Cisco fined $70m for duping partner

US-based developer claims vendor made off with its intellectual property after planned partnership fell through

Editor's note: As part of our special editorial partnership, CRN is publishing this recent article from Channelnomics in the US.

A federal jury has ordered Cisco to pay just over $70m for misleading a New York-based collaboration services provider in a failed partnership agreement and absconding with some of the smaller firm's intellectual property.

It's the second significant setback for the networking company in federal court in as many months.

According to court documents, XpertUniverse Inc. representatives in 2007 were teased with the prospect of becoming part of Cisco SolutionsPlus, a reseller programme designed to augment Cisco's advanced technology products and create complete solutions by placing select products on the Cisco price list and allowing them to be sold by Cisco sales teams and channel partners.

XpertUniverse, which describes itself as "a real-time expertise locator" negotiated for six months to get its Web-based XpertSHARE product into the Cisco programme - or have Cisco buy it outright - before the deal fell apart.

XpertUniverse filed suit in Delaware federal court in 2009, maintaining that Cisco negotiated in bad faith and ultimately rejected the partnership, a move that essentially drove the smaller company out of business. Moreover, XpertUniverse claimed Cisco ultimately launched its own products "that feature or utilize similar functionality" and were based on confidential and patented information shared in the course of the partnership negotiations. Those products include Cisco Expert Advisor and Cisco Expert On Demand, according to the court record.

One expert testifying for XpertUniverse said a Cisco partnership for the small firm's technology should have been worth around $32.5m, or half of the $65m KPMG invested to develop its KWorld internal knowledge management product, a similar offering. The company also claimed substantial "lost business value" for the time it wasted working with Cisco rather than exploring other development and partnership options.

The eight-member jury awarded XpertUniverse $70m on one count of fraudulent concealment for the partnership debacle - the total value of the company back in 2009 as stated in court filings - and another $34,000 for the two patent infringement claims.

Cisco's lawyers had argued in court that the vendor was at first interested in partnering with XpertUniverse, but discovered during the course of negotiations that the company had no customers and no product to sell beyond a demo version of a future offering.

In a statement e-mailed to the media, Cisco's Corporate Communications Senior Manager Kristin Carvell said the vendor is "surprised and extremely disappointed with the jury's verdict" and will likely appeal if Judge Richard Andres doesn't reduce the jury's award.

"We are confident that Cisco's conduct was appropriate throughout our relationship with XpertUniverse," Carvell said. "We do not believe the evidence presented at trial supports this verdict, and as a result, there are a number of issues for the judge to consider that will determine whether this verdict remains intact."

The adverse finding wasn't Cisco's only loss in federal court of late. In early February, a federal judge in Chicago threw out racketeering allegations brought by Cisco and other technology heavyweights looking to thwart Innovatio IP Ventures LLC's two-year campaign of questionable Wi-Fi patent and licensing collections brought against a growing list of major hotels, restaurants, coffee shops and the like. Innovatio, which has rolled up a spate of decades-old patents left over from the portfolio of chip maker Broadcom, claims pretty much anyone who uses Wi-Fi, including individuals and home users, owes them money for the use of technologies they control the rights to.

According to the Patent Examiner blog, Innovatio is suing for royalties it claims each location owes for unlicensed use of wireless local area network (WLAN) technology features covered under a portfolio of 31 patents the company holds. So far, Innovatio's focus has been on deep-pocketed clients of the major networking gear manufacturers like Cisco.

US District Judge James Holderman in Chicago dismissed Cisco's allegations that Innovatio was engaging in racketeering by unlawfully demanding licensing fees from some of its biggest corporate customers. In a 34-page ruling on the matter, Judge Holderman said the tech vendor did not "establish that Innovatio's licensing campaign alleging infringement of the Innovatio patents is a sham."

The ruling cleared the way for Innovatio's case to proceed. The matter is ongoing.

For more US channel coverage from Channelnomics, visit www.channelnomics.com