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Protecting Innovation: Facing the Facts

- August 22, 2016 - 0 Comments

‘945 ITC Update (12/7): The second ITC case is still ongoing and has been extended due to resource challenges at the Commission. The Initial Determination is now expected on December 9, 2016.

Enforcement Update (8/26): We have now filed an enforcement complaint with the ITC. It notes our testing of allegedly redesigned products and why we believe, “the claim of a workaround is a thin veil to cover Arista’s ongoing infringement and convince its customers, many of whom have strongly supported protection of intellectual property rights, that they are buying a product that is non-infringing.

 

Today the U.S. Trade Representative concluded that the International Trade Commission’s import ban and cease and desist order covering all Arista products will go into effect tomorrow. The ITC determined that Arista willfully and intentionally infringed three Cisco patents covering core, Cisco-proprietary network functionality. This is a great victory for the principle that the intentional use of others’ intellectual property should not be allowed.

The ITC ruling documents that Arista set out to use Cisco’s technology, knowing exactly what it was doing. Given Arista’s pledge that it will continue to sell products, despite the ITC’s orders and without having received any approval for workarounds, some may wonder whether the import ban matters. Let me explain.

For Arista’s customers and partners, the cease and desist order blocks the marketing, sale or distribution of all inventory of imported infringing products. It also means that Arista is unable to honor the service and warranty contracts for any infringing products sold after the ITC’s ruling date (June 23, 2016). Arista’s customers must now bear that risk.

For Arista’s suppliers, the ITC orders mean that Arista cannot import parts or components to manufacture infringing products in the United States.

For Arista’s investors, it means factoring in the high cost of trying to circumvent the ITC’s ruling. The penalty for importing or selling infringing product in violation of the cease and desist order is up to the greater of $100,000 per day, or twice the sales value of the infringing product imported or sold by Arista in the United States.

For Arista’s board and company officers, it means needing to offer more than just rhetoric about supposed workarounds. Arista chose not to present its proposed changes to the ITC, where they could have been reviewed in an open process. Based on what Arista has made publicly available to those who have purchased its products, it appears Cisco’s proprietary technology is still being used. Regardless of what either company says, Arista must convince Customs and Border Protection in a detailed review that it no longer infringes. Analyst reports suggest Arista preferred this approach because it lacked an opportunity for other parties to formally present evidence to rebut the workaround claims. This raises questions about Arista’s confidence in the legitimacy of its supposed workaround. Arista appears to be betting that Customs and Border Protection lacks the sophistication to make this assessment.

Arista has also noted in several public forums that it intends to continue selling the affected products. It does this without any ITC or CBP approval. If Arista does not change its course, Cisco will bring an enforcement action in the ITC later this week.

Arista has consistently tried to delay and distract, while avoiding taking responsibility for its actions. This includes falsely claiming the patents cover standards (see pages 58-60 of the ITC ruling which makes mincemeat of Arista’s claim), that the patents cover only minor features (despite their CEO’s claims that the technology was Arista’s “secret sauce”), and that “everyone does it” (there is no evidence to support this assertion).

The complete picture here is one that should raise many questions for Arista’s stakeholders. And there may be more to come. Later this week the ITC will rule on the second case (‘945 investigation) involving other key, core, and proprietary Cisco technologies that Arista is accused of infringing.

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