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Optical/IP

Cisco/Huawei Brawl Begins

It's the fight you've been waiting for: Cisco Systems Inc. (Nasdaq: CSCO) is bringing out its big guns in the battle against a Chinese manufacturer that has been mass-producing low-cost competitors of its routers and switches.

Today, the company announced it has filed a lawsuit against Huawei Technologies Co. Ltd. and its subsidiaries, Huawei America Inc. and FutureWei, for allegedly stealing and copying Cisco’s intellectual property and infringing its patents (see Cisco Sues Huawei). Cisco's suit has been filed in federal court with the United States District Court for the Eastern District of Texas.

In the complaint, Cisco alleges that Huawei unlawfully copied and used Cisco's IOS software, Cisco documentation, and other copyrighted materials, and infringed at least five Cisco patents. Cisco is asking the court for an injunction to prohibit Huawei and its subsidiaries from selling, marketing, or distributing versions of its 'Cisco cloned' routers and switches. The company is also seeking monetary damages and has already sent a cease-and-desist letter to Spot Distribution, a Huawei distributor located in the U.K.

Huawei and its FutureWei subsidiary have been a growing threat to Cisco since they entered the U.S. market last summer, and the lawsuit has been anticipated (see Has Huawei Got Cisco's Number? ). Huawei, which generates about $3 billion in revenue per year, primarily from telecom equipment, has been selling products that are nearly identical in functionality and appearance to Cisco's. With 33 offices in China it sells to some of the largest providers in Asia, including China Telecommunications Corp. (NYSE: CHA), China Mobile Communications Corp., China Unicom Ltd., China Netcom Corp. Ltd., KT Corp., SingTel, Hutchinson Global Crossing, and Telemar. Most of these are also Cisco customers.

“It’s not illegal to reverse engineer something, but it is illegal to copy,” says Stephen Kamman, an analyst with CIBC World Markets. “That has always been the big question with Huawei. It looks like Cisco has probably found some kind of ‘smoking gun’ that would suggest they are doing something illegal.”

Indeed, reading through Cisco’s complaint it seems as though the company believes it has found several smoking guns. For one, Cisco claims that Huawei's operating system in its Quidway switches and routers contains a number of text strings, file names, and bugs that are identical to those found in Cisco's IOS source code. Cisco also says that Huawei has copied technical documentation and included whole portions of Cisco's text in its own user manuals. And finally, Cisco says that portions of its CLI (command line interface) and help screens appear verbatim in Huawei's operating system for its Quidway routers and switches.

“For investors, the key is whether Cisco can get an injunction against Huawei selling the gear,” says Kamman in a research note published today. “This would hurt Huawei's efforts to sell outside China. Regardless, we would expect the lawsuit against the UK distributor will leave other distributors wary of selling Huawei products.”

Patent attorneys in Texas say that because Cisco has filed the case in the Eastern District of Texas, which has become known for speedy handling of patent and intellectual property infringement cases, it should be able to get an injunction relatively quickly.

“You can get a real ‘rocket docket’ in the Eastern District of Texas,” says Patrick McGowan a partner at Aikin Gump Strauss Hauer & Feld and chair of the intellectual property section of the Dallas Bar Association. “Cases usually move through the Eastern District pretty fast, and people often view it as a patent-holder-friendly court with sympathetic juries and good judges.”

If Cisco successfully shuts down Huawei’s operation in the U.S., it may still have more battles ahead in other countries. Because patents are filed country-by-country, Cisco would have to take legal action overseas to completely protect its intellectual property.

“Most companies don’t want to go to court in a foreign country,” says Mark Perdue, a partner at the The Zisman Law Firm in Dallas. “It’s an unfamiliar legal system, and there is a real fear of being treated poorly or unfairly because you’re not a citizen of that country.”

Still, U.S. companies that are vigilant about protecting their rights have sued overseas before and won. Texas Instruments Inc. (NYSE: TXN), which has been the most sophisticated enforcer of intellectual property rights in the world, according to Perdue, has sued several Japanese competitors over patent infringement in both the U.S. and Japan.

But Perdue admits that China is different. For one, the Chinese intellectual property law is still somewhat undeveloped. And in order for Cisco to enforce a patent in China, it must hold a Chinese patent on the technology.

“A U.S. patent is only good in the United States,” says McGowan. “So if they’re making and selling the gear in China, it may be perfectly legal.”

Cisco says it is willing to defend its intellectual property rights throughout the world. And because much of this case has to do with copyrighted material, which is enforced worldwide, it will likely be able to enforce those rights overseas.

“This dispute is about the copying of Cisco's Intellectual Property by Huawei,” said Mark Chandler, Cisco vice president and general counsel in an email today. “It is not primarily about patents. Cisco will have the ability to enforce its copyrights on its IOS software and other materials on a global basis, including in China.“ While Chandler says the company is also prepared to go after distributors of Huawei gear as well, he says that the company hopes that this is the only legal action it will be forced to take.

Huawei representatives in the U.S. refused to answer questions, and those in China were unavailable for comment.

— Marguerite Reardon, Senior Editor, Light Reading
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aaargh 12/5/2012 | 12:49:18 AM
re: Cisco/Huawei Brawl Begins ;-)

<eom></eom>
gumbydammit 12/5/2012 | 12:49:17 AM
re: Cisco/Huawei Brawl Begins
This will be something the U.S. will probably have to deal w/more and more in the future.

