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

Cisco Wants $2 Billion Patent Hit Axed Over Judge’s Wife’s Stock

April 4, 2022, 9:15 AM

The next steps in Cisco Systems Inc.’s appeal of a $1.9 billion patent infringement award will hinge on whether the district judge should have recused himself after finding out his wife owned stocks in the company.

A U.S. Court of Appeals for the Federal Circuit panel during argument on Monday will probe whether the judgment should be vacated because the judge was required to recuse himself and, if that’s the case, what the future proceedings should look like, according to an order from the appeals court.

Judge Henry Morgan in the U.S. District Court for the Eastern District of Virginia discovered his wife owned shares of Cisco stock in August 2020 when his administrative assistant told him after preparing his financial disclosure, according to Cisco’s opening brief. Morgan declined Cisco’s request for recusal, saying the statute—28 U.S. Code § 455, which says judges must disqualify themselves if their impartiality might reasonably be questioned—didn’t apply because he had already written most of the opinion.

“It’s unusual to hear about a judge’s acquisition of stock of a party or a wife’s acquisition of stock of a party during a case,” said Karl Fink, co-chair of the litigation practice group at Fitch Even Tabin & Flannery LLP in Chicago. “The concern is of the integrity of the judicial system.”

Morgan had ruled that Cisco willfully infringed four Centripetal Networks Inc. cybersecurity patents. After a trial, Morgan found that Cisco owed $755.8 million and increased the damages 2 1/2 times after finding that the infringement was willful and “egregious.” With ongoing royalties, Cisco has said the judgment exceeds $2.75 billion.

Billions at Stake

The case is the latest billion-dollar patent infringement award to make the trip to the Federal Circuit, which last month threw out a billion-dollar award against Apple Inc. and Broadcam Inc.

Along with merits arguments that the judgment “is the result of multiple misunderstandings of patent law,” Cisco is also arguing that Morgan violated his statutory obligation to recuse himself. The Federal Circuit will only hear arguments on whether a vacatur is required in the case, and will hear arguments on the merits later once that issue is resolved, according to an order.

Morgan’s wife acquired 100 shares of Cisco stock in October 2019, before the trial. Cisco moved for recusal, saying the statute requires judges to disqualify themselves when they or a spouse have any financial interest in the parties. Morgan refused, saying his opinion was mostly written by the time he was aware of the stocks and the stocks were placed into a blind trust.

The statute is clear in that Morgan should have recused himself, said Sarah Cravens, who teaches judicial ethics at the University of Tulsa College of Law. Even though the ultimate judgment wasn’t in favor of Cisco, there could be an appearance of the judge trying to “bend over backwards” to not rule for Cisco, even if the stocks had no bearing on the decision, she said.

“I think it most likely is the case that he didn’t know, he didn’t realize it and he did write the merits opinion without thinking about it,” Cravens said. “But the appearance is the problem, and the standard is appearance of impropriety.”

‘Clean Slate’

Whether to vacate the ruling and give Cisco a do-over will have to be decided, attorneys and ethics professors said. Cravens said she could see the Federal Circuit try to figure out a way to avoid starting the proceedings completely over, given the amount of time and resources that already went into the case.

The court could find that there was a “harmless error,” because the party challenging the lack of recusal was the one that the judge had a financial interest in, said University of Maine School of Law ethics professor Dmitry Bam.

“Had Cisco won the case and the other side was bringing the challenge, that’s where you have the recusal issue more likely to be raised,” Bam said. “With Cisco losing the case, it’s unlikely the court would accept that argument.”

Cisco attorneys may argue that they need a “clean slate,” said Amy Landers, a law professor at the Drexel University Thomas R. Kline School of Law. The appearance of impropriety of the judicial system as a whole would likely concern the Federal Circuit panel, Landers said.

Fink expects that the proceedings would have to be done over, likely with a different judge.

“It’s really a crying shame because it looks like the parties and the judge and everybody spent so much time and resources on this case, to have that happen right at the end is just an utter waste,” he said.

Wilmer Cutler Pickering Hale and Dorr LLP and Duane Morris LLP represent Cisco. Kramer Levin Naftalis & Frankel LLP, Irell & Manella LLP, and others represent Centripetal.

The case is Centripetal Networks Inc. v. Cisco Systems Inc., Fed. Cir., No. 21-1888, 3/31/22.

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

To contact the editors responsible for this story: Renee Schoof at rschoof@bloombergindustry.com; Jay-Anne B. Casuga at jcasuga@bloomberglaw.com