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Cisco Systems hit with antitrust lawsuit

Cisco faces an antitrust lawsuit filed by a network maintenance company that says it can't service Cisco networks without a Cisco SMARTnet maintenance agreement.

A network maintenance and services firm this week filed an antitrust lawsuit against Cisco Systems Inc., claiming that the networking giant intentionally excludes independent players from servicing its networks.

The suit was filed in United States District Court in San Jose by Multiven, a Redwood, Calif.-based multivendor provider of IP network services. Multiven alleges that Cisco requires customers to purchase a SMARTnet network maintenance agreement in order to get operating systems updates or patches. That means third-party service providers like Multiven cannot get a cut of the market servicing Cisco networks, the suit claims.

"To protect its over $6 billion yearly stream of service and maintenance revenue, Cisco has cleverly and uniquely conditioned the provision of its software 'updates' on the customers' purchase of a hardware maintenance service agreement called SMARTnet," according to the Multiven complaint.

"The effect of this leveraging of monopoly power and unlawful tie-in and/or bundling is to effectively preclude any non-Cisco affiliated Independent Service Organization (ISO) from competing for the business of servicing Cisco networking hardware," the complaint continues.

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Multiven also claims that customers ultimately receive unfair pricing because ISOs generally charge 20% to 30% less for services than Cisco. What's more, the company alleges that many customers are unaware of the "anticompetitive tying/bundling scheme."

Cisco denied any anticompetitive activity and said in a statement it would "vigorously defend the allegations" in court.

"Cisco customers are in no way required to purchase services from Cisco. There are thousands of partners who offer service programs for Cisco products, including bug fixes," the statement reads.

"Cisco's SMARTnet policies for servicing equipment are also consistent with industry practices for making bug fixes available. We have supported millions of customers through these programs which have helped ensure the Internet is secure and can continue to grow at a rapid pace. Our bug fix processes have been recognized as among the most transparent bug list publication processes in the industry," the statement continues.

Multiven attorneys said Cisco's wording is "evasive" and that a simple visit to the company's website is proof that its bug toolkit is not readily available.

"We've alleged in the complaint that Microsoft, Apple and Hewlett-Packard freely offer software update downloads on their websites," while on Cisco's website, the bug fix toolkit is only accessible to SMARTnet subscribers, said Donald R. Pepperman of Los Angeles-based law firm Blecher & Collins, which represents Multiven.

Users entering Cisco's Bug Toolkit website are offered varying levels of access to the information. Customers with special certifications or service agreements (including the SMARTnet maintenance agreement) are allowed access with a username and password, as are partners and resellers. Visitors without those qualifications appear to have access to a much more limited amount of information.

In the suit, Multiven attorneys point to a ruling in September in which a judge sustained claims that Avaya acted in an anticompetitive manner by preventing users of its telephony equipment from receiving maintenance services from anyone other than the vendor itself or its channel partners.

In that suit, Continuant, a telecom reseller and maintenance services provider, claimed that Avaya bundled service agreements with equipment sales and kept passwords secret from competitive services providers. With the judge's decision, Continuant can now move ahead in court in an attempt to prove Avaya violated the Sherman Antitrust Act by conspiring with partners to stifle outside competition. Multiven also claims Cisco violated the Sherman Act.

Multiven is seeking undisclosed financial damages.

"My client is a competitor in the Cisco networking equipment service market and can't get business [on Cisco networks] because of this," Pepperman said.

Multiven also hopes that if it can prove Cisco violated the Sherman Act by monopolizing business and illegally bundling the patches with services agreements, the company will be forced to cease those practices.

Cisco has 30 to 60 days from Dec. 1 to file an answer to Multiven in court or to move to dismiss. Wednesday afternoon the case was assigned to Judge James Ware in San Jose District Court. Ware has heard other high-profile tech cases, including the lawsuit in which ConnectU sued Facebook, claiming it stole ConnectU's business plan. That case ended in a settlement.

This is the second highly publicized lawsuit for Cisco in recent months. In October, a 12-member jury decided unanimously to award nearly $6.4 million in damages to Infra-Comm, which sued Cisco for breaching deal registration and channel partner agreements.

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