Cisco Told to Pay $1.9 Billion in Patent Trial Loss
(Bloomberg) -- Cisco Systems Inc. was told to pay $1.9 billion after losing a trial brought by a Virginia company that claimed the networking giant copied patented cybersecurity features and shut the smaller company out of government contracts.
Cisco infringed four patents owned by Centripetal Networks Inc., District Judge Henry Morgan in Norfolk ruled. The judge heard the monthlong trial over video conference in June after canceling the use of a jury because of the coronavirus pandemic. Centripetal Networks, based in Herndon, Virginia, said it developed a network protection system, funded in part by a grant from the Department of Homeland Security, only to see Cisco integrate the inventions into its own networks after meetings and presentations by Centripetal officials.
“The fact that Cisco released products with Centripetal’s functionality within a year of these meetings goes beyond mere coincidence,” Morgan said.
The judge said Centripetal was owed $755.8 million for past use of the inventions, which he increased by two-and-a-half times after finding that Cisco’s infringement was “willful and egregious.” He also ordered that Cisco pay a 10% royalty on sales of some of its products for the next three years, and then 5% in royalties for three years after that.
The total damage award accounts for less than three months of profit for Cisco. The company reported net income of more than $11.04 billion for calendar year 2019. It’s also one of the most cash-rich companies in technology. In August it reported cash, cash equivalents and investments of $29.4 billion.
Cisco said its cybersecurity features were developed long before Centripetal was founded a decade ago. San Jose, California-based Cisco said Centripetal hasn’t been successful in getting government and university contracts because its ideas were too complicated.
Cisco pledged to appeal.
Centripetal said sales had been doubling each year from 2015 until it met with Cisco for a partnership and “got close to getting married but got left at the altar,” as Centripetal lawyer Paul Andre of the firm Kramer Levin put it in opening arguments.
Centripetal officials met with those from Cisco in the first half of 2016.
“They told them about our algorithms, told them about the patents,” Andre said in closing arguments. “Cisco kept coming back and asking for more.”
In June 2017, Cisco announced its Encrypted Traffic Analytics, which David Goeckeler, then head of Cisco’s network and security, said “solves a network security challenge previously thought to be unsolvable.”
Cisco lawyer Dabney Carr of Troutman Sanders said Cisco, founded in 1999, has a long history of developing network security products and even has written books on the topic. “Cisco is proud of the network security it provides; it just doesn’t infringe these patents,” Carr said in closing arguments. He said there is a “cavernous gap” between what the patents cover and Centripetal’s infringement allegations.
The judge found that the introduction of the cybersecurity features resulted in “a dramatic increase in sales which Cisco touted in both technical and marketing documents.”
The trial was originally supposed to be held before a jury but the courthouse is closed to the public because of the coronavirus pandemic. Instead, Morgan, who became a federal judge in 1991 and took senior status in 2004, conducted the trial over the Zoom teleconferencing app.
The opinion was released after Morgan issued an order denying Cisco’s request that he recuse himself from the case. The judge’s wife owns shares of Cisco, bought at the recommendation of a broker. Morgan said he had already reached his conclusion on the case, though not finished writing the opinion, when he learned of the ownership.
The case is Centripetal Networks Inc. v. Cisco Systems Inc., 18-94, U.S. District Court for the Eastern District of Virginia (Norfolk).
(Corrects figure in sixth pargraph.)
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I must say, I do see a similarity in our court case, sincerely!