1/ We have to outsource everything to other countries to keep the larger margins, and keep the stock price going UP.

2/ Almost EVERYTHING we own in America is made in China or some other foreign country.

3/ What makes us think they won't reverse engineer everything, copy it, then don't have to worry about copyright infringement?

Sounds like a plan to me. I wish I knew the right answer. Guess CSCO $$ was too much of a temptation for them....follow the $$.

But don't expect them to lay-down and take it either!
/gd.
DoTheMath 12/5/2012 | 12:49:17 AM
re: Cisco/Huawei Brawl Begins My company had this experience dealing with
Huawei. They wanted us to supply some software, and
as part of the deal, wanted to send engineers for
"training". Well, the engineers arrived even before
the agreement was inked (talk about presumptuous).
The first thing the engineers asked was "Where is
the source code?" - which was not part of the deal
being talked about. We sent them back in 1 day, and
needless to add, we never inked that deal with Huawei.

We felt they were going to steal, so there was no point
giving them the cover of an "agreement" to steal. The
whole purpose of the agreement seemed to be to give
them that cover.

Our perception of them is that they are absolutely
shameless, arrogant thieves. They basically had the
attitude "We are the largest in China, and China is going to
be the largest market, and we are backed by the government,
so you better cooperate".

I am not a huge fan of Cisco, but I hope they win
this one, for the sake of restoring some honesty and
plain dealing in business.
fhe 12/5/2012 | 12:49:17 AM
re: Cisco/Huawei Brawl Begins are notorious for their copying. You will find virtually everything you can imagine.

-Pirated Software, probably the biggest "industry" in China.

-Pirated Apparel/Accessories, clothings, handbags, watches, you name it.

-Even fake wine, make from industrial alcohol + red dye.
digerato 12/5/2012 | 12:49:16 AM
re: Cisco/Huawei Brawl Begins I can see how no publication wants to catch their own lawsuit over this, so all reports say that Huawei "allegedly" copied Cisco products.

However, if you doubt the allegation, try the following:

Pop the lid on a Huawei "Quidway refiner" router. Pop the lid on a Cisco 3600. Put the two boxes side-by-side. By visual inspection, notice that the Quidway Refiner board is identical to the 3600 board. Repeat process with the Huawei 2600 and the Cisco 2600 -- identical.

If you're a lawyer, I suppose you could call this "reverse engineering". If that's the definition, then I'm off to "reverse engineer" my friend's "Fellowship of the Ring" DVD for my personal viewing pleasure... Hey -- it's not copying, it's reverse engineering!

Digerato
tmc1 12/5/2012 | 12:49:16 AM
re: Cisco/Huawei Brawl Begins I am not a huge fan of Cisco, but I hope they win
this one, for the sake of restoring some honesty and plain dealing in business.
---------------------------------------------

GAGGGGGGGG!

i cannot believe someone just used "honesty and plain dealing" and cisco in the same message.

i hope they win this because it is wrong to just steal someone elses development work and causes all kinds of economic problems for everyone.

however, you should have said "for the sake of restoring pricing pressure, political power games, relationships and economic power" in business.
alcaseltzer 12/5/2012 | 12:49:16 AM
re: Cisco/Huawei Brawl Begins The notion that so many chinese/india nationals will be here on H1s any time soon is absurd in the face of the number of layoffs that hi-tech has seen. Many of these people have gone back.

It may not happen in my lifetime, but these people that have gone back, and hopefully some of the locals, will start to push for some of the regulation and standards they enjoyed here in the US (particularly regarding air pollution) which in turn may start to drive up their costs thereby making them a less attractive outsourcing location.
opti_hype 12/5/2012 | 12:49:15 AM
re: Cisco/Huawei Brawl Begins What has this to do with outsourcing? Cisco runs a wholly owned development centre in India, they have none in China. I doubt whether Cisco outsources major R&D work to companies in China. Did it prevent Huawei from copying? The issue is with the loose copyright laws in certain parts of the world and in some cases actively supported by the governments, as in Huawei.
lighten up!! 12/5/2012 | 12:49:15 AM
re: Cisco/Huawei Brawl Begins I am glad to see that Cisco is going after Huawei. The outcome of this lawsuit will be interesting. Cheap labor markets in countries like India and China pose a significant threat to the U.S. The giant sucking sound of hightech jobs moving overseas should be a national concern. Not only are copyright infringements and prolonged litigation issues, but the current outsourcing trend will also force many to abandon careers in engineering and programming. This will stifle innovation and hurt us in the long run. Corporate America specializing in high tech industries is choosing a dangerous path by outsourcing jobs offshore. Who the F--k is going to buy expensive goods and services on a hamburger flipping salary. We better wake up soon, because not all of us are cut out to become rap singers...
photoness 12/5/2012 | 12:49:15 AM
re: Cisco/Huawei Brawl Begins Let the fun begin....this is gonna be a good one. Wish there was courtroom TV or better yet a web cam... Live from East Texas...Who will prevail?
And how will this playout? Better than the Superbowl for sure...(-: Certainly more important for many of us.
Does U.S. technology Development(not to even mention the R word "research" that no one wants to pay for) stand a chance now that many U.S. technology companies are setting up R&D, factories, etc in faraway places ? When we wake up from these overseas experiments will it be too late for us? How many more industries must be put to rest before the true costs are faced?
Or maybe we should just learn Madarin, Hindi..etc?
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