Cisco Systems, Inc. v. Chung

Background

Cisco moved to compel arbitration of counterclaims brought by Wilson Chung and James He. Each defendant asserted claims for declaratory relief and violation of California Business and Professions Code § 17200. Their theories challenged provisions in their Proprietary Information and Inventions Agreements, or PIIAs, as unlawfully broad and effectively functioning as noncompete agreements. They sought declarations that those provisions were unenforceable and void.

Cisco relied on a separate arbitration agreement with Chung and arbitration provisions in He’s PIIA. Both agreements broadly covered disputes arising from employment or the employment relationship, but each contained an exception for certain intellectual-property disputes. Cisco also moved to strike affirmative defenses asserted by Chung and He.

Arbitration of Chung’s Counterclaims

The court concluded that Chung’s counterclaims fell within the general arbitration provision, not the exception for claims seeking an injunction for misappropriation of intellectual or confidential property. The court said that a claim relating to property is not necessarily a claim for misappropriation of that property.

The court found that the substance of Chung’s counterclaims was his challenge to the PIIA’s enforceability and Cisco’s alleged use of the agreement to restrict employment mobility. Chung’s references to his know-how, ideas, compensation information, and knowledge about former coworkers did not establish a claim for misappropriation of legally protected information. The court therefore granted Cisco’s motion to compel arbitration of Chung’s counterclaims.

Arbitration of He’s Counterclaims

The court reached the same result for He. It found that the possibility that some information covered by the PIIA might also qualify as intellectual property did not make every challenge to the PIIA’s definition of proprietary information an intellectual-property claim.

The court also found that He did not adequately explain how his asserted know-how or ideas qualified as intellectual property. His counterclaims challenged the enforceability of the PIIA and Cisco’s alleged use of agreements like it to restrict employment mobility; they did not concern the validity, infringement, or enforceability of particular protected intellectual property. The court therefore granted Cisco’s motion to compel arbitration of He’s counterclaims.

Stay and Alternative Dismissal Motions

Because the counterclaims were ordered to arbitration, the court stayed litigation concerning those counterclaims in this case pending arbitration. The court declined to dismiss them at that time. It denied Cisco’s alternative motions to dismiss Chung’s and He’s counterclaims without prejudice as moot.

Motions to Strike Chung’s Defenses

The court granted Cisco’s motion to strike Chung’s affirmative defenses. It struck Chung’s laches and statute-of-limitations defenses with prejudice. The court reasoned that Cisco’s trade-secret claims had three-year limitations periods, the complaint did not allege misappropriation before November 18, 2016, and Cisco filed the action on November 18, 2019. The court found those defenses legally irrelevant and not curable through further factual amendment.

The court struck Chung’s defenses based on failure to mitigate damages, unclean hands, and estoppel without prejudice. Chung had provided only legal conclusions rather than sufficient supporting facts. The court allowed him a single opportunity to amend those three defenses.

Motions to Strike He’s Defenses

For the same reasons, the court struck He’s laches and statute-of-limitations defenses with prejudice. It struck his defenses based on estoppel, unclean hands, and failure to mitigate damages without prejudice because he had alleged only conclusory statements. The court allowed He to amend those three defenses.

Disposition

The court granted Cisco’s motions to compel Chung’s and He’s counterclaims to arbitration and stayed litigation on those counterclaims pending arbitration. It denied Cisco’s alternative motions to dismiss the counterclaims without prejudice as moot. It also granted Cisco’s motions to strike the affirmative defenses as described above. Chung and He had 21 days to file amended answers addressing the defenses struck without prejudice, and they could not otherwise amend their answers without court permission or Cisco’s consent.