By Aaron Tilley
Cisco Systems Inc. has won a legal battle against counterfeit versions of key networking equipment, securing an injunction that requires big online marketplaces, including Amazon.com Inc. and Chinese rival Alibaba Group Holding Ltd. to halt the sale of some knockoffs.
Cisco secured the sales ban in a temporary injunction seen by The Wall Street Journal. The company had argued that counterfeit items threatened U.S. national security and health systems, in part, because the items were more failure prone and the software would be hard to update and keep secure. Cisco is trying to use the ruling to galvanize other suppliers to build an industrywide effort to curb counterfeit sales.
The judgment comes at a time when the U.S. government and tech companies have been leaning on China to do more to crack down on counterfeit products. U.S. Trade Representative Robert Lighthizer last week said as part of a recent trade deal with China, Beijing made specific commitments on intellectual property, including counterfeiting, patent and trademark issues and pharmaceutical rights.
Cisco's suit, filed in federal court in the Eastern District of New York, alleges that four Chinese companies made counterfeit versions of its transceivers, a component necessary for sending and receiving digital information. The company's transceivers are used widely in networking gear to pass data throughout hospitals, military facilities and corporate data centers. Counterfeit transceivers are easy to sell because they generally look the same across many companies.
The judgment was handed down against four Chinese manufacturers. The companies didn't respond to requests for comment.
Rowan TELS Corp., a new San Francisco consultant that assists companies dealing with counterfeit products, estimates that the four Chinese companies account for more than half of the counterfeit transceiver market. The total transceiver market was estimated to be nearly $7 billion in 2018 sales globally, according to research firm IHS Markit Ltd. Counterfeit experts say fakes can account for 5% or more of tech equipment sales.
The injunction requires online commerce sites -- including Alibaba, Amazon, and eBay Inc. -- to remove any listings of Cisco-labeled products on the pages of those companies. Amazon said it was committed to halting the sale of counterfeits. The other online vendors had no immediate comment.
The ruling also freezes assets owned by the Chinese companies.
Cisco for years has been fighting against alleged infringement by Chinese companies of its patents and the sale of counterfeit versions of its products. The Justice Department and the Department of Homeland Security in 2010 announced that they had seized $143 million worth of counterfeit Cisco networking gear manufactured in China. Cisco also sued Chinese telecommunications-gear rival Huawei in 2003 for copying its router software, though the patent-infringement suit was dropped a year later. Huawei at the time admitted some software was apparently copied from Cisco, but was being removed.
In the latest case, Cisco engineers tested transceivers from the four companies and determined they were counterfeit. Lawyers representing Cisco said they expect a permanent injunction against the four Chinese companies to be handed down soon.
China, ahead of the trade agreement, had already said it issued a directive to strengthen intellectual-property rights.
"We welcome the news that China will strengthen intellectual-property protections in the country," Cisco General Counsel Mark Chandler said in an interview. "We have worked with Chinese authorities over the years to raid facilities and shut down counterfeiters."
Cisco is hoping its legal battle in the transceiver case will cause other networking gear makers to join an effort to crack down on counterfeit products. The company said it is working with Rowan to build that coalition.
Rowan's CEO, John Amster, said his company is building software to track and monitor counterfeiters. But to expose the full scope of the counterfeit networks would require data from more manufacturers to target the knockoffs collectively.
Cisco's Mr. Chandler said that such an industrywide approach would give legal challenges more force. "We have a common interest in shutting down this activity."