Cisco and Arista - Infringement of a Patent - Case Study Example

Introduction

Intellectual property protection revolves around the creation of laws to prevent an unauthorized copy of ideas and/or benefiting from ideas of one entity by another entity (Romer 2002, p. 213). The intellectual rights include trademark law, patents and company’s design rights. Patent infringement is the owning of an invention and excluding others from producing a similar idea or using the property rights. Patent infringement is a civil action on the grounds that an entity has used another entity’s invention without permission. Intellectual property provides laws that protect the creativity such as manuscript or designs. The protection varies from country to country thereby creating a prohibition from making or using the innovation in other places. The paper compares Cisco Company and Arista Company, which are both technology companies that design and manufacture network equipment. The firms have legal rights to their designs prohibiting each from imitating their innovative ideas. In reference to patent infringement, the paper analyzes the operation of the firms legally and strategically in fulfilling their objectives.

Firms’ Operations

Cisco Company created an innovation on Wi-Fi technology to enable the spread of wireless signals over a large area where people could access data. The company purchased a patent right to protect the idea and encourage its invention. The law against imitation of the idea creates restrictions to own and/or gain monetary benefit without owner’s authorisation (Agarwal et al. 2009, p. 1350). The innovation aimed at branding the company as a top innovator, thus create and maintain its competitive advantage globally. The innovation of Wi-Fi created higher expectations for the company to experience increased earnings and create confidentiality. Cisco licensed the innovation (Wi-Fi) but not other services and products. However, the company induced infringement of property rights by motivating customers to use its products. The infringement was caused by a violation of Cisco’s patent right by Arista company on the use of Wi-Fi technology.

Arista Company created operating systems and various designs of network switches to deliver computer network solutions. The company invented a Spline network that combines two architectures into a single network that aimed at reducing operational cost. According to Arundel (2001, p. 615), idea protection leads to the creation of patent rights that ensure the idea owners benefits from their effort. Arista protected itself from business risks of losing the innovation to competitors and aimed at producing affordable services that benefit the society as a whole. Arista innovations aim at making advances to the existing products and lower their prices. The company ideas, however, experienced a patent rights violation by its competitors. The existence of the idea and its patent rights violation led to a lawsuit. Patent protection helps create morality and increase the industrial usefulness of newly invented ideas (Bort 2016).

The patent of both the two firms provided financial incentives and stimulated creativity. Technological products of the two companies compete in a single market, and purchasing of patent right helps prevent the reproduction of the ideas by unauthorized entities (Granstrand 1999, p. 265). Cisco targeted its customers by creating multiple Wi-Fi points for easy access to network services. Arista established the single-tier network to reduce the operational cost of its clients. The legal step of both the companies against property right violation ensured a persistent organization of individual creativity (Bort 2016). Protection of the natural ideas promotes the utilization of intellectual objects in the market industry. The adoption of intellectual property rights transformed the organization into knowledge generating and top innovators. Their services are significant to both the society, thus, lead to economic growth. The free-market innovation allowed the growth of capitalism as the supply of the protection works responded to the market prices of the products of both the two firms.

How the firms operate legally

Cisco Company created operational laws for the success of the business. Company’s spree of law departments provides quality control of the operations targeted at cost-saving (Menell 2000, p. 150). The Cisco company foundation adopted patent rights in the protection of the software originally developed by a medical student at the San Jose University. The protection helped in maintenance of the software and hardware ideas. However, despite the operations Cisco Company was accused of idea theft despite its efforts to design a logo that differentiated its products. The operational managers licensed the operating system and multiple network protocols to root its operations in the environment strongly. The efforts to protect the innovation supported the products’ utilization in the market. The company successfully had a merchant of extensive operations because of the challenges it encounters in the competitive market.

Arista Company, born in Guatemala, provides legal operations resulting from simple ideas for the provision of interior designs for its clients. The availability of laws that protect patent rights facilitates the existence of the company in the market (Shippey 2009, p. 26). Patent rights help the company create adjustments to its products. The single-tier network idea allows the company to occupy a privileged position because of the originality of the idea. Intellectual property rights help the company increase the competitiveness in the market and help provide quality and variety of high-quality products and services. The company operates in different regions globally to provide varieties of the products it has protected from imitation. Arista creates productive workspaces in the market environment providing solutions to multiple clients.

However, despite the sustainability in the market environment, Arista has ongoing disputes revolving around patent infringement with Cisco. Companies in the industry claim that the competition led to the violation of the regulations on intellectual property rights. Arista imitated Cisco’s ideas on creating the networking operation system, which constituted an infringement of property rights. The ruling in the court was in favor of Cisco (Bort 2016). Arista lost and was restricted from owning and gaining from monetary benefits generated by the technology. The lawsuit served as a reminder of the consequences of patent infringement. The case made it more necessary for companies operating in IT industry to purchase patent rights in a bid prevent rival companies from imitating their ideas. The patent laws created protect the threatened business model and continues to uphold the intellectual property rights of both the companies (Myers 2013, p. 25). The companies’ efforts to protect their creativity were prudent steps toward increasing revenue generation. Therefore, from a legal point of view, both the firms have purchased patent rights to prevent duplication of their innovations.

