& cplSiteName &

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

Ray Le Maistre
3/31/2014
50%
50%

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  | 
Threaded  |  Newest First  |  Oldest First        ADD A COMMENT
Mitch Wagner
50%
50%
Mitch Wagner,
User Rank: Lightning
3/31/2014 | 6:32:37 PM
OMG
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.
DOShea
50%
50%
DOShea,
User Rank: Blogger
3/31/2014 | 9:52:00 PM
Re: OMG
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.
pcharles09
50%
50%
pcharles09,
User Rank: Light Beer
3/31/2014 | 10:07:41 PM
Re: OMG
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
50%
50%
sam masud,
User Rank: Light Sabre
4/1/2014 | 9:22:13 AM
Re: OMG
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
Kicking off BCE 2017, Light Reading founder Steve Saunders lays blame for NFV's slow ramp-up and urges telecom to return to old-fashioned standards building and interoperability.
Flash Poll
Live Streaming Video
Charting the CSP's Future
Six different communications service providers join to debate their visions of the future CSP, following a landmark presentation from AT&T on its massive virtualization efforts and a look back on where the telecom industry has been and where it's going from two industry veterans.
Women in Comms Introduction Videos
Cisco: Mentoring Critical to Attract & Retain Women

7|19|17   |   6:40   |   (1) comment


Liz Centoni, senior vice president and general manager of Cisco's Computing System Product Group, shares why mentoring in all its forms is important for women and what Cisco is doing that's made a difference for women in tech.
LRTV Custom TV
Gigabit LTE With Snapdragon 835

7|12|17   |     |   (1) comment


At an event in Wembley stadium, EE used its live network to demonstrate gigabit LTE using a Sony Xperia XZ Premium smartphone with a Qualcomm Snapdragon 835 chip.
LRTV Custom TV
Implementing Machine Intelligence With Guavus

7|12|17   |     |   (0) comments


Guavus unites big data and machine intelligence, enabling many of the the largest service providers in the world to save money and drive measureable revenue. Learn how applying Machine Intelligence substantially reduces operational costs and in many cases can eliminate subscriber impact, meaning a better subscriber experience and higher NPS.
LRTV Custom TV
Unlocking Customer Experience Insights With Machine Intelligence

7|12|17   |     |   (0) comments


When used to analyze operational data and to drive operational decisions, machine intelligence reduces the number of tasks which require human intervention. Guavus invested in Machine Intelligence early. Learn about the difference between Machine Learning and Machine Intelligence.
Women in Comms Introduction Videos
Verizon VP Talks Network, Career Planning

7|12|17   |   4:49   |   (0) comments


Heidi Hemmer, vice president of Technology, Strategy & Planning at Verizon, shares how bold bets and the future of tech define her career.
Telecom Innovators Video Showcase
Masergy's NFV Journey

7|11|17   |     |   (0) comments


Ray Watson, vice president of global technology at Masergy, discusses the advantages and challenges in entering the still-maturing NFV market for the past three years.
Telecom Innovators Video Showcase
Mavenir on RCS Cloud Platform & Multi-ID

7|10|17   |     |   (0) comments


Guillaume Le Mener, head of marketing and corporate development at Mavenir, discussed RCS and the recent launch of Multi-ID, which supports T-Mobile's DIGITS, the revolutionary new technology that breaks down the limitation of one number per phone and one phone per number.
LRTV Custom TV
ADTRAN Executive Outlines Trends in Next-Generation 10-Gigabit Cable Networks

7|10|17   |     |   (0) comments


Hossam Salib, VP of Cable and Wireless Strategy at ADTRAN, outlines key trends as MSOs begin to deploy next-generation Gigabit and 10-Gigabit cable networks. In the interview, Hossam outlines the advantages of a Fiber Deep architecture, FTTH options including EPON and RFoG, and the importance of SDN and NFV in building next-generation high-bandwidth cable networks.
LRTV Interviews
Global Capacity: Bandwidth Demand Driving Ethernet Growth

7|6|17   |   6:37   |   (0) comments


At Light Reading's Big Communications Event in Austin, Texas, Global Capacity's VP of Marketing Mary Stanhope talks about how the demand for bandwidth is changing the way service providers deliver broadband services.
LRTV Interviews
Colt's Services Chief on Digital Delivery

7|5|17   |   16:12   |   (0) comments


Rogier Bronsgeest, the chief customer experience officer (chief CEO!) at Colt, discusses the way in which the service provider interacts with its customers these days and his aggressive net promoter score (NPS) targets.
Women in Comms Introduction Videos
BT VP: Women Should Fill Security Talent Gap

7|5|17   |   6:00   |   (2) comments


By 2020 there will be six security jobs for every qualified worker, and Kate Kuehn, vice president of Security for BT in the Americas, says BT wants to encourage women to fill the shortage in jobs.
LRTV Interviews
Colt Sales Exec on Services Trends

7|4|17   |   12:59   |   (0) comments


Colt's sales director for enterprise, James Kershaw, sheds some light on the services currently in demand and how network upgrades are influencing customer demand.
Upcoming Live Events
September 28, 2017, Denver, CO
October 18, 2017, Colorado Convention Center - Denver, CO
November 1, 2017, The Royal Garden Hotel
November 1, 2017, The Montcalm Marble Arch
November 2, 2017, 8 Northumberland Avenue, London, UK
November 30, 2017, The Westin Times Square
All Upcoming Live Events
Infographics
With the mobile ecosystem becoming increasingly vulnerable to security threats, AdaptiveMobile has laid out some of the key considerations for the wireless community.
Hot Topics
Mobile to Power Online Video Consumption – Zenith
Aditya Kishore, Practice Leader, Video Transformation, Telco Transformation, 7/19/2017
Can Mushroom Sprout in Crowded SD-WAN Field?
Carol Wilson, Editor-at-large, 7/18/2017
AI Will Be Ubiquitous in 2020 but Overhyped in 2017 – Gartner
Sarah Thomas, Director, Women in Comms, 7/18/2017
Facing the Facebook Video Threat
Gary Miles, Chief Marketing Officer, Amdocs, 7/17/2017
Comcast Accelerates Into 15 IoT Markets
Mari Silbey, Senior Editor, Cable/Video, 7/18/2017
Like Us on Facebook
Twitter Feed
BETWEEN THE CEOs - Executive Interviews
Following a recent board meeting, the New IP Agency (NIA) has a new strategy to help accelerate the adoption of NFV capabilities, explains the Agency's Founder and Secretary, Steve Saunders.
One of the nice bits of my job (other than the teeny tiny salary, obviously) is that I get to pick and choose who I interview for this slot on the Light Reading home ...
Animals with Phones
Fuzzy Quick Fix Click Here
If you can't access it, is it really broken?
Live Digital Audio

Playing it safe can only get you so far. Sometimes the biggest bets have the biggest payouts, and that is true in your career as well. For this radio show, Caroline Chan, general manager of the 5G Infrastructure Division of the Network Platform Group at Intel, will share her own personal story of how she successfully took big bets to build a successful career, as well as offer advice on how you can do the same. We’ll cover everything from how to overcome fear and manage risk, how to be prepared for where technology is going in the future and how to structure your career in a way to ensure you keep progressing. Chan, a seasoned telecom veteran and effective risk taker herself, will also leave plenty of time to answer all your questions live on the air.