Cisco Systems Inc v. Link US, LLC

Background

Cisco Systems, Inc. and Cisco Technology, Inc. sued Link US, LLC and Basem Toma, Link’s president, alleging that they imported and sold counterfeit Cisco goods. Toma is a resident of North Carolina. Cisco alleged that counterfeit goods connected to Link were seized on 13 occasions and that a Cisco investigator ordered counterfeit goods from Link that were shipped to Berkeley, California. Two packages included Toma’s name in their return addresses.

Link brought a counterclaim under California’s Unfair Competition Law. It alleged that Cisco harmed independent resellers by: (1) warning consumers about buying Cisco products through unauthorized channels; (2) selectively targeting independent resellers for suspected counterfeit goods; (3) limiting use of software embedded in equipment bought on the secondary market; and (4) calling equipment “used” when it had been sold to an unauthorized reseller, even if the equipment had not been opened or turned on.

Cisco moved to dismiss Link’s counterclaim for failure to state a claim. Toma moved to dismiss the claims against him for lack of personal jurisdiction or improper venue.

Toma’s Motion

The court held that Toma had not waived his personal-jurisdiction defense. His participation in case-management conferences, discovery, settlement-related stipulations, and deadline extensions did not amount to the deliberate strategic conduct required for waiver.

The court also rejected Cisco’s alter-ego theory because Cisco alleged only that Toma controlled Link’s day-to-day operations and was Link’s alter ego, without comparable facts showing that Link and Toma were not genuinely separate. The court further held that Cisco had not plausibly alleged that Toma personally participated in tortious conduct.

For specific personal jurisdiction, Cisco had to show that Toma committed an intentional act expressly aimed at California that caused harm he knew was likely to occur there. The court found that Cisco’s allegations about Toma’s general managerial involvement were insufficient. The appearance of Toma’s name on two package return addresses did not plausibly show that he participated in shipping the packages. The court also concluded that sales to Cisco’s own investigator could not establish that Toma expressly aimed conduct at California.

The court therefore granted Toma’s motion to dismiss for lack of personal jurisdiction, without prejudice. Because the failure to show express aiming was dispositive, the court did not decide Toma’s alternative venue argument. The court granted Cisco’s request for jurisdictional discovery, which could reveal facts supporting the alter-ego theory or Toma’s personal participation in acts aimed at California.

Link’s Unfair-Competition Counterclaim

The court treated Link’s counterclaim as a competitor claim under California’s Unfair Competition Law. For the law’s unfairness standard, Link had to allege conduct that threatened or harmed competition in a way comparable to an antitrust violation. For the law’s fraud standard, Link had to allege that the challenged practice was likely to deceive reasonable consumers.

Secondary-market warnings. The court dismissed the portion of Link’s claim based on Cisco’s warnings about buying products through unauthorized sources. It concluded that reasonable consumers would understand “unauthorized” to mean not approved by Cisco, rather than unlawful, and would understand the stated consequences to mean increased technical risks or fewer Cisco services, rather than legal liability. The court found these statements neither fraudulent nor a significant threat to competition.

Selective enforcement. The court dismissed the portion based on Cisco’s alleged targeting of independent resellers while overlooking similar conduct by authorized partners. Link relied on a shipment whose exporter was identified as Tech Data Corporation. Cisco argued that an exporter’s name could be falsified to avoid detection, and Link did not respond to that point or otherwise defend the allegations. The court dismissed this portion of the claim.

Software licensing. The court dismissed the portion concerning Cisco’s alleged restrictions on using embedded software in equipment purchased on the secondary market. Link’s theory depended on the first-sale doctrine, which can limit a copyright owner’s control after a copyrighted copy is sold. The court explained that the doctrine does not apply when the user merely holds a licensed copy.

Link did not allege facts showing whether Cisco sold or licensed the embedded software. It also did not allege facts supporting its alternative theory that Cisco’s licensing agreements were unenforceable because users did not agree to them. The court dismissed this portion of the claim without prejudice after Link’s counsel said additional facts could be pleaded.

“Used” equipment. The court denied Cisco’s motion to dismiss the portion of Link’s claim concerning Cisco’s definition of “used.” Link alleged that Cisco classified equipment as used when it had previously been owned or sold to an unauthorized reseller, even if it had never been opened or turned on. The court found that whether equipment is “used” would not ordinarily be understood to depend on whom it was sold to. It also held that deciding how Cisco’s target consumers would understand the term, and whether the definition was sufficiently disclosed on Cisco’s website, presented factual questions inappropriate for resolution at the motion-to-dismiss stage.

Relief and attorneys’ fees

The court granted Cisco’s motion to strike Link’s request for “restitutionary disgorgement.” It held that restitution restores money in which the claimant has an ownership interest, while Link alleged that it lost sales because of unfair competition and did not claim an ownership interest in money obtained from Link’s potential customers.

The court denied Cisco’s motion to strike Link’s request for attorneys’ fees. It concluded that it was too early to decide the fact-intensive questions governing such fees, including whether the counterclaim vindicated an important public right, benefited the public or a large group, and imposed a financial burden disproportionate to Link’s individual stake.

Disposition

Judge Charles R. Breyer granted Toma’s motion to dismiss for lack of personal jurisdiction, without prejudice; granted Cisco’s request for jurisdictional discovery; and granted in part and denied in part Cisco’s motion to dismiss Link’s counterclaim. The court stated that the dismissal was without prejudice.