The battle is heating up in the Eastern District of Texas where networking giant Cisco Systems Inc. (Nasdaq: CSCO) is suing Chinese equipment maker Huawei Technologies Co. Ltd. and its United States subsidiary, FutureWei (see Cisco/Huawei Brawl Begins).

Without naming Cisco, Huawei admitted that some of the code used in its products came from an outside and unauthorized source, according to court papers filed yesterday.

Huawei claims that an employee received a disk with a copy of the code in question on it from an unknown source. That Huawei employee then gave the code to another of the firm's employees, who used it in his work on Huawei's router programming.

While Huawei was careful not to specifically name Cisco as the source, Cisco took these statements as an admission of guilt.

"In its response today, Huawei admits to using Cisco's source code in the development of Huawei's operating system -- a violation of copyright law and misappropriation of Cisco's trade secrets," said a Cisco spokesperson in a prepared statement. "Today's admission is simply further evidence that Huawei has unlawfully acquired and used Cisco's intellectual property."

Despite the admission, Huawei still asked to court not to impose an injunction against it that would prevent the company from selling any of its products in the U.S. The company said the copying involved less than 2 percent of its software and was confined to one module of the software, which it has deleted from new versions of its Quidway routers.

Huawei reasoned that an injunction was unnecessary, given the company has already removed products that could potentially infringe on Cisco patents and copyrights (see Cisco Wins Round 1 Against Huawei). The company is also supposedly reworking its command line interfaces and manuals, which Cisco also accused it of copying.

In its public statement yesterday, Cisco said it "will continue to request that the Court require Huawei to return Cisco's intellectual property, stop the unlawful copying and distribution of this technology, and bar future Huawei sales until the Court can verify that Huawei is in compliance with the law."

Huawei’s new partner 3Com Corp. (Nasdaq: COMS) has come to its defense (see 3Com, Huawei Form Joint Venture). 3Com’s CEO Bruce Claflin filed a statement with the court in opposition to Cisco’s request for an injunction against Huawei.

Last week, when the partnership was announced, Claflin was careful not to comment specifically on the case (see 3Com Taps Huawei in Enterprise Battle). But he said then, and reiterated in his statement on Monday, that 3Com has made certain that no product sold as part of the joint venture would infringe on any company’s intellectual property. Claflin went on to state that he is concerned that an injunction would keep Huawei from selling key products in the U.S., which would hurt the new joint venture.

"It is my belief that such an injunction would pose a serious hardship on 3Com and the joint venture, as it would preclude the sale of a whole line of products, regardless of whether such products infringe any intellectual property rights of Cisco," Claflin's statement said.

According to experts, Huawei's hopes of avoiding an injunction are slim.

"Admitting that even a portion of the software has been copied, regardless of the origin, is pretty serious," says Lee Bromberg, a senior partner at Bromberg & Sunstein LLP, a Boston firm specializing in intellectual property cases. "I think the company's claim that it is fixing the problem, or its partner's claim that an injunction will cause more harm than good, probably won't hold much weight to a judge."

The latest news in the case comes a week after Cisco submitted what appears to be very damaging evidence from a former Huawei employee. In court documents, Cisco cited testimony from Chad Reynolds, a former human resources manager at FutureWei. Reynolds, who was laid off from FutureWei in December, said that he was asked at least twice to recruit and hire Cisco employees who had worked on products that FutureWei was looking to copy. Reynolds said at least one Cisco employee he approached showed interest in the job offer, but later withdrew himself from consideration after becoming uncomfortable with the situation. Huawei denied these charges in a lengthy filing of its own.

— Marguerite Reardon, Senior Editor, Light Reading