Cisco Systems, Inc. v. Chung

Background

Cisco alleged that former employees Wilson Chung, James He, Jedd Williams, and Thomas Puorro worked with Plantronics to obtain and disclose Cisco’s trade secrets. The claims included federal and California trade-secret misappropriation claims against each defendant, plus California claims for intentional interference with a contractual relationship against Puorro and Plantronics.

The alleged information included source code, product designs and specifications, business strategies, sales information, product plans, and information about organizational changes. Cisco sought monetary and injunctive relief against the defendants other than Chung; against Chung, it sought only an injunction.

Arbitration and Stay

Williams had an arbitration agreement with Cisco, and Cisco did not dispute that the agreement was valid or consented to Williams’s request to arbitrate. The court therefore granted Williams’s motion to compel arbitration as to the claims against him and stayed the litigation as to those claims. The court terminated Williams’s alternative motion to dismiss without deciding it.

The court denied Chung’s request to compel arbitration. Chung’s own agreement generally required arbitration of employment-related disputes but allowed either party to seek an injunction in court for alleged intellectual-property misappropriation. Because Cisco sought only an injunction against Chung, the court held that the agreement did not require those claims to be arbitrated. The court also held that Chung could not rely on Williams’s agreement because Cisco’s claims against Chung did not depend on or have a sufficiently close connection to that agreement.

The court likewise denied the other non-signatory defendants’ requests to compel arbitration. It also denied Williams’s request to stay the litigation against the remaining defendants. Although the court recognized overlapping allegations and a possibility of inconsistent rulings, it found that defendants had not shown the hardship required for a discretionary stay and that a stay could create a risk that evidence would be lost. The litigation against the remaining defendants was therefore allowed to proceed.

Motions to Dismiss

The court evaluated whether Cisco’s complaint adequately stated claims, accepting well-pleaded factual allegations but not unsupported legal conclusions. For a trade-secret claim, Cisco had to allege ownership of a trade secret, misappropriation by the defendant, and resulting damage.

The court held that Cisco described the alleged trade secrets with enough detail to identify their boundaries and permit discovery. The descriptions were not sufficient when stated only as broad categories, such as “market and strategy data,” but Cisco narrowed them by identifying particular subjects, including Project Liberator, Project X, product strategies, product designs, unreleased products, source code, and organizational changes.

The court found that Cisco adequately alleged the independent economic value of the information allegedly taken by Williams. Cisco alleged that Williams provided information to Puorro in exchange for employment at Plantronics, and the court inferred that the information traded for employment had economic value.

The court found that Cisco did not adequately allege the independent economic value of the particular information allegedly taken by Chung and He. General allegations about Cisco’s collaboration platform, confidentiality agreements, and the defendants’ conduct did not sufficiently connect economic value to the specific information at issue. The court granted Chung’s and He’s motions to dismiss, with leave to amend only to allege that value with the required specificity.

The court held that Cisco adequately alleged that Puorro misappropriated information by inducing Williams to disclose it, and that Plantronics could be liable based on Puorro’s conduct within the scope of his employment. The court also held that Cisco adequately alleged direct liability by Plantronics for ratifying Williams’s conduct. The court did not consider materials attached to Williams’s declaration because they did not match the documents described in the complaint and were not properly authenticated for this analysis.

The court dismissed the intentional-interference-with-contract claims against both Puorro and Plantronics. It held that those claims relied on the same facts as the trade-secret claims and therefore were displaced by California’s trade-secret statute. The court granted leave to amend those claims once to allege a legally distinct basis.

Disposition

The court granted Williams’s motion to compel arbitration and stay the litigation as to the claims against him, denied his motion to stay the litigation against the other defendants, and terminated his alternative motion to dismiss. It granted Chung’s and He’s motions to dismiss with leave to amend. It granted in part and denied in part Puorro’s and Plantronics’ motions to dismiss, also with leave to amend. The court stated that failure to file an adequate amended complaint would result in dismissal of the affected claims with prejudice.