Dexon Comput. v. Cisco Sys.

1

DEXON COMPUTER, INC., Plaintiff v. CISCO SYSTEMS, INC. AND CDW CORPORATION, Defendants.

No. 5:22-CV-00053-RWS-JBB

United States District Court, E.D. Texas, Texarkana Division

March 31, 2023

ORDER

ROBERT W. SCHROEDER III UNITED STATES DISTRICT JUDGE.

Before the Court is Defendants' Objection to the Order Denying Cisco's Motion to Transfer (Docket No. 96), Defendant Cisco's Objection to the Report and Recommendation Denying Cisco's Motion to Dismiss (Docket No. 119), and Defendant CDW's Objections to the February 7, 2023 Report and Recommendation (Docket No. 120). The objections have been fully briefed (Docket Nos. 102, 121, 122), and the Court has heard oral argument regarding them. Docket No. 130.

BACKGROUND

On April 27, 2022, Plaintiff Dexon filed the above-captioned antitrust case in the Eastern District of Texas (the “Texas Lawsuit”). Plaintiff alleges Defendant Cisco is a monopolist in several worldwide and U.S. markets related to networking equipment and services for the internet and locks in customers who require maintenance with Cisco's SmartNet program to make supracompetitive purchases of routers and ethernet switches. See e.g., Docket No. 1 (Original Complaint), ¶¶ 23-49. Plaintiff claims that Cisco employed FUD (fear uncertainty, and doubt) tactics, especially in Texas, to foreclose competitive purchases of any product and maintain supracompetitive pricing for its products. Id. ¶ 67. According to Plaintiff, in carrying out its scheme, Cisco conspired with Defendant CDW to sell Cisco equipment in the Relevant Networking Markets to maintain its supracompetitive pricing in those Markets and exclude other resellers from making sales in the Relevant Networking Equipment Markets to end-user customers in violation of federal and state antitrust laws. Id., ¶¶ 56-57.

Plaintiff asserts the agreement between Cisco and CDW (collectively “Defendants”) reflects an unreasonable restraint of trade and a conspiracy to monopolize that is unlawful under Section 1 of the Sherman Act, 15 U.S.C. § 1, and under Section 2 of the Sherman Act, 15 U.S.C. § 2. See, e.g., id. at ¶¶ 87-100. Plaintiff also asserts claims under Section 1 of the Sherman Act for per se tying in the Relevant Product Markets, under Section 2 of the Sherman Act for unlawful monopolization of the Relevant Networking Equipment Markets, and for unlawful attempted monopolization of the Relevant Product Markets against Cisco and under the Texas Free Enterprise and Antitrust Act against Cisco and CDW. Id., ¶¶ 87-128. Plaintiff seeks injunctive relief, damages, and costs in connection with such violations. Id., ¶ 137.

I. California Lawsuit

Almost two years before Plaintiff filed its current case, Cisco filed suit against Dexon in the Northern District of California. Cisco Systems, Inc., et al. v. Dexon Computer, Inc., Case No. 3:20-cv-4926 (N.D. Cal. filed July 22, 2020) [hereinafter “California Lawsuit”]. In the California Lawsuit, Cisco's First Amended Complaint against Dexon was filed on March 19, 2021, asserting claims of trademark infringement, trade counterfeiting, false designation of origin, and associated state law claims. California Lawsuit, Docket No. 32. Specifically, Cisco alleges Dexon sells counterfeit Cisco products (including switches and transceivers) in violation of the Lanham Act and California state law. Id.

On July 29, 2021, Dexon filed its Amended Answer, Affirmative Defenses, Counterclaims and Third Party Claims (“Dexon's California Counterclaims”). California Lawsuit, Docket No. 50; see also Texas Lawsuit, Docket No. 21-2. Dexon asserted various antitrust counterclaims among other trademark and tort counterclaims. Id. On motion from Cisco, the California Court dismissed Dexon's California Counterclaims, but the court granted Dexon leave to amend. See Cisco Sys. Inc. v. Dexon Computer, Inc. (Cisco I), No. 20-cv-04926-CRB, 2021 WL 5848080, at *1, *9 (N.D. Cal. Dec. 9, 2021). In its amended pleading, Dexon did not re-assert the dismissed antitrust counterclaims. California Lawsuit, Docket No. 92 (“Dexon's Second Amended Counterclaims”); see also Texas Lawsuit, Docket No. 21-4 (same).

On a further motion from Cisco, the California Court dismissed Dexon's Second Amended Counterclaims. See Cisco Sys., Inc. v. Dexon Computer, Inc. (Cisco II), No. 20-cv-04926-CRB, 2022 WL 797015, at *1 (N.D. Cal. Mar. 16, 2022). According to the California Court, although Dexon provided more detail than it did in its prior complaint, Dexon still failed “to state these claims,” and gave Dexon “leave to amend one last time.” Id. at *4, *8.

