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Cisco Testimony On Consumer Protection at Senate Committee

November 7, 2013 at 10:03 am PST

Today, before the United States Senate Consumer Protection Subcommittee, Cisco SVP and General Counsel Mark Chandler had the opportunity to talk about a new and troubling kind of scam dressed up with language such “patent infringement” and “innovation.” As he shared with the Subcommittee, the perpetrators of this scam are sending out thousands of threat letters to small businesses and consumers, and file lawsuits in the hope of a big payday, not based on the merits of the case, but on the fears of victims who just want to make a problem go away.

These victims — mom and pop stores, hospitals, pharmacies, car dealers, — aren’t manufacturers of products, they’re simply users, like you and me.

Chandler’s full testimony can be read on the U.S. Senate Commerce Committee website here.

His oral testimony as offered to the committee is in full below:

Madam Chairman, Ranking Member Heller, members of the Subcommittee,

My name’s Mark Chandler, and I’m Senior Vice President and General Counsel of Cisco.

Today I will describe our experience with a new kind of scam based on a formula that’s as old as the hills, but dressed up with the language of “patent infringement” and “innovation”.

The perpetrators send out thousands of threat letters to small businesses and consumers, and file lawsuits in the hope of a big payday, not based on the merits of the case, but on the fears of victims who just want to make a problem go away.

These victims — mom and pop stores, hospitals, pharmacies, car dealers, — aren’t manufacturers of products, they’re simply users, like you and me.

I’m involved as General Counsel of Cisco because I want to defend my customers. But we need your help in bringing a little sunshine to this dark corner of the patent system.

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Cisco Suggests Huawei Release Court Report on Intellectual Property Misuse

Recently,  Mr. Charles Ding, Huawei Corporate Senior Vice President and Chief Representative in the United States spoke publicly about Huawei’s use of Cisco’s intellectual property.

While Huawei’s statements were in a context unrelated to the competitive relationship that Cisco and Huawei have, they nonetheless bear directly on issues that anyone concerned about fair competition in the networking industry ought to be thinking about. Mr. Ding contended that Cisco’s litigation with Huawei in 2003 and 2004 was unjustified. This is the litigation in which Cisco claimed unauthorized use of Cisco’s source code in Huawei products.

Mr. Ding said: “If I remember well, that happened in 2003, when Cisco sued Huawei for intellectual property rights infringement …at that time, Huawei provided our source code of our products to Cisco for review and the results were that there was not any infringement found and in the end Cisco withdrew the case…this is the basic situation of that case.”

When asked, “didn’t Huawei admit that Cisco’s code was in your equipment?”, Mr. Ding stated, “As specifically to the source code, the source code of the issues was actually from a 3rd party partner that was already available and open on the internet.”

In fact, within a few months of filing suit, Cisco obtained a worldwide injunction against sale by Huawei of products including our code for a Cisco-proprietary routing protocol called EIGRP, and Huawei publicly admitted that the code had been used in their products and they pledged to stop.  They even said they had removed that code from the products voluntarily prior to the judge’s action.  After the injunction was issued, Huawei agreed to an expert review of the balance of its code, above and beyond the EIGRP module.  More than a year later, the litigation was indeed concluded.  What happened in the interim, how many reports a court appointed expert released, and what was done as a consequence, were all covered by a confidentiality agreement.

Our legal advisers tell us that given Mr. Ding’s statements, we would be justified in releasing the full report.  To facilitate the understanding about what actually happened in the litigation and allow Huawei to itself clear up any confusion, we waive any confidentiality requirement for the report and suggest that Huawei itself have the expert’s complete final report put into the public domain.   Fair competition, indeed, requires transparency of business practices and a respect for intellectual property rights.

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Why Apple-Samsung Proves that the Patent System Can Work

Like many in the tech industry, I closely followed the recent Apple-Samsung litigation and believe that the case will have meaningful implications for years to come.  What I find most interesting is not the jury’s decision – which could have gone either way for purposes of this commentary – but the underlying premise of this case, which is exactly the type of issue our patent system was designed to handle. I can even picture Thomas Jefferson, our nation’s first Commissioner of Patents, sitting in his study at Monticello, reading about the case on his iPhone and texting a note to Judge Koh congratulating her for her conduct of the case.

This case involved two companies with competing products, and each believed they had intellectual property that should exclude the other from participating within their marketplace. More importantly however, at least some of the patents being litigated were essential to the products’ design. In other words, they were inherently the reason that consumers would want to buy those specific products. This important concept – that true innovation must be tied to consumer preference – played out in a court of law, in front of a jury, and in a way that will have great significance for how the marketplace treats companies that innovate.  Unfortunately, this is a far cry from a majority of patent litigation we see in our system today.

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Silicon Valley Innovation is Built Around Employee Mobility

In my last blog, I wrote about HP’s disturbing pattern of suing non-California employees under ‘non compete’ clauses, often imposed  years after employment began.  Apparently it’s relatively recently that HP decided to abandon its Silicon Valley roots and tie up its  non-California employees in legal knots.  HP is in fact the only large Silicon Valley-based company to have two classes of employees and try to impose mobility restrictions on those who live outside California.  HP’s efforts have gone so far as to sue an employee who took a buyout after having his salary cut, and one who didn’t even work in an area related to HP’s products that compete with Cisco’s.

Two recent actions since that blog posting are stunning.   First, HP renewed legal action in Texas, where one of the employees used to live, trying to get a judge there to schedule a court date on a day’s notice and to apply Texas law even though the California judge in the case is going to hold a hearing, as is certainly appropriate, to verify that the employee has in fact moved to California. (Yes, he came to work for Cisco after he arrived in California, rented an apartment, got a drivers license, etc.) Once again the Texas court refused to intervene, and in fact effectively “stayed” HP’s legal actions indefinitely. HP also tried in Texas to raise another bar to employee freedom, claiming that the employee would ‘inevitably’ use HP’s trade secrets to do his job at Cisco, and therefore should be barred from continuing his new job. Just as California law bars enforcement of non-compete clauses, California courts won’t recognize this doctrine either, seeing it for what it is — an effort to impose de facto non competition clauses.

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