How the firms operate strategically

The operation managers of Cisco and Arista created intellectual assets as a strategic step to ensure sustainable operations. The increasingly stiff competitive environment resulted in the creation of patents to limit the possibility of any company imitating the ideas of another company. The firms developed strategies that limit the freedom of other companies to imitate their innovations. Patent strategizing allows firms to position themselves strongly in the development of a particular technology by their innovators (Cisco n.d.). Secondly, the firms, occasional instances, formed an alliance to jointly purchase patent rights of ideas generated by a joint research task force. The strategy increases synergy and pools resources together. It also enables the companies to make effective decisions regarding. The strategy reduces the cost of innovation for individual companies and improves the production level (Thiele et al. 2010, p. 73-78).

Cisco Company operates strategically while keeping in mind the end goal of creating high-quality services for its customers globally (Holzmann 1995, p. 75). Thirdly, amid intensive competition among rival companies in the IT industry, Cisco and Arista have sought monopoly. Through the purchase of patent rights, the companies prevent duplication of their innovations, thus, ensuring uniqueness of the products in the market. Since the products protected by patent rights are only that exists in the market, the companies benefit from a certain level of monopoly (Cisco n.d.). Monopoly is significant in boosting the level of profitability. Therefore, the key strategies used by the companies include the purchase of patent rights, alliance formation and monopoly.

How patent infringement affected the subsequent strategy of each firm

Cisco’s license to its products aims at supporting innovation and provides solutions for the challenges that may negatively affect the performance of the company. Patent infringement results in threats to the sustainable business operations of the company. Cisco enjoys the monopoly resulting from the purchase of intellectual property rights in order to prevent duplication, thus improve sales and profitability levels (Cisco n.d.). Competition caused by other firms in the industry poses a serious threat to both Cisco and Arista because of their focus on the operational cost. Strategic legal operations of the firm establish its financial insights that help in decision making regarding the management of intangible assets. However, the company still faces infringement of its patent rights, which continues to weaken its financial performance and discourages its efforts to end patent rights violation. The intellectual property laws allow the company to understand the technical circumstances and make decisions on the aspects regarding the limited freedom of use of the innovation (Holzmann 1995, p. 80). Consequently, the company has a functional department whose primary task is to ensure the safety of the company’s intangible assets.

Arista Company formulated strategies to purchase patent rights for its innovations with the aim to improve the performance of its network and drive the industry and customers forward. The objective led to the purchase patent rights for the protection of the ideas. The level of competition the firm faces in the market induces the need to create effective and efficient operational tactics. The creativity leads to the modifications on the network features with the aim of achieving the company’s objectives. However, the company’s remarkable efforts to improve competitive advantage are slapped by the ongoing efforts to infringe its patent rights at best, at worst to steal the entire innovation. The duplication of the company’s ideas and innovation dilutes the market share and reduces the performance of the products in terms of revenue generation.

Effect on Industry structure and dynamics

The subsequent strategies of each of the firms excluded others from illegally owning and/or using their innovations. Cisco licensed its products to avoid patent infringement that aimed at increasing the productivity of the company. Cisco pursued a civil remedy after allegations that Arista Company had violated its patent rights. The lawsuit led to Cisco being paid a substantial amount of money by Arista, who used their idea in network technology improvement. The lawsuit negatively affected Arista as it was very expensive to compensate for the damages caused (Publishing 2012, p. 65). The claim provided satisfactory settlement to Cisco and encouraged Arista to develop more on its ideas to face the challenge of the stiff market competition in the industry.

The ongoing patent rights infringement in the IT industry has led to significant changes in the structure. As Caskurlu (2015, p. 1-2) argues, when infringers lose a court case, they tend to merge with other companies in a bid to acquire a patent right through a short cut. Since the laws are increasingly becoming strict against patent rights violation, most companies in the industry invest a lot in the acquisition of patent rights in order to avoid lawsuits. Consequently, most companies have resorted to forming mergers (specifically, small businesses). Caskurlu (2015, p. 1-2) also mentions that when the laws on patents rights are less strict, the rate of merger and acquisition in the industry decreases. The reason is that most companies can violate patent rights of other companies and get away with it due to less strict rules. When the laws are less strict, the level of research and development in most small businesses reduce, unlike when the rules are stricter.

Conclusion

The paper has provided discussions on the patent right infringement case between Arista and Cisco Company. It has been discussed that Arista violated the patent right of Cisco’s innovation. There was a lawsuit, which resulted in the payment of the substantial amount of money to Cisco. The companies have learned from the lawsuit and changed their strategies. Both the companies purchase patent rights for innovations in order to prevent their duplication. The companies form alliances to share patent rights and increase monopoly of their ideas. The primary reason for the strategies is to develop a competitive advantage and survive the stiff competition. The increase in strictness of patent rights has changed the industry structure. There has been an increase in mergers and acquisitions among companies in the industry. The mergers help companies acquire patent rights easily (by merging with companies that have purchased the patent rights). On the other hand, a decrease in the patent rights leads to a decline in mergers and acquisitions. Since there is an increase in the infringement of intellectual property rights, the patent rights have increased in the IT industry, thus inducing mergers and acquisitions.