“The decision below wipes out the largest patent damages award in U.S. history, without so much as a word addressing the merits . . . [and] cannot help but chill the enforcement of valid patents by small inventors.” – Centripetal petition
Editor’s Note: The author is a consultant to Centripetal, as well as amici Eagle Forum ELDF and Committee for Justice, and leads amicus, Conservatives for Property Rights.
The U.S. Supreme Court will this Friday, December 2, consider whether to grant certiorari in the case of Centripetal Networks Inc. v. Cisco Systems Inc. What began as a patent infringement case has swerved into judicial ethics waters, due to the ruling of the Federal Circuit Court of Appeals.
The cert decision holds significant consequences, particularly for patent owners and inventors who find themselves the target of patent infringement, sue to assert their patent rights, and whom patent infringers then pull into a litigation vortex between federal courts and administrative tribunals at the U.S. Patent and Trademark Office (USPTO).
Centripetal notes that public confidence in and the credibility of the judicial system hang in the balance. “The judicial-recusal statute . . . contributes directly to the public’s trust in the fairness of the judicial system. What erodes confidence in the system is one-sided results that flunk the test of common sense . . . but benefit the largest of companies” (p. 12).
Should cert be granted, the High Court will consider the question: “Whether placing stock in a blind trust satisfies [28 U.S.C.] §455(f) and, if not, whether placing trivial amounts of stock in a blind trust, in lieu of selling it outright, constitutes harmless error under Liljeberg v. Health Services Acquisition Corp., 486 U.S. 847 (1988).”
The Road to SCOTUS
On February 13, 2018, Centripetal sued Cisco in the Eastern District of Virginia, alleging infringement of Centripetal’s patented cybersecurity invention. Judge Henry C. Morgan Jr. began a bench trial May 6, 2020, followed by a June 25 hearing to consider evidence for damages. On August 11, during preparation of routine judicial financial disclosures (and contemporaneous with the judge’s finishing up his judgment in the Centripetal-Cisco case), it was discovered that the judge’s wife held 100 shares of stock in Cisco worth $4,687.99, purchased by her stockbroker in October 2019, about which she had no memory of being consulted. The judge alerted the parties to the discovery on August 12. He averred that his wife’s stock holdings had not factored into his opinion in the case as he had not known of his spouse’s Cisco stock before August 11, and that he had practically decided every issue and drafted his opinion.
On August 21, Cisco moved for the judge’s recusal. Judge Morgan considered the motion and, after hearing oral argument September 9 when he informed the parties he and his wife had set up a blind trust and divested the Cisco shares into it, denied the recusal motion October 2. The judge opined, “‘The Court had devoted months of time into this matter engaging in ruling of pre-trial motions, holding a Markman hearing, conducting an almost six-week bench trial and drafting extensive findings of fact and conclusions of law in a 150-plus page opinion.’ As a result, Judge Morgan ruled that §455(f) applied, and ‘that divesture is appropriate’” (p. 9).
On October 5, the judge decided the underlying patent infringement case, upholding four of five Centripetal patents as valid and infringed, finding Cisco’s conduct “willful and egregious” and warranting enhanced damages. The court awarded Centripetal damages of $3.2 billion. Cisco sought retrial and filed multiple motions, which Judge Morgan denied on March 17, 2021. Cisco appealed to the Federal Circuit. The appellate court overruled the district court’s orders solely on the basis of the recusal matter, saying the trial judge’s blind-trust remedy was unsatisfactory, that only selling the stock would do. The Federal Circuit vacated the ruling and remanded the case for a new trial under another judge, Judge Morgan having died.
Centripetal seeks Supreme Court review, saying the Federal Circuit misinterpreted the judicial recusal statute and ignored the factual context the law requires, resulting in substantial wasted time and money of the judiciary and the parties if the ruling stands. The effect, the petitioner says, is to cast doubt upon the judiciary’s impartiality and to risk public confidence in the judicial system. “The Federal Circuit wiped out a multibillion-dollar judgment without so much as considering the merits, and gave short shrift to the district court’s concerns that the outright sale of Cisco stock on the eve of a ruling against Cisco could create its own appearance problems” (p. 14).
The petitioner warns of adverse consequences for patent owners from the Federal Circuit’s ruling:
“[T]he stakes for Centripetal and other small inventors are substantial. The decision below wipes out the largest patent damages award in U.S. history, without so much as a word addressing the merits . . . [and] cannot help but chill the enforcement of valid patents by small inventors. A small inventor armed with a validly issue[d] patent and strong evidence of infringement by a publicly traded incumbent faces a steep climb to vindicate its rights. Not only do companies like Cisco have an ample war chest to fight the principal patent litigation, they routinely open up a second front by challenging the validity of the patents before the PTO. Fighting that kind of two-front war is standard operating procedure for entrenched incumbents, but a devastating burden for innovative start-ups” (p. 33).
Several amici have filed briefs in support of Centripetal: the Alliance of U.S. Startups & Inventors for Jobs (USIJ), the Committee for Justice and Conservatives for Property Rights, Eagle Forum Education & Legal Defense Fund, and Fair Inventing Fund. No amicus briefs were filed siding with Cisco.
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