Cisco slapped with $1.9 billion patent fine

A US court has ordered IT networking giant Cisco to pay a whopping $1.9 billion for infringing four patents held by cybersecurity specialist Centripetal.

According to court documents filed on Monday, the amount of damages Centripetal is entitled to totals $755.8 million including royalties. However, Cisco’s infringement was found to be “an egregious case of wilful misconduct beyond typical infringement,” and so for punitive reasons that figure was multiplied by a factor of 2.5.

Cisco hasn’t put out an official statement yet, but judging by its most recent annual report, filed with the SEC in early September, an appeal is in the offing.

“We believe that a District Court finding of validity and infringement, finding of wilfulness, award of damages including any enhancement, and/or entry of injunctive relief are not supported by either the law or the evidence presented at trial,” Cisco said in its report. “We intend to appeal any adverse outcome to the United States Court of Appeals for the Federal Circuit, and we believe that any relief ultimately awarded would not be material.”

A $1.9 billion penalty certainly is material, even for a company the size of Cisco, so you can be sure it won’t take this week’s ruling lying down.

The case itself dates back to February 2018, when US-based threat detection and prevention software specialist Centripetal sued Cisco, claiming several of its products and services – including some of its routers and switches – infringed 11 of its patents. By the time the case went to trial, that figure had been whittled down to five.

The court documents reveal that Cisco and Centripetal entered into a non-disclosure agreement in January 2016 so that the latter could show off its products in the hopes of striking a partnership deal. A month later, with the NDA still in force, Centripetal presented during a WebEx meeting “highly sensitive, confidential and proprietary information about its patented technology and products to Cisco.”

Cisco was said to be impressed, and started digging into Centripetal’s patents, and even engaged with investment bank Oppenheimer and Co, which at the time was helping Centripetal sound out potential strategic investors.

And then, rather than strike a partnership, or just acquire Centripetal outright, Cisco instead seems to have just copied the patented technology it was privy to, and incorporated it into its ‘network of the future’ portfolio, which was unveiled in June 2017.

Cisco of course denied any infringement, and argued that if the court found otherwise, it didn’t matter anyway because it claimed Centripetal’s patents were invalid. Cisco also argued that in the event that the court found there was infringement and the patents were valid, it still didn’t matter because the patents were of minimal value.

However, according to the court documents, “virtually all of Cisco’s exhibits, technical documents and demonstratives presented in its infringement and invalidity defence focused on its old technology, not on the current accused products.”

You don’t have to be a lawyer to conclude that looks like a schoolboy error on Cisco’s part.

“Cisco, through its course of conduct, continually gathered information from Centripetal as if it intended to buy the technology from Centripetal. Cisco, then, appropriated the information gained in these meetings to learn about Centripetal’s patented functionality and embedded it into its own products,” said Judge Henry Morgan, in his ruling.

Based on how Cisco has defended itself up to this point, Centripetal would be forgiven for feeling confident that the appeal will also go its way.