US Ban on Its Data Center Switches a Setback for Arista – at Least a Temporary One

Federal regulators barred Arista Networks from importing and selling its data center networking equipment in the United States earlier this month, giving rival Cisco a victory in a three-year-old patent infringement battle. But the ban could be short-lived as Arista appeals the decision and develops workarounds on the patents.

The US International Trade Commission (ITC) ruled in early May that Arista infringed on two Cisco patents but delayed the ban pending a 60-day review, which ended last week. Arista, which builds network switches for data centers, announced in an SEC filing on July 5 that it is complying with the ITC’s ban.

While it’s unclear how long the ban will stay in effect, it is at least a temporary setback for Arista, which has made inroads in the lucrative $10.4 billion data center networking equipment market. It’s been especially successful in selling to hyper-scale data center operators.

According to IDC, Arista has captured 9.4 percent share of the worldwide market, ranking second behind leader Cisco, which has 58.2 percent of the market. Arista’s customers include Microsoft, Facebook, Netflix, and Yahoo.

“Arista is a growing force in data center networking,” said Brad Casemore IDC’s research director of data center networks. “With their switches and network operating system, they have gained significant market share in the last few years.”

Emergency Motions

Arista, based in Santa Clara, California, and founded by former Cisco employees, has filed two emergency motions asking the ITC to suspend the ban and is awaiting a response. Its argument: The Patent and Trial Appeal Board (PTAB) recently ruled that the two patents in question are invalid. The company wants the ban suspended until the appeals of PTAB’s decisions are completed.

“While the… review period… has ended, we are still awaiting the International Trade Commission’s decision on our motion to suspend its remedial orders, which are based on patent claims that the Patent Trial and Appeal Board has found invalid,” said Marc Taxay, Arista’s senior vice president and general counsel, in a statement.

If the ITC rules against Arista, the company is already busy reworking its products and creating patent workarounds. Once complete, its executives plan to seek regulatory approval for its revised products.

“Arista has been working on modifying its products to address the ITC orders,” the company said in the SEC filing. “If the ITC does not suspend the ITC orders, Arista intends to release these modified products as soon as practicable and work with customers on their qualification and deployment.”

Cisco last week responded by pointing out that the ITC has ruled that the two patents are valid and infringed upon by Arista. Mark Chandler, Cisco’s senior vice president and general counsel, wrote in a blog post on July 5 that suspending the ban is unwarranted, but if a suspension is issued, Cisco would seek to reverse the decision in federal court.

Ultimately, “the right solution, as we’ve emphasized from the beginning, is for Arista to stop using technology they copied from Cisco,” Chandler wrote.

The product ban is just the latest twist in a three-year patent tussle between upstart Arista and networking giant Cisco, which first sued Arista for patent infringement in 2014. Last December, for example, a federal court judge denied Cisco’s demand for $335 million in damages and a jury ruled that Arista did not infringe a Cisco patent or Cisco’s copyright on its user manuals.

Situation “Murky”

IDC’s Casemore said the current situation is murky for Arista. It could win its appeal in the coming days, weeks or month – or it could lose. If the ban remains in effect for a lengthy period of time, it has the potential to affect Arista’s gross margins, he said.

“Obviously, it could cost them more to manufacture or assemble their products domestically, and it could potentially increase lead times,” he said.

Casemore said decisions from federal regulators and potentially federal courts will either reinforce or invalidate Arista’s product ban – and the two networking rivals and the rest of the industry will know soon enough.

“Arista would prefer not to have to go through a redesign. They want a ruling that says they are not infringing on any of the patents, so they can go back to business as usual. But in the interim, Arista has to abide by [ITC’s original] decision,” he said.