Alliances rally against $1.9bn Cisco appeal
Two alliances representing the US’ largest patent litigators and inventors have thrown their support behind cyber security startup Centripetal Networks, following the company’s $1.9 billion infringement win against Cisco Systems.
The Alliance of US Startups and Inventors for Jobs (USIJ) and the Innovation Alliance (IA) submitted an amicus brief backing a Virginia federal court’s finding that Cisco infringed four Centripetal patents.
The amicus brief, submitted on Monday, December 13, held that if the US Court of Appeals for the Federal Circuit were to overrule the willfulness and damages ruling, it would “further undermine the incentives of brilliant young inventors to devote their time to address one of our most important national concerns—network security”.
The amici added: “For these innovators, the current state of patent enforcement is a disaster that we, as a nation, must correct if we are to maintain our position of leadership in the world.”
Cisco submitted a motion for a new trial after suffering the billion-dollar patent case loss in October 2020, asking the court to reconsider willfulness and damages.
The Nasdaq-listed tech giant argued that the court's decision on fixing the date of its first infringement was sua sponte—or that the court had taken notice of an issue on its own motion without prompting or suggestion from the parties involved.
District judge Henry Morgan denied Cisco’s motion and reinstated the court’s prior ruling on March 17. Cisco decided to appeal to the US Court of Appeals for the Federal Circuit in April 2020.
The amici holds that the Virginia court “reached an outcome that seems quite reasonable to anyone who becomes familiar with the background and facts.
“The award will be felt by Cisco and its shareholders, as punitive damages should be, but it will not inflict any lasting injury.”
Detering damages
Centripetal had contended that the billion-dollar enhanced damages award was justified, claiming that it was warranted given Cisco’s $243 billion market cap.
The willfulness finding and the discretionary enhanced damages were justified to “deter similar predatory conduct in the future”, the amici said.
The petition continued: “The award must be of sufficient magnitude to get the attention of the senior management of the offending company.
“Given that Cisco, over the course of three years sold over $21 billion worth of infringing equipment and services… Amici submit that the court’s award of a 10% royalty on $8 billion and 2.5x enhancement is appropriate.”
‘Impossible’ precedents
The two amici took issue with the current state of the “weakened” US patent system in light of two precedential cases that have given rise to “wanton infringement” by international conglomerates.
Firstly, the amici cited the Supreme Court decision in eBay et al v MercExchange (2006), in which the Supreme Court voted unanimously that injunctions should not be automatically issued based on a finding of patent infringement.
This decision, alongside a Federal Circuit ruling in Seagate Technology (2007), which established a new standard for willfulness and enhanced damages, imposes an “essentially impossible” burden on patent owners, the amici claim.
USIJ and IA said: “For nearly a decade, the combined effects of eBay and Seagate eliminated virtually all the risk associated with deliberate and wanton infringement, and gave rise to a culture of scorn and disrespect for the patents of smaller companies, a phenomenon particularly prevalent in the behaviour of many of the corporate giants that comprise the digital electronics industry.”
Read factors
Both USIJ and IA also responded to another amicus brief submitted by The High Technology Inventors Alliance (HTIA)—a consortium that includes Cisco, Amazon, Alphabet and Samsung—in March, which backed Cisco’s bid to appeal the ruling.
Particularly, the USIJ and IA’s amici took issue with Cisco and HTIA’s concern over the trial court’s use of “Read factors” in marking its enhanced damages determination.
These factors stem from a Federal Circuit ruling in Read v Ported, which outlined particular circumstances to consider when deciding whether to award enhanced damages.
The brief said: “HTIA and Cisco are particularly concerned with Read factor 4, which takes into account a comparison between the financial resources available to the separate parties.
“Given the resources available to some of its multi-trillion-dollar members, this particular factor is (and should be) worrisome.”
“When Cisco and HTIA complain about the size of the overall award, it is worth recalling just why the award is so high. The answer is simple, although not readily apparent—Cisco is a monopolist.”
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