The switches and routers Huawei produces are virtually indistinguishable from Cisco's, causing the Chinese company to be dubbed a "Cisco clone" by some. Huawei and its similarities have been under Cisco's skin for some time now, so the lawsuit isn't surprising. Cisco says it tried to work out its issues with the Chinese company to avoid filing suit, but Huawei wasn't cooperative.
According to Cisco, parts of Huawei's technical documents and user manuals for its Quidway line of routers and switches are word-for-word copies of Cisco documentation. Further, Cisco claims that its IOS source code -- the operating system for its switches and routers -- has been pirated. Allegedly, Quidway products use whole strings of text and file names that are identical to Cisco's IOS code.
Cisco wants a permanent injunction against Huawei, barring it from selling, distributing, using, or marketing its Quidway routers and switches. The American networking giant also wants U.K.-based Huawei distributor Spot Distribution to stop selling Quidway products. In addition, Cisco's seeking unspecified financial damages for the abuse of its intellectual property.
So, just how big a threat is Huawei to Cisco? Well, as of right now, it's hardly a threat at all, but the possibility of that changing has Cisco worried. Huawei's 2001 sales were only $2.4 billion, with 90% of its business concentrated inside China. However, the company's vocal about its desire to rapidly expand in the West. With prices undercutting Cisco's by 40% to 50%, it doesn't seem far-fetched to think that Huawei could make some inroads against Cisco. Huawei already has deals in place in Britain and Germany, for example.
Understandably, Cisco would probably like nothing more than to quash Huawei's growth prospects before it gains any significant traction. Trying to do this through legal means rather than market competition would be a squirrelly way out. However, China's reputation when it comes to piracy and intellectual property issues isn't exactly encouraging. Given that, Cisco's suit could mean real trouble for Huawei. We'll just have to wait and see how it plays out in the courts.
Foolish Disclosure: LouAnn Lofton owns shares of Cisco.