Cisco/Huawei Brawl Begins
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