CSCO Cisco Systems Inc

By Don Clark 

Cisco Systems Inc. notched a victory on Tuesday in its legal battle against rival Arista Networks Inc., winning a ruling from a federal agency that could lead to a halt on imports of Arista's networking hardware.

David Shaw, an administrative law judge for the International Trade Commission, found that Arista infringed three Cisco patents that cover software features used in the company's switching systems. His ruling, called an initial determination, is a step toward a possible ITC import exclusion order against Arista products.

Such rulings are subject to a final determination by the commission, a ruling Arista said it expects in June. Any exclusion order may be blocked by President Barack Obama or overruled by an appeals court.

The company's stock fell 2.7% to $57.64 on the New York Stock Exchange on Tuesday; the stock edged up to $57.80 in after-hours trading following the news.

Cisco, the biggest maker of networking gear, accused Arista of violating its patents and copyrights in December 2014 in federal court as well as at the ITC. Some of the allegations involve the method used to type commands to program Cisco hardware -- known as the command line interface, or CLI -- that is used by Arista and some other competitors.

Arista's options now include trying to develop new software that doesn't infringe Cisco's patents. Arista said the judge ruled in its favor on two of four product features at issue in the case.

Arista said it strongly believes it doesn't infringe any of the patents but hopes to introduce software including necessary modifications in the second quarter.

"Our primary focus is the continued supply of products to our customers, " a company spokeswoman said.

Arista last week retaliated with antitrust claims against Cisco, in a response filed in federal court in San Jose, Calif. It accused Cisco of a bait-and-switch strategy that led competitors to adopt the CLI as an "industry standard" technology, only to later contend it was protected by copyright. Cisco characterized the Arista claims as "bogus."

The ITC action Tuesday involves Cisco patents related to other software. One covers a system database, or sysdb, used to store information used by a networking device. Two others cover technology related to security features.

Mark Chandler, Cisco's general counsel, said in a recent interview that an exclusion order could take effect in the summer, assuming neither the commission nor President Obama decides to block it. He said he would welcome Arista developing workaround software that doesn't infringe Cisco patents.

"All patents we asserted against Arista were invented either by Cisco employees who became Arista executives, or by engineers who worked for Arista executives when employed at Cisco," Mr. Chandler said in a blog post following the ruling.

He said Arista's use of Cisco patents was "intentional, pervasive, and driven by the most senior levels of their organization to unfairly compete."

Write to Don Clark at don.clark@wsj.com

(END) Dow Jones Newswires

February 02, 2016 17:45 ET (22:45 GMT)

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