Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Cisco charged with monopolizing Ethernet switches market, (Feb 25, 2016)

By Linda O’Brien, J.D., LL.M.

Leading networking equipment manufacturer Cisco Systems embarked on a strategy to suppress competition and maintain its monopoly in the markets for Ethernet switches and high-speed Ethernet switches, according to a complaint filed in the federal district court in San Jose, California (Arista Networks, Inc. v. Cisco Systems, Inc., February 24, 2016).

Founded in 1984, San Jose-based Cisco Systems is a world leader in networking products and services. Arista is a rapidly-growing networking solutions company founded by former Cisco employees.

In 2014, Cisco Systems filed suit, alleging that Arista infringed two patents and misappropriated Cisco’s copyrighted software code, taxonomy, structure, and documentations concerning Cisco’s operating system. On January 26, 2016, Arista sought leave to amend its answer to add counterclaims against Cisco for violations of the Sherman Act and California’s Unfair Competition Law. On February 19, 2016, the court denied Arista leave to amend its answer to add antitrust counterclaims due to undelay and prejudice. Arista has now filed a separate action asserting its antitrust claims.

Arista’s complaint states that Cisco dominates the $23 billion global market for Ethernet switches as well as the $10 billion U.S. Ethernet switches market, having sales and market shares that are 13 times its closes competitor in North America. Cisco has maintained its market dominance for at least 15 years, with global and U.S. market shares exceeding 65 percent. Arista, which was founded in 2004, has pioneered a revolutionary approach to scalable, high-speed Ethernet switches that are used in data centers of companies that provide financial services, social media, e-commerce, cloud computing, and scientific computing.

In response to the competitive threat posed by Arista, the complaint alleges, Cisco resorted to tactics to preserve its longstanding Ethernet switch and high speed Ethernet switch monopolies. Specifically, Cisco has: (1) reversed a long-standing policy of encouraging industry standard usage of command-line interface commands and instead claimed copyright over those commands after competitors and customers relied upon Cisco’s industry standard treatment for more than a decade; (2) forced customers to purchase Cisco switches or face increased prices for the maintenance and service of its products if they purchase switches from rival vendors; and (3) induced Arista’s suppliers and vendors to believe that if they continued to do business with Arista that Cisco would cease doing business with them.

The complaint claims that Arista is one of the competitors that have been improperly foreclosed from the Ethernet switch and high-speed Ethernet switch markets. The effect of Cisco’s conduct allegedly has hindered and will continue to hinder competition in those markets and has damaged Arista.

The plaintiff asserts claims for monopolization and attempted monopolization in violation of Section 2 of the Sherman Act and unlawful business practices in violation of California’s Unfair Competition Law. The action seeks declaratory and injunctive relief, restitution, treble and punitive damages, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 5:16-cv-00923.

Attorneys: Robert A. Van Nest (Keker & Van Nest LLP) and Jonathan M. Jacobson and Susan Creighton (Wilson Sonsini Goodrich & Rosati) for Arista Networks, Inc.

Companies: Arista Networks, Inc.; Cisco Systems, Inc.

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