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Arista to pay Cisco $400 million in patent settlement

The companies have reached a truce in a years-long court battle over patent infringement and antitrust claims.
Written by Natalie Gagliordi, Contributor

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Networking rivals Arista and Cisco have reached an agreement in a years-long court battle over patent infringement and antitrust claims.

In a filing with the Securities and Exchange Commission Monday, Arista said it's agreed to pay Cisco $405 million to dismiss all pending district court and ITC litigation between the two companies. As part of the deal, Cisco will grant Arista a release from all claims of infringement in pending litigation. In turn, Arista will drop antitrust claims lodged against Cisco.

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"These mutual releases will extend to the [Arista's] and Cisco's customers, contract manufacturers, and partners," per the SEC the filing.

The two companies were due back in court later this month to hash out allegations made by Arista that Cisco's dominant position in the Ethernet switch market made it a monopoly.

But the patent battle between the rivals began in December 2014, when Cisco alleged that Arista had repeatedly lifted the company's inventions and patents. Cisco said its intellectual property in part led to the Arista IPO earlier that year.

Weeks later Cisco petitioned the ITC for an injunction to prohibit Arista from importing and selling products using Cisco-patented technology within the United States.

Cisco's initial lawsuit concerned 12 features covered by 14 patents -- all of which are embedded within current Arista products. At the judge's request, Cisco whittled the list down to six -- then eventually five -- offending patents for the first lawsuit.

Cisco asserted that all of the patents in question stemmed from technology that was invented by Cisco employees who later became executives at Arista, or by engineers who worked for Arista executives while employed at Cisco.

Arista, meanwhile, vehemently denied the allegations of patent infringement. The ITC eventually sided with Arista on two of the five patents. In December 2016, a federal jury ruled that Arista did not owe the $335 million in copyright damages Cisco sought because Arista was protected by the "scenes a faire" doctrine.

Arista was still filing complaints against Cisco as recently as July 30. In a nutshell, Arista took issue with the way Cisco controlled the use of its command line interfaces (CLI).

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"Arista contends that for over a decade, Cisco encouraged customers and competitors to invest in and adopt Cisco's CLI. This practice was effectuated, among other ways, through Cisco's representations that its CLI was an 'industry standard,' and without independent assertion of copyright or other intellectual property rights in the CLI commands," the complaint read.

"Arista contends that despite knowing for years that Arista and other competitors had adopted Cisco-like CLIs, prior to 2014 Cisco made no statements that asserted intellectual property or other proprietary rights in the Cisco CLI itself," the complaint continued.

As for today's agreement, Arista said it will record a charge of $405 million to operating expenses, resulting in Q2 GAAP net loss of $155.3 million.

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