There's MUCH more to this lawsuit than commands!

I don’t think that it’s a question of commands. I’m not a patent attorney, nor a tech guy. I don’t know how much Arista has altered the original stuff to get away from the patents. I don’t know how much Bechtolsheim is revered. But from what I’ve read here’s why CSCO is suing them:

All the principals at Arista were working for CSCO when they invented whatever it is that makes Arista special. CSCO, being a staid large behemoth, didn’t want to introduce what these guys had invented because it would disrupt a lot of their existing products. So these guys left CSCO and started their own company. CSCO claims that the patents for the whole Arista concept belongs to them because it was invented at their company. Period!

Maybe that’s a little simplified, but it sounds a lot different than just a few commands — doesn’t it?

Here’s a little about it from an informational article http://seekingalpha.com/article/3122296-cisco-vs-arista-let-…… on Seeking Alpha:

…What is interesting about these cases are Cisco’s allegations that Arista is unlawfully using a number of critical networking technologies that were developed by Arista’s own founders while they worked at Cisco. Specifically, Arista’s founders, Andreas Bechtolsheim and David Cheriton, previously worked at Cisco and are the named inventors on two of the asserted patents - the '853 and the '577 patents…

Cisco’s allegations don’t stop there. It claims that scores of Arista’s employees previously worked at Cisco prior to joining Arista. This includes Arista’s:
1) founders,
2) president and CEO,
3) chief development officer,
4) chief technology officer,
5) senior vice president for customer engineering,
6) vice president of business alliances,
7) former vice president for global operations and marketing,
8) vice president of systems engineering and technology marketing,
9) vice president of hardware engineering,
10) vice president of software engineering, and
11) vice president of manufacturing and platform engineering.
12) Moreover, four out of the seven members of Arista’s Board of Directors were previously employed by Cisco. See Complaint, DCT-5344 at Par. 2.

Why are these allegations potentially damaging to Arista? Because they expose Arista to claims of willful infringement. Under patent law, if infringement is proven to be willful (or intentional), the patent-holder can be entitled to treble damages. Often, the most difficult obstacle to proving willful infringement is proof that the accused infringer actually knew about the patents. In this case, the proof is in the pudding. Arista’s executives and board are filled with people previously employed by Cisco. Moreover, Arista’s founders are named inventors on two of Cisco’s asserted patents. It will be nearly impossible for Arista to deny that it did not know about Cisco’s patents in the course of developing its technology.

Separate from the possibility of trebled damages, Arista’s damages exposure is still significant. Arista was founded in 2004 and launched in 2008. If Cisco prevails on proving infringement, it will be entitled to damages going back six years - almost the entirety of Arista’s existence. (This will depend on the asserted patents, which issued at different times. The youngest patent issued in 2013, which affords only two years of past damages, whereas many of the other patents will afford six years. In any event, most of these patents will not expire anytime soon, and the potential for future damages is significant).

There is another important issue that arises from the fact that Cisco’s patents were, in some cases, invented by Arista’s founders. This issue is assignor estoppel. Under the doctrine of assignor estoppel, a party that assigns his/her patent to another is subsequently estopped from challenging the validity of that patent. Here, Arista executives appear to be named inventors on several of the patents. This may bar Arista from challenging the validity of Cisco’s patents if the doctrine of assignor estoppel is deemed to apply. This could potentially be a big setback for Arista. In most patent cases, an accused infringer (Arista) has two primary avenues of escaping liability - proving it does not infringe the patents, or proving the asserted patents are invalid. If Arista cannot avail itself of proving the patents are potentially invalid, then its chances are defeating Cisco’s claims are substantially weakened…

Now if that doesn’t scare you, I’d like to know what tranquilizer you are using!

Saul

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Well - the same was true with PANW and Juniper. In the end it fell over as a mis trial. Having a case is one thing. Concluding prosecution beyond reasonable doubt is something else.
Having said that I agree I would not be taking this risk. If they win then fine get back into ANET but why hold with the risk of wipeout.
Ant

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ANET

“Concluding prosecution beyond reasonable doubt is something else.”
In a civil trial the test is usually only a preponderance of the evidence,
a much lower bar than beyond a reasonable doubt, fwiw.

Rob

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Also, keep in mind that Cisco almost never sues on patent infringement (despite having thousands of critical patents). So this case must be remarkable in some way for them to decide to do it.

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Cisco typically doesn’t need to sue because they’re considered the gold standard of networking. If this is their first true threat on the the standard (superior technology AND the legs get past the moat), this is exactly how Cisco (or any company at the top) would respond.

I’m aware of many great alternatives to Cisco (usually on price foremost), but this one appears (because of the technology AND especially management team) with the moxie to challenge Cisco for king of the hill.

  • Bob
    small position (2%) in ANET (and holding for now)
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"Under the doctrine of assignor estoppel, a party that assigns his/her patent to another is subsequently estopped from challenging the validity of that patent. "

No problem there.

