Bloomberg Law
Free Newsletter Sign Up
Login
BROWSE
Bloomberg Law
Welcome
Login
Advanced Search Go
Free Newsletter Sign Up

Cisco Finds Panel Skeptical of Judge Who Dropped $2 Billion Hit

April 4, 2022, 5:13 PM

Two Federal Circuit judges heavily questioned arguments that a $1.9 billion judgment levied against Cisco Systems Inc. should remain in place despite claims the district court judge failed to recuse himself after learning his wife owned Cisco stock.

Judge Henry Morgan in the U.S. District Court for the Eastern District of Virginia refused to recuse himself from the case, saying he had already written most of his decision when he discovered his wife’s 100 shares of Cisco stock. Centripetal Networks Inc.’s attorney Paul J. Andre of Kramer Levin Naftalis & Frankel LLP argued that because Cisco hasn’t alleged there was bias and Morgan’s wife owned Cisco stock, there wasn’t a risk of injustice to Cisco.

Judge Richard G. Taranto pushed back on Andre’s argument, saying he doesn’t understand why the direction of the ruling and the ownership of the stock could indicate that there’s no risk or bias against Cisco.

“A perfectly plausible reaction to a judge under obligation to be impartial is to bend over backwards against his wife’s own financial interest,” Taranto said. “As long as that’s a plausible concern, how do you erase that as a possibility?”

Andre said the key is that Morgan already drafted a majority of his opinion and made his decision. Taranto noted that some judges make changes to their decisions in the editing stage, including himself.

“It’s plausible you could change your draft, but the judge said he did not and could not,” Andre said. “I take the judge at his word.”

Blind Trust

Morgan had ruled in favor of Centripetal, finding that Cisco willfully infringed four of the computer security service company’s cybersecurity patents. Following a trial, Morgan levied a $755.8 million penalty against Cisco and increased the damages 2 1/2 times after finding the infringement was “egregious” and willful. With ongoing royalties, Cisco says the judgment exceeds $2.75 billion.

The Federal Circuit panel will only decide on whether or not the judgment should be vacated and remanded following Monday’s arguments, not the merits of the infringement ruling, which Cisco has also appealed.

Morgan’s wife had put the stock shares into a blind trust, which Andre argued is enough to satisfy the statute, 28 U.S. Code § 455. The blind trust meant that the judge’s wife no longer had control of the stock, meaning Morgan met the divestment requirement of the statute, Andre said.

Judge Timothy B. Dyk seemed skeptical that putting the stocks in a blind trust would be enough to be considered divestiture. If it’s assumed that placing the shares into a blind trust isn’t divestiture, then “the statute told him what to do and he didn’t do it,” Dyk said.

The statute says judges must divest the interest, meaning ownership of the stock, said Cisco’s attorney Mark C. Fleming of Wilmer Cutler Pickering Hale LLP. Fleming said that Taranto’s line of questioning was key for the case.

“It’s difficult to understand the effect the financial interest has on the decision,” Fleming said, “and to make that decision clear so that parties and judges and reviewing courts did not have to embark on a very difficult process to untangle psychological motivations.”

Judge Tiffany P. Cunningham also served on the panel.

Duane Morris LLP also represented Cisco. Irell & Manella LLP and others also represented Centripetal.

The case is Centripetal Networks Inc. v. Cisco Systems Inc., Fed. Cir., No. 21-1888, argued 4/4/22.

To contact the reporter on this story: Samantha Handler in Washington at shandler@bloombergindustry.com

To contact the editor responsible for this story: Renee Schoof at rschoof@bloombergindustry.com