Arista Networks' stock took it on the chin when Cisco slapped the company with patent infringement and copyright law suits last Friday, losing almost 20% of its value at one point as investors and others mulled the long term implications of the suits.
The short answer: this is going to take a long time and could get pretty ugly for Arista.
One of the suits accuses Arista of violating 14 Cisco patents, while the second is for extensive copying of Cisco's user manuals and multi-word CLI commands (see Cisco slaps Arista Networks with patent, copyright infringement suits).
Arista has been fairly mum on the suits, but did post a piece by board member Dan Scheinman, who formerly worked for Cisco, saying "Arista's EOS was developed from the ground up as a next generation network operating system for the cloud based upon the pioneering technologies invented by Arista" (see Arista fires back at Cisco's suits).
Scheinman ends his post posing the question, "Why now? The answer to that question speaks volumes about the real motivation going on here."
The conclusion we are apparently expected to reach is that Arista has unique technology and its growing success is a thorn in Cisco's side, hence the suits. Sales growth would support that notion. When Arista filed for its IPO last June it said sales in 2013 were $361 million, up more than 90% compared to 2012, and according to some estimates, the company will finish 2014 with sales leaping another 60% to $577 million (across that magic $500 million line that proves to be the limit for many network startups).
"Arista has good products and obviously a strong engineering staff," says Joel Snyder, a senior partner at tech consulting firm Opus One, and a longtime product reviewer for Network World. "People are starting to take note, and obviously they are making some noise that Cisco is noticing."
One large financial services company I spoke with this summer said they are installing Arista equipment to complement their largely Cisco network environment, adding anecdotal evidence that Arista is making inroads in critical accounts. Asked if this lawsuit will make them reconsider adding Arista equipment, the company said it will proceed as planned.
That's at least some good news. The bad news: Arista will have its hands full with these suits, says Charles Steenburg, an associate at Wolf Greenfield, an intellectual property law firm in Boston. While Arista might file a motion to dismiss the complaints, "in a case like this, dismissal is highly unlikely," he says.
While trials are the exception rather than the rule in patent infringement cases, especially in cases brought by patent trolls who are just after cash settlements, "cases involving competitors more often go to trial," Steenburg says.
Discovery and the claim construction phase, in which the judge asks for input from the parties and outlines certain key patent terms, can take about a year, he says. Using the Apple/Samsung trials as a gauge, which were filed in the same California district, Steenberg says these cases might start in 16 to 26 months.
Asked how dire a situation this could create for Arista, Steenburg says "the nuclear scenario would be for Cisco to get an injunction that prohibits Arista from selling the products in question." But at the very least, the cases are "certainly going to make life difficult" for Arista.
"The discovery process itself is not just expensive, but also time consuming and can sap morale," Steenburg says. "It stinks to have engineers and other employees being deposed or gathering documents instead of doing constructive work. That is often an unappreciated cost and risk of litigation."
Snyder says he thinks "Cisco has a legitimate beef. They may or may not prevail, but it opens up enough FUD to give the Cisco sales team something to use in competitive deals. Right now Cisco is fighting hard to keep its place in the enterprise, and one of their tools is pricing. If they can force others to have higher costs, either through engineering or litigation or both, then this is a competitive edge."
Should potential customers worry? "I would counsel any client thinking of doing business with a company that has been sued for patent infringement to ask to be indemnified in case the company goes after them," Steenburg says. "That said, presumably Cisco does business with most of Arista's customers, so it would be unusual for Cisco to go after customers."
In the copyright suit Cisco says that, among other infringements, Arista has copied 500 of its multi-word command line instructions. While Google and others argue copyright protection shouldn't address interfaces, some observers see it otherwise.
"'Ip host' all by itself isn't copyrightable," writes Florian Mueller, an intellectual property activist with 25 years of software industry expertise in his blog Foss Patents, "Same with 'show inventory.' Arista could have copied one or two of those and Cisco couldn't complain if that were the case. But when one looks at the whole list of 500 multi-word commands, many of which truly involve creative choices (for example, 'show ip igmp snooping querier' or 'spanning-tree potfast bpdufilter default'), the threshold for copyrightability is easily met."