Light Reading

Arista Faces Legal Challenge as It Files for $200M IPO

Ray Le Maistre

Switch vendor Arista Networks is set to cash in on the cloud networking boom with an IPO that is set to raise $200 million.

But in filing for its proposed listing, Arista Networks Inc. revealed that it may face a legal fight with one of its founders.

The Santa Clara, Calif.-based company, which competes with the likes of Brocade Communications Systems Inc. (Nasdaq: BRCD), Cisco Systems Inc. (Nasdaq: CSCO), Juniper Networks Inc. (NYSE: JNPR), and Extreme Networks Inc. (Nasdaq: EXTR) for business from data center operators, large enterprises, and telcos, plans to list its shares on the New York Stock Exchange under the symbol ANET. The number of shares being offered and the price have not yet been determined.

The company was formed in 2004 as Arastra with $100 million in funding from two of its founders, chief development officer and chairman Andy Bechtolsheim and chief scientist David Cheriton (more on Cheriton later). The other founder was CTO and senior VP of software engineering Ken Duda.

The company changed its name to Arista Networks in October 2008 and has experienced significant market traction in the past year or so for its switches, which are based on its EOS operating system. It now claims to have more than 2,300 customers. (See Arista Announces Datacenter Switches.)

Its revenues have grown quickly in recent years, with a compound annual growth rate of 71% from 2010 to 2013. In the company's filing, it notes that its 2010 revenues of $71.7 million grew to $193.4 million in 2012, and then took an 87% leap to $361.2 million in 2013. Over the same time period, profits grew from $2.4 million (2010) to $42.5 million.

Microsoft is a major customer, accounting for 22% of revenues in 2013. Other customers include Facebook, Citigroup, Comcast, Equinix, ESPN, and Rackspace.

But there may be trouble ahead. Arista notes in its filing that it received a letter in November 2013 from Optumsoft Inc., a startup founded and still owned by David Cheriton, who quit the Arista board on March 1 of this year.

So what's this all about? Well, the letter claimed ownership of "certain components of our EOS network operating system incorporated in all of our products pursuant to the terms of a 2004 agreement between the companies," and cited "breaches of certain confidentiality and use restrictions in that agreement."

Here's the story. When Arista was founded in 2004, Optumsoft provided Arista with "a non-exclusive, irrevocable, royalty-free license to software delivered by Optumsoft comprising a software tool used to develop certain components of EOS and a runtime library that is incorporated into EOS," according to the Arista filing.

It adds:

    The 2004 agreement places certain restrictions on our use and disclosure of the Optumsoft software and gives Optumsoft ownership of improvements, modifications and corrections to, and derivative works of, the Optumsoft software that we develop. In the November 2013 letter, Optumsoft requested that we cease all conduct constituting the alleged confidentiality and use restriction breaches including the distribution of any of its software in source code form and the unauthorized access of its source code to any third parties. Optumsoft also requested that we assign certain components of our software to it that it believed to be improvements of its software tool.

Oh dear.

Arista will obviously be hoping that the relationship can be saved. "To date, Optumsoft has not filed any legal action against us, although we cannot assure you that it will not do so in the future," notes Arista in its filing. "We intend to vigorously defend against any action brought against us by Optumsoft. However, we cannot be certain that, if litigated, any claims by Optumsoft would be resolved in our favor."

The relationship is complicated further by the fact that the 2010 David R. Cheriton Irrevocable Trust, set up for the benefit of the minor children of David Cheriton, is Arista's largest stockholder.

Cheriton may no longer be on the Arista board, but the success of its IPO may rest in his hands.

— Ray Le Maistre, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, Editor-in-Chief, Light Reading

(4)  | 
Comment  | 
Print  | 
Oldest First  |  Newest First  |  Threaded View        ADD A COMMENT
Mitch Wagner
Mitch Wagner,
User Rank: Lightning
3/31/2014 | 6:32:37 PM
Legal fight with a co-founder? That never happens with a Silicon Valley IPO.

My crystal ball says this will be settled long before the IPO. As a major investor, the plaintiff has every incentive to not weigh down the price.
User Rank: Blogger
3/31/2014 | 9:52:00 PM
What I've learned from this story is that I would like to be adopted by David Cheriton...

Arista is trying to cash in on this market at just the right time.
User Rank: Light Beer
3/31/2014 | 10:07:41 PM
It seems like a show of brute force. Make your case in public so you have a good story to tell later, even though you're still getting a fat payout.
sam masud
sam masud,
User Rank: Light Sabre
4/1/2014 | 9:22:13 AM
Yup, sounds like a shakedown to me with exquisite timing. And I, like your colleague Dan O'Shea, would like to be adopted by Mr. Cheriton.
From The Founder
The comms industry is rallying to the cause of open, independent interoperability testing.
Flash Poll
Live Streaming Video
CLOUD / MANAGED SERVICES: Prepping Ethernet for the Cloud
Moderator: Ray LeMaistre Panelists: Jeremy Bye, Leonard Sheahan
LRTV Interviews
BT Updates on Plans

