Cisco Wins Round 1 Against Huawei

Cisco Systems Inc. (Nasdaq: CSCO) has won the first round in its lawsuit against Chinese equipment maker Huawei Technologies Co. Ltd. and its U.S. subsidiary FutureWei.

Cisco filed suit against Huawei and FutureWei last month, claiming the company has copied its software and infringed at least five patents in its IP switching and routing portfolio (see Cisco/Huawei Brawl Begins).

Today, according to published reports, Huawei said it has removed the products, mainly Quidway routers, from its Website and stopped their distribution and sale in the U.S. Despite this claim, the Quidway products still appear under FutureWei Products on FutureWei’s Website.

Representatives from FutureWei and Huawei were unavailable for comment by press time. The company said it would continue to defend itself against the Cisco claims, according to published reports.

While it appears that Cisco is winning the battle in the U.S., observers question what the long-term impact will be in China.

“It’s too early to tell if this will actually hurt their opportunity in China,” says Mark Sue, an equities analyst with CE Unterberg Towbin. “But there is potential for a strained relationship with China.”

Sue notes that China is a significant market for Cisco with about a $1 billion per year opportunity for the company. And it is a region that currently shows better than average growth. Huawei is supported by the Chinese government.

Cisco has been battling local equipment providers like Huawei for significant market share in China. According to Richard Webb, an analyst for market research firm Infonetics Research Inc., it does not carry the kind of clout in China that it does in other countries -- such as Australia, Japan, New Zealand, and Singapore -- where Cisco has a dominant presence.

There is a fear that Cisco’s litigation, although limited to the U.S., could stir up bad feelings, which could have a negative impact on the company’s business in China.

Some analysts agree that there is a risk in antagonizing Huawei.

“The government may not have as much involvement in the company as it did before, but it’s hard to tell how that influence will play out," says Tim Trainer, president of the International AntiCounterfeiting Coalition (IACC), a not-for-profit organization that advocates on behalf of U.S. industry. “China is still in a state of transition from government ownership to private ownership."

Cisco is confident that the Chinese government will cooperate in the company's efforts to protect its intellectual property.

"We have communicated and discussed our concerns about Huawei with the Chinese government," says a Cisco spokesperson. "We find the government respectful of intellectual property rights, and we believe that the Chinese government's accession to the WTO is representative of that attitude."

Analysts are also optimistic about Cisco staying in China’s good graces. Stephen Kamman, an analyst with CIBC World Markets, recently traveled to China and says that it is a misconception that the Chinese government or Chinese service providers are looking out for the interests of any particular company.

Lee Bromberg, a founding partner of the Boston law firm Bromberg & Sunstein LLP, has practiced intellectual property law for over 20 years and has litigated many cases in the U.S. similar to Cisco's. He says he has never seen a company in Cisco’s situation lose business or market share in response to a lawsuit.

“I’m not saying it isn’t possible,” Bromberg says. “But for both Cisco and Huawei, the U.S. market is still the most important market for IP routing and switching. I think Huawei is taking these allegations seriously, and I doubt there will be a tit-for-tat with respect to business in China.”

Cisco says it will enforce copyrights throughout the world, inlcuding China. But even if it wins in a Chinese court, the battle is far from over, says Trainer.

Until recently, China didn’t even recognize rights of intellectual property. As a result, the country has gained a reputation as one of the premier regions for counterfeiting.

But China’s legal and regulatory views on intellectual property have changed a great deal in the past few years, according to Trainer. As part of the negotiations to admit China into the World Trade Organization in 2001, the Chinese government agreed to work on improvements for intellectual property protection laws and enforcement. Progress is being made, but there is still much work to be done, says Trainer, particularly in the area of enforcement.

— Marguerite Reardon, Senior Editor, Light Reading
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ohub 12/5/2012 | 12:41:32 AM
re: Cisco Wins Round 1 Against Huawei If Cisco finally wins in court, then it will lose its future in China. Its market share there will drop greatly in no time. Look and see. The best way for Cisco is to make an agreement with Huawei out of court.

Optical Hub

kampar 12/5/2012 | 12:41:28 AM
re: Cisco Wins Round 1 Against Huawei
"Mark Sue?" You just can't make this stuff up ....

"Sue notes that China is a significant market for Cisco with about a $1 billion per year opportunity for the company."

lahlah 12/5/2012 | 12:41:27 AM
re: Cisco Wins Round 1 Against Huawei Cisco should (and probably will) go after them all over the world, including Europe, Japan, Korea and China itself. At the very least the copyright case seems a slam dunk everywhere except possibly China. Cisco has a shot even in China. The Danish company that makes Legos recently won a case in China against toy knock-off makers, even though many people were not expecting the Chinese courts to do anything. The patent cases are more difficult, but the payoff is bigger--Huawei couldn't save itself by simply developing its own equivalent technology.

There's no way to change the apparent culture of rampant theft at Huawei other than making theft not pay. Without the suits, theft pays.
cyber_techy 12/5/2012 | 12:41:26 AM
re: Cisco Wins Round 1 Against Huawei All Huawei needs is to disable those two protocols that no one uses anyway and change the wording of the help files.
road__runner 12/5/2012 | 12:41:25 AM
re: Cisco Wins Round 1 Against Huawei Cisco indicated they tried for a long time
to negotiate out of court with Huawei before
finally going to court.

Those who are professionals from any country
(China or not) recognize that this has nothing
to do with race and everything to do with
whether intellectual property should be
protectable or not. Even Chinese who are forward
thinking recognize that very well. Nobody
becomes great by copying or stealing.

If Huawei can become a great power without
using techniques which are illegal, thats
fantastic, good luck to them!
skeptic 12/5/2012 | 12:41:24 AM
re: Cisco Wins Round 1 Against Huawei If Cisco finally wins in court, then it will lose its future in China. Its market share there will drop greatly in no time. Look and see.
The history of these sorts of disputes suggests
that cisco's future in china will not change
regardless of the court case. If the chinese
government favors Huawei enough to block
cisco from its market in retaliation, they
will favor Huawei over cisco in every other

And as far as settling, going to court wasn't
ciscos first choice. The court case happened
because of Huawei's arrogance.
rjmcmahon 12/5/2012 | 12:41:24 AM
re: Cisco Wins Round 1 Against Huawei There's no way to change a culture of rampant theft other than making theft not pay.

Another perspective is to focus as much, or more, effort on the "pay" as on the "not pay". In other words, enabling people so they can earn an honest living would be part of any culture that discourages thievery.
rjmcmahon 12/5/2012 | 12:41:23 AM
re: Cisco Wins Round 1 Against Huawei Nobody becomes great by copying.

This seems to be a difficult lesson to teach. Ever watch a group of students assigned to a problem? The majority looks to everybody else for the answer. I've seen this behavior from from 1st grade all they way through university levels.

Rewarding original work is necessary to acheive greatness. And unfortunately, most metrics we use today which attempt to measure things seem to miss the mark and rather motivate "copying" behavior (though these poor metrics do seem to make it easier to apply things like status symbols). We'll need to find a way to grow past that if we are to achieve our greatness.
GO_PHOTON 12/5/2012 | 12:41:22 AM
re: Cisco Wins Round 1 Against Huawei If Huawei modifies its software so that
it removes everything related to Cisco
law suite, then asks all its customers
to upgrade the router image, then
can they come back to US market ?
The outsider 12/5/2012 | 12:41:21 AM
re: Cisco Wins Round 1 Against Huawei "Nobody becomes great by copying."

I guess you must be too young to know what the Japanese did back in the 60's and 70's. Among other things, they took over the TV market completely. Not to mention cars.....

The outsider
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