On April 6, 2022, Dexon filed its Third Amended Answer, Affirmative Defenses, Counterclaims and Third-Party Claims (“Dexon's Third Amended Counterclaims”). California Lawsuit, Docket No. 107. Once again, Dexon chose not to re-plead any antitrust claims. See id.; see also Texas Lawsuit, Docket No. 21-6 (same). On April 27, 2022, Cisco moved to dismiss Dexon's Third Amended Counterclaims pursuant to Rule 12(b)(6). See California Lawsuit, Docket No. 117; see also Texas Lawsuit, Docket No. 21-7.

That same day, Dexon filed its Original Complaint in this Court, asserting antitrust causes of action. As it did in the California Lawsuit, Dexon brings against Cisco a per se tying claim under § 1 of the Sherman Act (Docket No. 1, Count III) and monopolization claims under § 2 of the Sherman Act (Docket No. 1, Counts IV, V). On June 21, 2022, the California Court entered an Order granting Cisco's motion to dismiss the six counterclaims asserted in the Third Amended Counterclaims and denying Dexon's motion for leave to amend. Cisco Sys., Inc. v. Dexon Computer, Inc. (Cisco III), No. 20-CV-04926-CRB, 2022 WL 2222962, at *1 (N.D. Cal. June 21, 2022).

II. Cisco's Motion to Transfer

On June 23, 2022, Cisco filed its motion to transfer, requesting the case be transferred to the Northern District of California pursuant to the first-to-file rule. Docket No. 21. Cisco argues most of the antitrust claims that Dexon asserts in this matter are nearly identical to the counterclaims that the Northern District of California dismissed in the California Lawsuit almost nine months earlier. Id. at 3-4. Cisco further asserts the factual allegations in the present complaint are materially the same as the allegations contained in Dexon's California Counterclaims which were later amended without the antitrust allegations. Id. at 4. Cisco contends the two pleadings are substantially similar, and “comity and sound administration of justice demand that Dexon's complaint be transferred.” Docket No. 31 at 2. CDW filed a notice of joinder to Cisco's motion, joining in, and adopting as its own, the arguments made in Cisco's motion to transfer. Docket No. 27.

On December 22, 2022, the Magistrate Judge entered an order denying Cisco's motion to transfer. Docket No. 94 [hereinafter “Order”]. After setting forth the law applicable to the first-to-file rule (id. at 5-7) and the parties' assertions (id. at 7-8), the Order stated a “survey of the relevant caselaw, as well as the underlying purposes of the first-to-file rule, shows that the first-to-file doctrine should not be applied here, where the antitrust claims are not pending in the California suit.” Id. at 8. Defendants have filed an objection (Docket No. 96), and Dexon has filed a response to the objection (Docket No. 102).

III. Defendants' Motions to Dismiss

Cisco filed a motion to dismiss asserting Dexon's present claims are precluded by true res judicata or claim preclusion. See Docket No. 22 at 12-13. Cisco further asserts Dexon's antitrust claims fail on the merits. Specifically, Cisco asserts as follows: (1) Dexon fails to allege an actionable conspiracy claim and parallel state law claim (Counts I-II, VI) because Dexon does not allege any actionable agreement; (2) Dexon fails to allege an actionable tying claim and parallel state law claim (Counts III, VI) because Dexon does not allege any foreclosure; (3) Dexon fails to allege an actionable monopolization claim and parallel state law claim (Counts IV-VI) because Dexon fails to allege any exclusionary conduct; and (4) Dexon lacks antitrust injury (Counts I-VI).

CDW filed its own motion to dismiss in which it joins in and adopts as its own the arguments and assertions made by Cisco and also focuses on the facts most relevant to Dexon's claims against it. Docket No. 28 at 1, n. 1. Similar to Cisco, in addition to arguing Dexon's claims fail to state a claim upon which relief can be granted, CDW asserts Dexon is precluded from re-litigating issues that have already been decided by the California Court. Id. at 2. Instead of relying on the doctrine of true res judicata or claim preclusion, CDW relies on the doctrine of collateral estoppel or issue preclusion.

On the merits, CDW contends Dexon's Sherman Act (and parallel state law) claims against CDW (Counts I, II) should be dismissed for the following reasons: (1) Dexon has not plausibly alleged an anticompetitive agreement between Cisco and CDW; (2) Dexon fails to allege harm to competition; and (3) Dexon fails to allege specific intent by CDW to monopolize. CDW further asserts Dexon fails to establish an antitrust injury. Finally, CDW argues Dexon's pre-2018 claims are time-barred.

The Magistrate Judge issued a Report and Recommendation recommending Defendant Cisco's Motion to Dismiss (Docket No. 22) be denied, with the part of the motion seeking dismissal under true res judicata being denied without prejudice. Docket No. 107 [hereinafter “R&R”] at 81. The R&R further recommended Defendant CDW's Motion to Dismiss (Docket No. 28) be denied, with the parts of the motion seeking dismissal for failure to plead with sufficient specificity CDW's specific intent to monopolize and...