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CoSine and Net.Com End Lawsuit

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News Analysis
Light Reading

Network Equipment Technologies Inc. (Net.com) (NYSE: NWK) and CoSine Communications Inc. (Nasdaq: COSN) are both claiming victory in the ending of a lawsuit filed by Net.com against CoSine one year ago (see Net.com/CoSine Suit Resolved).

In its original motion, filed November 8, 2000, Net.Com accused two engineers who had recently left Net.com for CoSine -- and CoSine in general -- of misappropriating trade secrets, unfair competition, and intentional interference with contractual relations.

The nature of the revelations is unclear, but Net.com CEO Bert Whyte says it was apparent to him that technology developed by Net.com was about to be swiped.

"I decided to draw a line in the sand," says Whyte. "The bigger picture here is that we want to protect what we have."

The action typifies the increasingly defensive attitude of companies in Silicon Valley as competition threatens their very existence (see Recession Hits Silicon Valley Hard ). It's also a sign of the fiercely competitive nature of play as companies struggle over emerging broadband customers -- fighting that also landed Tellabs Inc. (Nasdaq: TLAB; Frankfurt: BTLA) and Riverstone Networks Inc. (Nasdaq: RSTN) in court this year (see Riverstone and Tellabs in Bustup).

Whyte maintains that intellectual property has been treated cavalierly in Silicon Valley, particularly when it comes to older, established companies such as Net.com, which have become so ingrained in the culture that their contributions are taken for granted.

"There were so many situations that would rip your heart out," Whyte maintains. "This time, I said enough was enough."

But Net.com and CoSine offer differing versions of the lawsuit's outcome. According to Net.com, the Superior Court of California, County of San Mateo, has ordered the two former employees of CoSine to comply with prohibitions against revealing any trade secrets belonging to Net.com, their former employer.

CoSine, however, says the suit was dismissed, vindicating its stance that the litigation was "meritless."

Who's right? That's tough to establish, because the answer appears to lie in late-breaking court documents that are publicly inaccessible.

Net.com, for instance, concedes that it filed a motion asking the court that if it dismissed the charges, to do so "with prejudice," thereby upholding its original claim at least in spirit; but the company says it's unaware of the outcome. It's also tough to establish whether any compensation has been forthcoming. "If there were, we couldn't say so," says a spokesperson for Net.com.

All this ambiguity seems characteristic of the ongoing woes in the so-called IP services switch market, where business has been particularly hard hit during the recent downturn (see Celox Battens Down the Hatch and CoSine Takes Another Tack).

Analysts say the lawsuit itself is insignificant, but that the IP services switch vendors will probably stay cranky for awhile. "There's no denying the segment has had a significant revenue downturn," says Ron Westfall of Current Analysis.

The demand for IP services switches, he says, is faltering for a number of reasons, including regulatory blocks to last-mile services by independent carriers, as well as the overall economic situation.

— Mary Jander, Senior Editor, Light Reading

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toll booth willy
toll booth willy
12/4/2012 | 7:25:42 PM
re: CoSine and Net.Com End Lawsuit
I run my company how I run my company. You want to sue me, roll the dice and take your chances. I eat breakfast 300 yards from 4000 Wall St. Analysts who are trained to short me, so don't think for one second that you can come down here, flash a lawsuit, and make me nervous.
12/4/2012 | 7:25:40 PM
re: CoSine and Net.Com End Lawsuit
"Wall Street" again!
toll booth willy
toll booth willy
12/4/2012 | 7:25:39 PM
re: CoSine and Net.Com End Lawsuit
Very good grasshopper, you are well on your way.
Stay tuned for more important lessons from your Toll Booth Willy, your sense.

Big Bear
Big Bear
12/4/2012 | 7:25:38 PM
re: CoSine and Net.Com End Lawsuit

Arrogance is in the eyes of the Beholder. Perhaps one can best touch his arrogance while working on a marginally built Mustang smoking cheap cigars.
12/4/2012 | 7:25:12 PM
re: CoSine and Net.Com End Lawsuit

LR - go write something useful. One of those players is right about you folks being a bunch of muck-rakers. Shame on you!

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