Cisco Wins Legal Challenge in Battle Against Chinese Counterfeits
December 16 2019 - 6:29AM
Dow Jones News
By Aaron Tilley
Cisco Systems Inc. has won a legal battle against counterfeit
versions of key networking equipment, securing an injunction that
requires big online marketplaces, including Amazon.com Inc. and
Chinese rival Alibaba Group Holding Ltd. to halt the sale of some
knockoffs.
Cisco secured the sales ban in a temporary injunction seen by
The Wall Street Journal. The company had argued that counterfeit
items threatened U.S. national security and health systems, in
part, because the items were more failure prone and the software
would be hard to update and keep secure. Cisco is trying to use the
ruling to galvanize other suppliers to build an industrywide effort
to curb counterfeit sales.
The judgment comes at a time when the U.S. government and tech
companies have been leaning on China to do more to crack down on
counterfeit products. U.S. Trade Representative Robert Lighthizer
last week said as part of a recent trade deal with China, Beijing
made specific commitments on intellectual property, including
counterfeiting, patent and trademark issues and pharmaceutical
rights.
Cisco's suit, filed in federal court in the Eastern District of
New York, alleges that four Chinese companies made counterfeit
versions of its transceivers, a component necessary for sending and
receiving digital information. The company's transceivers are used
widely in networking gear to pass data throughout hospitals,
military facilities and corporate data centers. Counterfeit
transceivers are easy to sell because they generally look the same
across many companies.
The judgment was handed down against four Chinese manufacturers.
The companies didn't respond to requests for comment.
Rowan TELS Corp., a new San Francisco consultant that assists
companies dealing with counterfeit products, estimates that the
four Chinese companies account for more than half of the
counterfeit transceiver market. The total transceiver market was
estimated to be nearly $7 billion in 2018 sales globally, according
to research firm IHS Markit Ltd. Counterfeit experts say fakes can
account for 5% or more of tech equipment sales.
The injunction requires online commerce sites -- including
Alibaba, Amazon, and eBay Inc. -- to remove any listings of
Cisco-labeled products on the pages of those companies. Amazon said
it was committed to halting the sale of counterfeits. The other
online vendors had no immediate comment.
The ruling also freezes assets owned by the Chinese
companies.
Cisco for years has been fighting against alleged infringement
by Chinese companies of its patents and the sale of counterfeit
versions of its products. The Justice Department and the Department
of Homeland Security in 2010 announced that they had seized $143
million worth of counterfeit Cisco networking gear manufactured in
China. Cisco also sued Chinese telecommunications-gear rival Huawei
in 2003 for copying its router software, though the
patent-infringement suit was dropped a year later. Huawei at the
time admitted some software was apparently copied from Cisco, but
was being removed.
In the latest case, Cisco engineers tested transceivers from the
four companies and determined they were counterfeit. Lawyers
representing Cisco said they expect a permanent injunction against
the four Chinese companies to be handed down soon.
China, ahead of the trade agreement, had already said it issued
a directive to strengthen intellectual-property rights.
"We welcome the news that China will strengthen
intellectual-property protections in the country," Cisco General
Counsel Mark Chandler said in an interview. "We have worked with
Chinese authorities over the years to raid facilities and shut down
counterfeiters."
Cisco is hoping its legal battle in the transceiver case will
cause other networking gear makers to join an effort to crack down
on counterfeit products. The company said it is working with Rowan
to build that coalition.
Rowan's CEO, John Amster, said his company is building software
to track and monitor counterfeiters. But to expose the full scope
of the counterfeit networks would require data from more
manufacturers to target the knockoffs collectively.
Cisco's Mr. Chandler said that such an industrywide approach
would give legal challenges more force. "We have a common interest
in shutting down this activity."
(END) Dow Jones Newswires
December 16, 2019 06:14 ET (11:14 GMT)
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