By Andrew Chung
NEW YORK (Reuters) - Network equipment maker Cisco Systems Inc (NASDAQ:CSCO) won a key victory in a sprawling legal battle with rival Arista Networks Inc on Thursday after the U.S. International Trade Commission ruled Arista infringed three of Cisco's patents with its ethernet switches used in computer data centers and servers.
The trade commission upheld a finding of infringement by a U.S. trade judge in February. The ITC, which investigates complaints of violations of U.S. intellectual property, also recommended an import ban against Arista's products that infringe the patents.
The ITC's ruling must now be reviewed by the U.S. Trade Representative, who can approve or disapprove of the commission's orders. Arista was down more than 3 percent to $71.50 in after-hours trading, while Cisco was unchanged.
Cisco's patents relate to managing and securing communications networks. The company filed its trade complaint in December, 2014, seeking a ban on Arista's switches.
The ruling, if approved, could lead to the exclusion of Arista's 7000 series of switches, which generate most of the company's product revenue, according to regulatory filings.
Arista, however, has said it redesigned the software in its switches to address the ITC's findings. Cisco says Arista has not presented its purported redesigns to the ITC.
"This marks the end of Arista's ability to mislead its shareholders and customers about the infringing nature of their products," Cisco senior vice president Mark Chandler said in a statement.
Arista said it intends to comply with the orders. The company's senior vice president Marc Taxay said in a statement that Cisco was using litigation to preserve its market share.
"If allowed to succeed, Cisco’s scheme would have a chilling effect on innovation. While we will defend our rights in these actions, our primary focus remains on the continued supply of products to our customers."
The trade action is one front in a fierce legal battle between Cisco and Arista, which was formed by former Cisco employees. Cisco has a second trade-related investigation pending, and a judge is scheduled to release findings in that case in August.
The companies, both based in California, have also sued each other in federal court in San Jose. Arista has requested the U.S. Patent and Trademark Office review the validity of several Cisco patents.
Companies frequently turn to the ITC to win an import ban and to district court to win damages.
The case is In the Matter of Certain Network Devices, 337-944, at the U.S. International Trade Commission.