10|2|15   |   03:16   |   (1) comment

Peter Bell, CIO at Openreach, the access network division at UK incumbent BT, provides an update on the operator's trials and how Openreach is planning to deploy the broadband technology in its street cabinets.
Telecom Innovators Video Showcase
Sonus Shakes Up SD-WAN

10|2|15   |   7:22   |   (0) comments

Sonus CTO Kevin Riley sat down with Light Reading to discuss the trajectory of the company, its SDN ambitions and why Sonus is taking a market-disruptive approve to SD-WAN.
LRTV Interviews
CityFibre's Gigabit Vision

10|1|15   |   03:18   |   (1) comment

Mark Collins, director of Strategy & Public Affairs at competitive UK city network operator CityFibre, talks about his company's plans to help build Gigabit Cities.
Telecom Innovators Video Showcase
Automate, Scale & Create With Juniper's vCPE Solution

10|1|15   |   6:34   |   (0) comments

Join Kireeti Kompella, Juniper Networks CTO, and Steve Saunders, Light Reading Founder and CEO, as they discuss Juniper Networks' approach to NFV showcased with a turnkey vCPE solution, which demonstrates how service providers can use automation to rapidly deploy services.
LRTV Interviews
Gigabit Europe: Day 1 Takeaways

9|29|15   |   05:47   |   (5) comments

Light Reading's Ray Le Maistre and Iain Morris sup a beer and discuss some of the key takeaways from the first day of Gigabit Europe 2015.
LRTV Interviews
Gigabit in Europe

9|29|15   |   04:24   |   (0) comments

At the Gigabit Europe 2015 event in Munich, Heavy Reading's Graham Finnie talks about the availability of gigabit broadband in Europe.
Women in Comms Introduction Videos
AT&T's Band of Women

9|28|15   |   4:36   |   (0) comments

Brooks McCorcle, the president of AT&T's partner solutions divisions and a mathematician by trade, shares stats on AT&T's diversity and advice on how to create your own band of women at work.
Telecom Innovators Video Showcase
Metaswitch's New CEO Martin Lund Discusses His Role

9|25|15   |   11:36   |   (0) comments

Technology industry veteran Martin Lund joins Metaswitch Networks this week as the company's new CEO. In this interview, Lund discusses his new role and the industry's progress with Light Reading CEO Steve Saunders. Lund believes that the industry disruption caused by SDN and NFV is creating opportunities for companies like Metaswitch – network software providers ...
It's All About That App

9|23|15   |   02:15   |   (2) comments

The long-range goal of service providers is to deliver app-specific network performance and that is showing up in technical developments today.
Women in Comms Introduction Videos
Verizon's Healthy Approach to WiC

9|22|15   |   2:30   |   (2) comments

If you think there are too few women in comms, you should see the healthcare industry. Nancy Green, Verizon's healthcare global lead, shares ideas on what we can do about it.
LRTV Huawei Video Resource Center
UBBF 2015 Highlights

9|22|15   |     |   (0) comments

Drilling down deeper into the transformation process will provide network operators with a practical look at building new businesses around a digital virtualized network architecture, and lay out some of the transition steps required, particularly in the struggle to enable more dynamic and focused enterprise network services.
Telecom Innovators Video Showcase
ActiveVideo's Cloud Virtualization Technology

9|22|15   |   7:23   |   (0) comments

ActiveVideo's CMO, Murali Nemani, discusses how virtualized CPE functions can deliver applications from the cloud to various devices at home.
Upcoming Live Events
October 14-15, 2015, New Orleans Ernest N. Morial Convention Center, New Orleans, LA
November 5, 2015, Hilton Santa Clara, Santa Clara, CA
November 17, 2015, Santa Clara, California
December 1, 2015, The Westin Times Square, New York City
December 2, 2015, The Westin Times Square, New York City
All Upcoming Live Events
Communication service providers realize that an ICT transformation is critical to their long-term survival, but most haven't yet committed to making it happen.
Hot Topics
Are Sports Next for Netflix?
Mari Silbey, Senior Editor, Cable/Video, 9/28/2015
Google Gives Huawei a US Device Boost
Dan Jones, Mobile Editor, 9/29/2015
Following the Bouncing Capex Ball
Carol Wilson, Editor-at-large, 9/29/2015
Verizon's Go90 Is Live – Will Anyone Watch?
Mari Silbey, Senior Editor, Cable/Video, 10/1/2015
Good News for NFV Interoperability
Steve Saunders, CEO and founder, Light Reading, 9/29/2015
Like Us on Facebook
Twitter Feed
Webinar Archive
BETWEEN THE CEOs - Executive Interviews
With so many new and exciting communications technologies now under development, it's easy to get caught up in the industry's escalating hype cycle. That's why the ...
Last week saw a big day in the 15-year history of Light Reading when Editor-in-Chief Ray Le Maistre and I were invited to interview the Deputy Chairman and Rotating ...
Cats with Phones
Hold My Calls, Indefinitely Click Here