Cisco Systems, Inc. v. Dexon Computer, Inc.

Background

Cisco sued Dexon over trademark and related claims. Dexon, a secondary-market reseller of networking products, asserted six counterclaims: federal false advertising, intentional interference with contractual relations, intentional interference with prospective economic advantage, trade libel, trade libel per se, and declaratory judgment.

Dexon alleged that Cisco falsely told customers that Cisco hardware bought outside its authorized sales network lacked a valid license for embedded software and required a new license. Dexon also alleged that Cisco employees told four Dexon customers that products were counterfeit, refurbished, unauthorized, or lacked valid software licenses. Dexon claimed these communications caused customers to cancel orders, demand refunds, or stop doing business with Dexon.

After the court had already dismissed earlier versions of Dexon’s counterclaims, Dexon sought permission to amend again. Dexon relied on information about a Cisco software-transfer policy used between 2012 and 2017 that allegedly allowed some transfers without a new license fee.

Reasons for Dismissal

The court applied the standard for a motion to dismiss for failure to state a legally sufficient claim. It held that Dexon still had not plausibly alleged that Cisco’s statements about the need for software licenses were false or misleading. Dexon had not adequately alleged that authorized resellers gave no notice about the license, or that Dexon obtained ownership of the embedded software in the particular products sold to the four customers. The court also held that whether the transactions were sales or licenses involved a disputed legal issue, not a false statement of fact for purposes of the federal false-advertising claim.

The court dismissed the interference and trade-libel claims because Dexon had not adequately pleaded that Cisco acted wrongfully. Dexon did not allege that the products called counterfeit were not counterfeit, and it did not plausibly allege that calling products refurbished was false because Dexon sells refurbished hardware. The court further concluded that the alleged statements were not shown to have materially caused Dexon’s losses.

The court dismissed the trade-libel-per-se claim because the statements were not defamatory on their face and did not seriously impugn Dexon’s morals, character, or business reputation. The court dismissed the declaratory-judgment claim because Dexon had not alleged facts showing a concrete, actual controversy about the specific products at issue. The court also rejected Dexon’s argument that possible future liability from other transactions created a sufficient dispute.

Leave to Amend and Disposition

The court denied Dexon’s motion for leave to file fourth amended counterclaims because the proposed amendments would be futile. Dexon alleged only on information and belief that the older policy applied to products sold to two customers, did not identify the products or their relevant dates, and did not allege whether the policy applied to products sold to the other two customers. The court emphasized that Dexon had repeatedly been given opportunities to amend but had not supplied the required detail. The court did not reach Cisco’s separate argument that further amendment would unfairly prejudice Cisco.

Judge Charles R. Breyer granted Cisco’s motion to dismiss Dexon’s counterclaims without leave to amend and denied Dexon leave to file fourth amended counterclaims.