The stakeholders in defunct networking startup NeoNetworks Inc. are suing Cisco Systems Inc. (Nasdaq: CSCO) -- along with several people associated with NuSpeed Internet Systems, which Cisco bought in 2000 -- for allegedly stealing technology and business relationships developed by NeoNetworks.

NeoNetworks, which doesn't have an office, a working phone number, or Website, is being represented by Minneapolis law firm Anthony Ostlund & Baer.The lawsuit, filed April 9 in the Fourth Judicial District Court of the State of Minnesota in Hennepin County, seeks "to recover hundreds of millions of dollars generated by the technology and corporate opportunities wrongfully misappropriated by defendants."

Richard Ostlund, the laywer representing NeoNetworks, says his clients include all the stakeholders in the company, including those who invested on a direct-equity basis. He declined to comment further.

NeoNetworks, based in Minnetonka, Minn., was founded in May 1996 and received $19 million from investors that included Charter Venture Capital and Signal Lake Ventures. The company, which Ostlund says ceased active operations at the end of 1999, was developing application-specific integrated circuits (ASICs) for high-speed core routers. Three former NeoNetworks employees -- Hemant Trivedi, Scott Sarkinen, and Jerome Meyer -- went on to found Terago Communications Inc., a startup developing 10-gigabit network processors. A Terago representative says the company has no involvement in the litigation.

In addition to Cisco, the defendants named in the complaint are Mark Cree, currently director and general manager of Cisco's storage router business unit, and Clint Jurgens, now business development manager in the same unit. Cree was NeoNetworks' VP of marketing and Jurgens was its VP of business development.

Cree and Jurgens founded NuSpeed in December 1999, and Cisco announced its intent to acquire the company in July 2000, for $450 million in stock. Cisco now sells NuSpeed's storage router as the Cisco SN 5420 (see Cisco and Brocade: This Means War, Cisco Stalls on iSCSI, and All Eyes on Cisco).

NeoNetworks' lawsuit also names 50 John Does, who are "other NuSpeed shareholders, officers, directors, employees, investors, or agents who participated in and/or illegally benefited from the improper use by defendants of NeoNetworks' technology, confidential information and relationships, and/or corporate opportunities in connection with the creation and sale of NuSpeed."

A Cisco spokesman declined to comment on the suit. Cree and Jurgens did not respond to requests for comment.

But Tom Nolle, a networking-industry consultant who worked for both NuSpeed and NeoNetworks (and who is currently a paid consultant for Cisco) tells Byte and Switch, Light Reading's sister publication, that NuSpeed and NeoNetworks were working on completely different technologies that had nothing in common.

Nolle, founder and president of CIMI Corp., says NeoNetworks was working on a large-scale LAN switch/router based on custom ASICs, whereas NuSpeed was specifically focused on developing an IP-based switch for SANs.

"In working with the two companies, I didn't perceive there to be any commonality between what they were doing whatsoever," he says. "[NeoNetworks] was most definitely in my perception more oriented toward the high-end LAN space, as a competitor to Foundry Networks Inc. (Nasdaq: FDRY) and Extreme Networks Inc. (Nasdaq: EXTR)."Nolle says that when he heard about Cree's plans for NuSpeed, "I thought that this was a fairly radical change in terms of the shift from what he had done before. It seemed disconnected."

However, NeoNetworks' lawsuit alleges that NuSpeed could not have developed a product and sold itself to Cisco in the span of eight months without having had "an unlawful and unfair head start -- the technology and business opportunity" that NeoNetworks had developed.

The 16-page complaint accuses Cisco and the other defendants of, among other things, unfair competition and misappropriation of trade secrets. It also alleges Cree and Jurgens committed common law fraud, and that they breached non-disclosure agreements with NeoNetworks.

"[Cisco's acquisition of NuSpeed] created over 20 instant millionaires, including Cree and Jurgens, who were significant shareholders of NuSpeed for only a few short months in 2000," the complaint reads.

As an example of others who benefitted from Cisco's acquisition of NuSpeed, the suit cites Jeff Hinck, a general partner at Crescendo Ventures, a VC firm that had invested in NuSpeed. NeoNetworks' complaint claims Hinck (who is not explicitly named as a defendant) converted a $1 million investment in NuSpeed into $80 million in Cisco stock. Hinck did not respond to requests for comment.

— Todd Spangler, Senior Editor, Byte and Switch
http://www.byteandswitch.com