Obviously, if the inventor went on to another company that wished to use that previous work at the new employer, despite having given up patent rights… that’s fine.

You eliminate the possibility he works to get the patent ruled invalid because ??? he fudged the application? A federal crime, probably. Or he didn’t do due diligence on the patent search of previous technologies? That too would seem to make him a scum bag…

Nope…he signed away that right to sue over his patent…

Most companies have a ‘non compete’ clause too…I’m surprised he didn’t have to sign one. Normally you can’t work in ‘the same industry’ for 2-5 years…or as long as you hold substantial stock…or both…

Sounds like sanity rules here.

t.

I should make clear that I like Arista, the company. I had a med-small position in it until about a week ago when they lost that preliminary finding. I decided that that increased the chances of them losing to a level where it wasn’t worth it. There are lots of good companies out there without that risk.
JMO
Saul

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Excellent article. My understanding as been (and could be wrong), that if I work for, say Apple, then I can invent a better mousetrap or bike on my own time, but I can’t invent a better smartphone. Nor can I invent a better mousetrap on company time or using company computers to draw up my blueprints.

Add in that there are Cisco owned patents involved and this looks really bad.

So here is how to invest: wait for the lawsuit to play out, if ANET wins you will miss a big jump, but then they will be back on a growth path and you can find a good investment point. Otherwise you have not risked a huge percentage loss.

Buffett rule#1: don’t lose money.

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“All the principals at Arista were working for CSCO when they invented whatever it is that makes Arista special. CSCO, being a staid large behemoth, didn’t want to introduce what these guys had invented because it would disrupt a lot of their existing products. So these guys left CSCO and started their own company. CSCO claims that the patents for the whole Arista concept belongs to them because it was invented at their company. Period!” Saul

Have you watched the series Silicon Valley? It’s the same thing
Piedpiper got sued by Hooli because their compression algorithm was allegedly invented when Richard was working at Hooli.

Kind of funny

Franco

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Love the show, actually it wasn’t really that he invented it while working at Hooli (the GOOG/AAPL big evil corporation) but the question was whether he he ran one test on a Hooli computer.

Saul,
I thought over what you said and I believe you are correct. While I too like the company and their product I now believe the risk is just to high compared to the reward. I sold my shares today and will keep an eye on the company to see how this plays out. I think you see things clearer right away and is one of your great abilities. I think one of my pitfalls is not being able to quickly and clearly see the risks in a company, and I am sure the reason for this is how much time I put into investigating a company and seeing how a company could become a winner. I think I need to think more about risk and rewards more and less about what could happen in the future. I think in the future in might be possible to get back into Anet at a cheaper price when the picture is more clearer.

Thanks,
Andy

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While I too like the company and their product I now believe the risk is just to high compared to the reward. I sold my shares today and will keep an eye on the company to see how this plays out… … I think in the future I might be possible to get back into Anet at a cheaper price when the picture is more clear.

Andy, It’s important to remember that you sold for the first reason, that I now believe the risk is just to high compared to the reward. and not for the second reason, that I might be possible to get back into Anet at a cheaper price when the picture is more clear. This is an important distinction! You are not speculating on a decline in price. You are saying the price may go up and I may miss it, but the risk of a serious decline isn’t worth it to me.

Best,

Saul

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You are not speculating on a decline in price. You are saying the price may go up and I may miss it, but the risk of a serious decline isn’t worth it to me.

That’s true Saul, I wouldn’t even mind getting back into this stock at a higher price after the Cisco lawsuit is cleaned up.

Thanks again,
Andy

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"I don’t know how much Bechtolsheim is revered. "

oh he is revered around these parts. He is a remarkable entrepreneur and engineer but I tend to agree with you that this news increases the risk severely even if we like to root for David against the big bad Goliath.

I definitely do not think it is benign as some may have implied but if Arista can win (or not lose as bad), it may actually come out of this even stronger.

tj

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“That’s true Saul, I wouldn’t even mind getting back into this stock at a higher price after the Cisco lawsuit is cleaned up.”

that would still take a while before a definite ruling is reached, and it may go up rather than down in anticipation of a favorable ruling for Arista. It has not been in the past week because of the general market going down.

I would not leave my positions in ANET now.

tj

it may go up rather than down in anticipation of a favorable ruling for Arista. It has not been in the past week because of the general market going down. I would not leave my positions in ANET now.

Hi tj,
I have no question that it may go up - in response to hope of a favorable ruling, or in response simply to good quarterly results and anticipation of more. It’s just that I can find other stocks which I feel will also do quite well without the existential threat this lawsuit seems to present. I won’t mind if Arista goes up a bunch. I know why I got out. It was to reduce the risk of a big hit, plain and simple.
Saul

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A key point for investors. Any stock is not the only one available. There are lots of others. So unless the price more than reflects it, if you are spending too much time worrying about it, move on.

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