Telecom
No More Mr. Nice Cisco
Quentin Hardy, 01.23.03, 5:13 PM ET
PHOENIX - After years of pretending they loved the competition of cheap knockoff routers from China, Cisco Systems filed suit today against Chinese telecom equipment giant Huawei Technologies, charging patent and copyright violations which, if proven, could cripple the Chinese company's recent bold expansion.
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It is the first-ever intellectual property lawsuit for Cisco (nasdaq: CSCO - news - people ), and one senior Cisco officials had tried to avoid by consulting with both Huawei and Chinese government officials. The suit was filed in the U.S. District Court for the Eastern District of Texas, where Huawei has two subsidiaries, Huawei America and Future Wei. The suit also seeks to shut down sales of Huawei routers by Spot Distribution, a U.K. company.
The suit cites more copyright than patent violations. Copyright violations are internationally enforceable, and could damage Huawei if Cisco prevails.
A representative of Future Wei had no comment on the suit, and referred press inquiries to Huawei's headquarters, which was closed during the U.S. day.
Huawei, with $2.4 billion in sales both within China and overseas, established the two U.S. subsidiaries last year, and Huawei's U.S. presence likely contributed to Cisco's move. Future Wei's Web site includes direct comparisons with Cisco gear, plus prices at 32% off list. There are already plenty of used Cisco routers on eBay (nasdaq: EBAY - news - people ), hurting Cisco's prices.
Huawei has sold Cisco-type equipment in such noncritical markets as East Africa and West Asia for several years, though lately it has also scored telecom wins in Spain and Germany. Huawei, whose founders have backgrounds in China's military, also was charged with wiring Iraqi defense installations with fiber-optic cable a few years ago.
Mark Chandler, Cisco's general counsel, said the main reason for the suit was the discovery that Huawei was using the same source code for the software powering its routers. The code, called IOS (internetwork operating system), is the crown jewel of Cisco's technology. "Over the past year we had more and more of a case," he says, citing such things as the identical command lines and user manuals between Cisco and Huawei products. "But several months ago we realized the source code was copied--that's when we began direct negotiation." Huawei officials were receptive to negotiations, he said, but never changed their practices.
Chandler says Cisco hopes for what he termed "a recognition by Huawei that its conduct is unacceptable," ending the need for the suit.
Don't expect miracles. For several years Microsoft (nasdaq: MSFT - news - people ) has complained of rampant piracy in China, with little success. Chandler says Cisco's stakes were much higher.
"What we're dealing with isn't someone pressing out CD's. It goes to the fundamental product," he says. "It's an infringement that goes beyond software to the actual architecture of the product."
The lawsuit does indicate a nearly comical level of piracy, including identical (and meaningless) bugs between the source codes. An appendix compares pages from the two companies' user manuals: Huawei's only difference is a slightly more frequent use of decorative stars on the paper.
The penalties Cisco seeks are no joke, however. Besides stopping production of Huawei routers, called Quidway, Cisco is seeking attorney costs, damages, impoundment and destruction of all Huawei routers and manuals, and damages equivalent to profits Huawei made on the gear.
No More Mr. Nice Cisco
Quentin Hardy, 01.23.03, 5:13 PM ET
PHOENIX - After years of pretending they loved the competition of cheap knockoff routers from China, Cisco Systems filed suit today against Chinese telecom equipment giant Huawei Technologies, charging patent and copyright violations which, if proven, could cripple the Chinese company's recent bold expansion.
More on Cisco Systems
Tear Sheet
400 Best Big Cos
It is the first-ever intellectual property lawsuit for Cisco (nasdaq: CSCO - news - people ), and one senior Cisco officials had tried to avoid by consulting with both Huawei and Chinese government officials. The suit was filed in the U.S. District Court for the Eastern District of Texas, where Huawei has two subsidiaries, Huawei America and Future Wei. The suit also seeks to shut down sales of Huawei routers by Spot Distribution, a U.K. company.
The suit cites more copyright than patent violations. Copyright violations are internationally enforceable, and could damage Huawei if Cisco prevails.
A representative of Future Wei had no comment on the suit, and referred press inquiries to Huawei's headquarters, which was closed during the U.S. day.
Huawei, with $2.4 billion in sales both within China and overseas, established the two U.S. subsidiaries last year, and Huawei's U.S. presence likely contributed to Cisco's move. Future Wei's Web site includes direct comparisons with Cisco gear, plus prices at 32% off list. There are already plenty of used Cisco routers on eBay (nasdaq: EBAY - news - people ), hurting Cisco's prices.
Huawei has sold Cisco-type equipment in such noncritical markets as East Africa and West Asia for several years, though lately it has also scored telecom wins in Spain and Germany. Huawei, whose founders have backgrounds in China's military, also was charged with wiring Iraqi defense installations with fiber-optic cable a few years ago.
Mark Chandler, Cisco's general counsel, said the main reason for the suit was the discovery that Huawei was using the same source code for the software powering its routers. The code, called IOS (internetwork operating system), is the crown jewel of Cisco's technology. "Over the past year we had more and more of a case," he says, citing such things as the identical command lines and user manuals between Cisco and Huawei products. "But several months ago we realized the source code was copied--that's when we began direct negotiation." Huawei officials were receptive to negotiations, he said, but never changed their practices.
Chandler says Cisco hopes for what he termed "a recognition by Huawei that its conduct is unacceptable," ending the need for the suit.
Don't expect miracles. For several years Microsoft (nasdaq: MSFT - news - people ) has complained of rampant piracy in China, with little success. Chandler says Cisco's stakes were much higher.
"What we're dealing with isn't someone pressing out CD's. It goes to the fundamental product," he says. "It's an infringement that goes beyond software to the actual architecture of the product."
The lawsuit does indicate a nearly comical level of piracy, including identical (and meaningless) bugs between the source codes. An appendix compares pages from the two companies' user manuals: Huawei's only difference is a slightly more frequent use of decorative stars on the paper.
The penalties Cisco seeks are no joke, however. Besides stopping production of Huawei routers, called Quidway, Cisco is seeking attorney costs, damages, impoundment and destruction of all Huawei routers and manuals, and damages equivalent to profits Huawei made on the gear.
