competitors use its interface technology, and when they were confined to it, asserting copyright infringement.
"Arista contends that for over a decade, Cisco encouraged customers and competitors to invest in and adopt Cisco's CLI. This practice was effectuated, among other ways, through Cisco's representations that its CLI was an 'industry standard,' and without independent assertion of copyright or other intellectual property rights in the CLI commands," the complaint read.
"Arista contends that despite knowing for years that Arista and other competitors had adopted Cisco-like CLIs, prior to 2014 Cisco made no statements that asserted intellectual property or other proprietary rights in the Cisco CLI itself," the complaint continued (source).
Cisco denied this by saying that it never advised Arista to use its technology and the allegations against Arista are only justified.
In addition to the damages cost, the deal includes Arista to be released from all claims of infringement in the pending litigation. Arista will also drop its lawsuit alleging that Cisco indulged in anticompetitive conduct to safeguard its dominant share of the Ethernet switch market – which otherwise would have commenced on Monday in San hose, California.
However, this settlement does not resolve Cisco’s appeal of the 2016 verdict, which said that Arista was not liable for damages under U.S. copyright law. A federal appeals court heard arguments relating to those claims in June and will issue a ruling later this year.