Theft Case Shines a Light on Calix

An employee theft case involving a former Cisco Systems Inc. (Nasdaq: CSCO) employee has turned the media spotlight on Calix Networks, a startup equipment vendor that would rather stay in stealth mode.

As it turns out, the theft case isn’t that exciting. Calix, however, has all the makings of a technology company that will generate a fair share of buzz. For now, Calix officials won’t say what exactly they're developing, but here’s what we've been able to find out through our sources:

  • Cisco's group vice president of optical networking, Carl Russo, owns a stake in Calix and he has a seat on its board of directors.

  • Cisco's vice president of optical strategy and technology development, Ajaib Bhadare, is also on Calix's board. (Bhadare, Russo, and Calix CEO Mike Hatfield all hail from Cerent Corp., the company that put Cisco’s optical networking business on the map.)

  • According to data from Venture Economics, Calix has raised $15,759,000 in funding to date. Its investors include Redpoint Ventures and Meritech Capital Partners.

  • Calix is referred to in the theft case FBI affidavit as a "direct competitor with Cisco." (Note: Cisco executives serving on potential competitors' boards is nothing new. Example: Cisco vice president Jayshree Ullal sits on the boards of Atoga Systems and Nishan Systems.)

  • Calix vice president of marketing Tom Corker told The Ottawa Citizen in a February interview that Calix was creating "the first optical transport system for the access space. Our mission is to push fiber as deep as possible into the access network."

  • Hungry for talent, Calix once sent around a memo to recruiters offering $10,000 on top of the usual fees to find employees (see Startups Rev Up Recruitment Efforts).

    Meanwhile, the case that initially drew media attention to Calix involves former Cisco employee Peter Morch. Morch was arrested in November after an FBI search of his home uncovered some CD-ROMs with proprietary software code and information about projects he'd worked on at Cisco.

    Other documents and file folders containing Cisco project information were found on a laptop issued to Morch by Calix, his new employer.

    In the FBI's affidavit, Morch told agents that he'd downloaded proprietary software from Cisco to use "as a reference" for his new job with Calix. According to the U.S. attorney's office in San Francisco, the maximum penalty Morch may face for trade secret theft, if convicted, is 10 years imprisonment and a fine of $250,000 plus restitution.

    Morch hasn't been charged with trying to sell the data or blackmail Cisco, only with taking Cisco stuff. The last time a former Cisco employee was convicted for stealing information from Cisco was in May, when a jury found David Hawkins guilty of stealing source code for Cisco's Private Internet Exchange (PIX) product before leaving the company.

    Coincidentally, both Hawkins and Morch came to Cisco through Cisco's acquisition of other companies. Hawkins was with Translation Network and Morch was with Fibex Systems.

    Calix hasn't been charged with using the information Morch allegedly brought through its doors. Spokesman Gary Clemenceau says Calix didn't know Morch had Cisco intellectual property in his possession when he was hired.

    “Besides," he adds, "Putting Cisco code in our products would be like using John Deere tractor parts in a Lamborghini."

    -- Phil Harvey, senior editor, Light Reading http://www.lightreading.com

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