Why Arista Networks' Billionaire Co-Founder Quit The Company And Filed A Lawsuit

On Friday, the tech industry was treated to a successful IPO by a rising-star enterprise company, Arista Networks.

Arista makes products for computer networks, competing with companies like Cisco and HP.

However, the company's IPO has walked hand-in-hand with a lawsuit from OptumSoft, a startup founded by David Cheriton, who is a co-founder of Arista and its largest stockholder. OptumSoft makes a tool for writing software. It's not unusual that two closely related companies wind up in court. What's odd is that Cheriton is actually Arista's largest shareholder.

His 13.9 million shares, owned by a trust in his name, represent a 22% stake.

So he's sort of suing himself.

When Arista filed its IPO paperwork in March, it announced that he had left the company.

In talking to sources, reading the lawsuit and counter-suit, reading press reports about the suit, here's what we know about the situation:

OptumSoft and Arista started out as sister companies, sharing office space and working closely together.

OptumSoft makes a software development platform called TACC. Arista used TACC to create the software that runs its products. Arista was granted free use of OptumSoft in exchange for sending OptumSoft any improvements its engineers made to TACC.

OptumSoft's CEO Henk Goosen tells us Arista hasn't lived up to its end of the bargain, and hasn't given back all the improvements made to TACC.

In its countersuit, Arista claims that OptumSoft really wants way more than the tweaks made to TACC. It wants to lay claim to the software Arista created with TACC. It's lawyers argue:

"This case involves an all too common scenario: a successful company about to go public (Arista) sued by a failing company seeking a Hail Mary to rescue it (Optumsoft). The failing company fabricates a claim to own the successful company's intellectual property, in the hope of disrupting the IPO and securing some payoff in the process."

Goosen flat-out denies that, telling us: "We are not asking for anything more than the improvements to our TACC development platform. ... This lawsuit is not all about money. It's about the principal."

If the issue can't be resolved, the two will duke it out in court sometime in August, he says.

Although Cheriton left Arista, sources say all this hasn't affected his friendship with Arista's other billionaire co-founder, Andy Bechtolsheim. The two have been friends for decades. They famously invested $100,000 of seed money apiece in Google. Arista was their third company together.

Cheriton has a reputation for being a tough man, who doesn't care at all about money, and doesn't spend what he has. He's also known for being highly principled and moral.

OptumSoft is his labor of love, representing a his lifetime of research in how to build cloud computing systems, Goosen confirms.

OptumSoft employs 25 people and, with the cloud industry on the rise, is gaining customers beyond Arista, Goosen tells us. TACC helps companies quickly build cloud apps that are easier to manage over time. The company has other customers besides Arista and interest in TACC is growing, he says.

The lawsuit also didn't interfere at all with Arista's IPO. Today, at a closing share price of $55, Cheriton's stake became worth about $764.5 million.

Arista had no additional comments on the lawsuit.