Cisco v. Arista—How’s That Patent Reform Working?
Arista Networks was founded in 2004 by former Cisco employees. Arista’s sales have been booming – 40+% growth in 2015, 30+% growth in 2016 – while Cisco’s has been stagnating with 2% growth in 2015 and less than that this year. Arista’s first products reached the market in 2008, and the company is set to break a billion dollars in sales this year.
Former Cisco CEO John Chambers claims the Arista founders egregiously stole IP from Cisco. In 2014 Arista’s success got on Cisco’s radar, and Cisco decided to file a lawsuit for copyright and patent infringement. When asked why he didn’t contact Arista before filing the lawsuit, Chambers testified,
In my mind, they knew exactly what they were doing and a phone call wouldn’t have helped. It is hard to accuse people who are your friends – and they are still my friends – of stealing from you. But this was so blatant.
Arista did not just get caught with their hand in the proverbial cookie jar—they openly admitted they took the cookies, ate them and how wonderful they tasted. Arista has bragged about how they copied from Cisco: Arista’s CEO, Jayshree Ullal has said,
A Cisco CCIE expert would be able to use Arista right away, because we have a similar command-line interface and operational look and feel. Where we don’t have to invent, we don’t.
Both sides loaded up with expensive lawyers – no one gets fired for hiring name brand counsel that gets paid win or lose—and had their day in court. So, how’d that work out for Cisco? Not well.
This was not a low-key trial. Cisco bringing in former CEO Chambers shows how important this trial was to the company. After a two-week trial, the jury deliberated for three days and found no patent infringement and no copyright violation. Without getting into the weeds on why they lost, it is more interesting to speculate how this loss was communicated to the senior executives at Cisco. I suspect that Mark Chambers—Cisco’s general counsel—handled this awkward communication.
Mark Chambers is one of the most vocal members of the anti-troll camp. He never passes up a chance to testify to Congress on the evils of patent trolls and the cost they impose on companies such as Cisco. Mark’s an intelligent advocate— we just fundamentally disagree on patent issues. One must wonder however, how he’s feeling about “efficient infringement” in view of this trouncing by Arista.
I can only imagine how awkward it was to call current Cisco CEO Chuck Robbins with the news of the defeat. Cisco has a major investment in many thousands of patents. This case had a defendant that admitted in its advertising that it stole Cisco technology. Cisco didn’t bring this case absent a very high confidence level they would win (losing has significant business implications, more on this below).
After ingesting the fact of the loss, if I was a Cisco business unit executive, I’d have some questions for Mark. Here’s how I imagine our conversation going:
Executive: Mark, I know you’ve spent a lot of time being the leading spokesperson on the evils of patent trolls, and you’ve been successful in getting Congress to enact legislation directed at trolls. Beyond this, you and the Patent Fairness Coalition have even changed the public dialogue, so that patents are now viewed as a threat to innovation, and even the courts are doing their part to take up patent reform. The first question I have for you is, “Who’s done more harm to Cisco, patent trolls or a company like Arista that just flagrantly steals our technology?”
Mark: You have to understand there are studies that show the patent troll problem cost the US economy $88 billion a year. This is a huge problem.
Executive: Yes—I have access to Google and have seen that study—it’s garbage. But that wasn’t my question. I have a fiduciary responsibility to our investors and must consider other stakeholders such as our employees. It’s my job to protect Cisco’s business interests. I can’t allow Cisco R&D to be stolen, harming our position in the marketplace, so that we can say we’re doing our part to eliminate the macro effect of patent trolls. My question again—which has cost Cisco more, patent trolls or companies that steal our technology?
Mark: I’ll get back to you – I don’t have those figures.
Executive: Great. And while you’re looking for those figures I have another question for you. What do you think our competitors are thinking now that Arista’s flagrant theft has been blessed by this court? Do you think some Chinese company looking to get into networking is going to approach us for a license to our patents, or will they simply launch and figure they’ll win in court when we try and sue them?
Mark: Good points—I’ll get back to you.
Executive: Great. We spend millions on our patent portfolio, have thousands of patents and you and our high-priced gaggle of lawyers couldn’t come up with one claim that was infringed?
Mark: Good point—I’ll get back to you.
Executive: We’ve spent millions lobbying Congress directly and indirectly through the Patent Fairness Coalition. Through these efforts we’ve successfully changed the dialogue about patents and how they inhibit innovation. Did it occur to you that this same sword could be used against us? We spend a fortune on R&D and buying innovation—most of our balance sheet is intangibles and the majority of those intangibles are patents and other intellectual property. Did it occur to you that when you reduce the strength of patents you’re impacting our ability to protect our R&D investment from competitors?
Mark: You’re hitting it out of the park today, sir—good point. I’ll get back to you.
This isn’t just an issue for Cisco. This is a conversation that could occur at many large tech companies that have been vocal supporters of “patent reform” that embrace “efficient infringement” strategies. It must, for example, be awkward for the IP group at Apple to explain the outcome of the Samsung cases to the Apple executive team. Even though the iPhone was not the first smartphone (that honor goes to the Simon, a flop first introduced back in 1993) Apple is widely credited with completely transforming the product and creating a real market for smartphones. In his biography, it’s clear that Steve Jobs felt that Google’s Android was a clear rip-off of the iPhone. He wanted to go “thermonuclear” on Google for the way they copied his ideas. Wonder how he’d feel about the weakening of the patent system and the results Apple has achieved against Samsung?
Corporate titans such as Apple, Cisco, and Google have championed weakening the patent system, ostensibly to “stop patent trolls” and end an unfair “tax on innovation,” but in reality to make it easier for them to use other people’s intellectual property without paying for it.
Have they yet woken up to the fact that they went too far? Their competitors are playing the same “efficient infringement” game against them that they’ve been playing against smaller players. Now that they’ve weakened the patent system they have fewer tools to stop those more aggressive competitors. How much longer before those executives wake up to the long-term implications of what the anti-troll advocates have done? Does a weaker patent system help them or hurt them?