Cisco accuses China's Huawei of copying software

Zardon

CHICAGO (REUTERS) - Cisco Systems, the No. 1 maker of gear that directs Internet traffic, said on Thursday it filed a lawsuit against Huawei Technologies, alleging China's largest telecom equipment maker unlawfully copied its operating software.

Cisco, based in San Jose, California, said it filed the lawsuit late Wednesday in U.S. Distinct Court in Marshall, Texas, alleging Huawei unlawfully copied its intellectual property, including software source code. It also alleged Huawei copied its documents and other copyrighted materials, and infringed several company patents.

Source code, the underlying blueprint of computer software, determines how programs work. Companies such as Microsoft zealously guard their source code because they consider it the lifeblood of their business.

Huawei declined to comment on Cisco's specific charges.

"All along Huawei has respected intellectual property rights," Huawei spokeswoman Wendy Wu told Reuters. "As Cisco has filed a lawsuit, now we are working with legal advisers to resolve the matter."

Asia, and particularly China, is one of the areas of greatest concern for intellectual property piracy, U.S. patent and trademark officials told Congress last year.

U.S. software developers, entertainment companies, book publishers and drugmakers have complained that China's poor enforcement of laws against copying their products was costing them billions of dollars a year.

John Holden, president of the National Committee on U.S.-China Relations, a New York-based educational organization, said improvement in China will take time.

"China has made a lot of progress in developing laws and regulations governing commercial activity, particularly intellectual property rights," he said. "However, their implementation in practice has been very spotty."

Cisco officials said they have discussed the issue with China's government.

"We have every reason to anticipate that the Chinese government is going to be supportive of international standards related to intellectual property protection," Mark Chandler, Cisco vice president and general counsel, told Reuters.

Cisco seeks preliminary and permanent injunctions barring Huawei from selling or distributing versions of its Quidway routers and servers, as well as unspecified financial damages.

"We value strong competition, but copying isn't competition," Chandler said in a telephone interview. "We have a responsibility to protect our product and materials from unlawful copying and to make sure there's a level playing field for fair competition."

If Cisco wins an injunction, it will stop Huawei from its planned U.S. expansion, said Frank Dzubeck, a strategy consultant and president of Washington-based Communications Networks Architects.

Cisco said it also served a cease and desist letter to Spot Distribution in the United Kingdom. Spot is distributing Huawei products that Cisco claims copy its intellectual property.

Before filing the lawsuit, Cisco said it made numerous attempts for more than a month to resolve the dispute after customers began questioning Cisco about the similarity of the companies' products and manuals.

While Huawei and other low-cost competitors do not pose a serious threat to Cisco at this point, they will inevitably squeeze Cisco's profit margins in its meat-and-potatoes businesses of switches and routers, analysts have said. Those products account for 80 percent of Cisco's sales and profits.

A router is a machine that connects two computer networks for the transmission of data and information, while a switch simply directs traffic on a network.

Founded in 1988 by a former officer in the People's Liberation Army, Huawei has said it expects 2002 sales to rise almost 25 percent to $3 billion, thanks partly to growing exports outside of Asia.

While most of Huawei's sales are in the telecom sector, it wants to boost its corporate business, where Cisco is king, and its strategy is to undercut Cisco's prices by as much as 50 percent, analysts have said.