Hi again, Antihuman, Well, you got me interested, and I started researching it with an interest in taking a position. Then I read this post on the ANET board and it gave me a lot a pause. I suggest you read it, at least, before buying.
I am not an expert in patent litigation. I am instead a technologist who has a patent, testified in court for another patent, and followed closely the Juniper versus Palo Alto Network patent lawsuit.
I am writing to you so you don’t trivialize the lawsuit as a CLI issue.
Although there is a lawsuit for copy infringement for the manuals, this is really, in my opinion, only the smoking gun.
There are 12 patents infringement as well.
When a patent lawsuit goes into court, you have to understand that the jury are chosen to be high school dropouts or graduate. No one would have college degree … The idea is to control the jury by the “experts” with PhD from the top 10 universities, and top lawyers.
It is easy to understand that if someone copied the manuals, why would they stop there ? This is a huge proof. How can Arista Networks say that they would never copy code when they just copied the manual ?
This is very bad. Palo Alto network didn’t have this huge burden.
Another very worrisome data point is that there are 12 patent infringement (Palo Alto networks had 5). Three of these patents were co-authored by Arista Network founders. According to some other articles, there are a rosters of C-suite executive at ANET that co-authored patents. This limit the defense of Arista networks, they cannot invalidate these patents. This was the same strategy used by Juniper against Palo Alto Networks. Furthermore, one of the founders in the lawsuit is actually also suing Arista Networks in a very bizarre twist. This limit the defense of Arista Networks by having a star witness being a loose cannon.
Furthermore, Cisco is going for the jugular against Arista Networks. Cisco has never been a patent troll. This is strategic move, and it will not go away easily.
In this article, read about Mark Chandler (SVP, General Counsel and Secretary) at Cisco System.
1) Chandler adds that such tactics by Cisco are extremely rare:
“In the thirteen years I’ve been General Counsel of Cisco, I can count on one hand the number of times we’ve initiated suit against a competitor, supplier or customer.”
2) Chandler writes:
The heart of our action regards Arista’s deliberate inclusion in its products of 12 discrete and important Cisco features covered by 14 different U.S. patents. All of these features are being used by Cisco currently and in products we ship to our customers. None of the implementations are incorporated in industry standards. They were patented by individuals who worked for Cisco and are now at Arista, or who at Cisco worked with executives who are now at Arista. These Cisco-created features and implementations are incorporated by Arista in their entirety into Arista’s products.
3) The Article says
"Cisco wants Arista to stop using the infringing technology, a spokesperson tells us. It wouldn’t mind if Arista is forced into re-doing big chunks of its technology. "
Also “Cisco is asking for a jury trial, …”
Finally, this is a pretty bad risk as well:
“In addition a lawsuit filed earlier this month accusing Arista of patent and copyright infringement, Cisco has now gone to another legal body, the US International Trade Commission.”
This is to stop shipping product in the US !!
This is very bad for Arista Networks when I compare with Palo Alto Networks versus Juniper Networks. In the previous scenario, the patent were much less clear, unrelated to security or a feature. There was no smoking guns (Like copy of documents). They went to trials, which end up as a mistrial. Before re-filing, PANW decide to pay 100 Million dollard to JNPR.
Arista Network has a huge downside. I believe that Cisco System will prevail, so it is just a matter of how much penalties. The worst case scenario is that Cisco prevents ANET to sell in the US. The market cap would go to 1 Billion or less, could be bought by Huawai (or even Cisco) for 2 Billion.
Based on PANW experience, the market will assess a huge penalty, keeping the stock depress to very low levels. I would not be surprised to see the stock tank in the low 30 (about 2 Billion market cap).
They sell for 150 Million/quarter growing at 50% from previous quarter. They have one huge customer (microsoft is 10%). I feel the growth would slow in the 20-30% pretty soon. So, 3-4 Billion market is a fair value range (60$ == 4 Billion). With the lawsuit and a little bad news in a quarter, ANET will see a market cap of 2 Billions (30$/share). At that point, the risk/reward may worth it.
The rule breaker is betting on the cloud network story. I agree with it, but I am fearful that the lawsuit with Cisco will disrupt the ANET strategy and execution. This would lead to a bad quarter, sending the share in a tailspin. The bear momentum would pick up on all the lawsuit worst downside. At that point, nobody would want to touch the share with a 10 foot pole. This is the time were an investment could be made.