Federal Circuit Vacates $2.75 Billion Ruling Against Cisco Because Judge’s Spouse Owned $5,000 of Cisco StockJune 24, 2022

Today, the Court of Appeals for the Federal Circuit reversed a decision holding that Cisco willfully infringed several patents owned by Centripetal Networks, Inc. The District Court for the Eastern District of Virginia had awarded enhanced damages and royalties exceeding $2.75 billion to Centripetal. The Federal Circuit held that the district court judge was disqualified from hearing the case once he became aware of his wife’s ownership of Cisco stock and vacated all orders and opinions of the court entered on or after his awareness, including this judgement, even though Cisco lost the case. The case was remanded for further proceedings before a different district court judge.

The statute governing recusal of federal judges (28 U.S.C. § 455) states that any judge must disqualify him or herself in any proceeding in which their impartiality might reasonably be questioned. A judge must also disqualify him or herself when they know that they, or their spouse, has a financial interest in the subject matter in controversy or in a party to the proceeding. A judge is also required to know about their personal financial interests and make a reasonable effort to know about the personal financial interests of their spouse. Given this, if a judge learns of a financial conflict of interest after substantial judicial time has been devoted to the case, disqualification may not be required if the judge or spouse divests themselves of the interest.

In this case, Centripetal sued Cisco for infringement of several of Centripetal’s patents relating to systems that perform computer networking security functions. The case was originally assigned to Judge Mark Davis, but Centripetal requested that the case be reassigned to Judge Henry Morgan, Jr. as he had recently presided over a jury trial involving related technology and several of the same patents. The case was reassigned to Judge Morgan, over Cisco’s opposition.

While the case was pending, Judge Morgan learned that his wife owned about $5,000 of Cisco stock. He notified both parties via email of his wife’s stock ownership. He explained that his opinion on the case was already largely drafted, and each issue of the case decided before learning of his wife’s stock ownership, and therefore the shares did not influence his opinion on any of the issues of the case.

Centripetal had no objection to Judge Morgan continuing to preside over the case, but Cisco filed a motion requesting his recusal. Judge Morgan told the parties that since he had strongly indicated that he is considering awarding damages in the case by asking for additional evidence regarding damages during the trial, that might mean that the final judgment would have an adverse effect upon Cisco’s stock. Selling the stock in light of this possibility would defeat the purpose of the statute, implying a concern about insider trading. Instead of selling, Judge Morgan placed the stock in a blind trust wherein he was only to be notified when the trust assets had been disposed of.

Judge Morgan denied the Motion for Recusal stating that virtually every issue had been decided and the opinion largely drafted before he learned of his wife’s stock ownership. Additionally, he stated that placing the shares in a blind trust cured any conflict. Judge Morgan then issued his opinion that Cisco willfully infringed Centripetal’s patents and awarded Centripetal enhanced damages and royalties exceeding $2.75 billion. Cisco appealed to the Federal Circuit.

The Federal Circuit agreed with Cisco that Judge Morgan was required to recuse himself absent divestiture of the Cisco stock. The Federal Circuit concluded that placing the stock in a blind trust is not divestment and Judge Morgan was disqualified under the statute, and the ruling was vacated. The case has been remanded for further proceedings before a newly appointed judge, despite the fact that Cisco lost the case.

Julie L. Spieker is an Intellectual Property Attorney in the MVS Biotechnology & Chemical Practice Group as well as the Mechanical and Electrical Practice Group. To learn more, visit our MVS website , or contact Julie directly via email .