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

Background

Cisco manufactures networking and communications products and uses the CISCO trademark and related marks. Cisco alleged that Dexon, which it described as an unauthorized seller, had repeatedly sold counterfeit Cisco products from at least July 2006 through the present. Cisco also alleged that Dexon sold SMARTnet service contracts for products obtained through unauthorized channels, which could leave customers with invalid service coverage when Cisco determined that the products were counterfeit.

Dexon described itself as a reseller that sources computer-networking products from thousands of suppliers. Dexon asserted that it had never intentionally or knowingly sold counterfeit products and argued that Cisco’s counterfeit problem was partly related to its overseas manufacturing and affected resellers that could not detect every counterfeit.

Cisco said documents produced in a prior related antitrust proceeding revealed more recent counterfeit sales and SMARTnet activity than Cisco previously knew or could have known. Cisco sought a preliminary injunction barring Dexon from continuing to sell counterfeit Cisco products.

Procedural matters

The court exercised its discretion to consider supplemental filings and related responses that Cisco and Dexon submitted after the ordinary briefing schedule. The court stated that it might not consider unauthorized supplemental materials in the future and encouraged the parties to request permission before filing them.

Legal standard

A preliminary injunction is temporary relief issued before the case is finally resolved. The party seeking one generally must show a likelihood of success on the merits, likely harm that cannot be adequately repaired later, that the balance of hardships favors relief, and that the injunction serves the public interest. The court may alternatively apply a standard involving serious questions on the merits and a sharply favorable balance of hardships, together with the other requirements.

Merits analysis

Cisco asserted claims under the federal Lanham Act, the federal trademark statute, for trademark infringement and counterfeiting and for falsely identifying the source of goods. The court concluded that Cisco’s trademark rights and the likelihood of customer confusion from counterfeit Cisco products were not disputed for purposes of the motion. The central question was whether Cisco had shown that Dexon sold counterfeit products.

The court relied on declarations and engineering reports describing Dexon sales between 2020 and 2022, including analyses of products that Cisco engineers determined were counterfeit. Cisco also submitted evidence that engineers had determined hundreds of Cisco products sold by Dexon were counterfeit, along with evidence of additional recent sales. The court rejected Dexon’s objections that Cisco’s witnesses lacked a proper basis for their statements or personal knowledge because the witnesses managed the relevant investigations and engineering work. The court held that Cisco had shown a likelihood of success on its Lanham Act claims.

The court applied the Lanham Act’s rebuttable presumption that a plaintiff suffers irreparable harm after showing a likelihood of success on a qualifying trademark claim. It found that Dexon had not shown that Cisco’s delay in seeking an injunction defeated that presumption. The court also found that the balance of hardships favored Cisco because Dexon had no legitimate interest in selling counterfeit products, while the revised proposal allowed Dexon to continue legitimate sales after using a verification tool. The public interest likewise favored the injunction because it protects trademarks and reduces customer confusion and losses involving counterfeit products and invalid SMARTnet contracts.

Scope of injunction

The court adopted the terms of Cisco’s revised proposed injunction. Dexon was enjoined from selling counterfeit Cisco products. The injunction applies only to Cisco products that Dexon advertises as “new” and for which Cisco has provided Dexon a method to verify the authenticity of the product packaging.

Cisco must provide Dexon with a packaging-verification tool. Dexon does not violate the order if it sells a Cisco product that later turns out to be counterfeit, provided Dexon used Cisco’s tool before the sale and the tool reported that the packaging was genuine. The order also states that the injunction applies only to products that can be verified using Cisco’s tool.

Bond and disposition

Because the injunction could impose costs and damages on Dexon if it were later found wrongful, the court required Cisco to furnish security under Federal Rule of Civil Procedure 65(c). The court rejected both parties’ proposed bond amounts as insufficiently supported and ordered Cisco to provide a $500,000 bond within 10 days of the order.

The court GRANTED Cisco’s motion for a preliminary injunction. It enjoined Dexon under the specified terms from selling counterfeit Cisco products.