Centripetal Networks, Inc. v. Cisco Sys., Inc.

• Decision Date: 17 March 2021
• Docket Number: Civil Action No. 2:18cv94
• Citation: 526 F.Supp.3d 137
• Parties: CENTRIPETAL NETWORKS, INC., Plaintiff, v. CISCO SYSTEMS, INC., Defendant.
• Court: U.S. District Court — Eastern District of Virginia

526 F.Supp.3d 137

CENTRIPETAL NETWORKS, INC., Plaintiff,

v.CISCO SYSTEMS, INC., Defendant.

Civil Action No. 2:18cv94

United States District Court, E.D. Virginia, Norfolk Division.

Signed March 17, 2021

Counsel for Plaintiff: Stephen E. Noona, Kaufman & Canoles, P.C., 150 W Main St., Suite 2100, Norfolk, VA 23510.

Counsel for Defendants: Dabney J. Carr, Troutman Pepper, Hamilton Sanders LLP, 1001 Haxall Point, Suite 1500, Richmond, VA 23219.

OPINION AND ORDER

Henry Coke Morgan, Jr., Senior United States District Judge

Defendant, Cisco Systems, Inc. ("Cisco") filed a Rule 59(a)(2) motion for a new trial regarding the Court's rulings as to the ‘176 Patent and the ‘806 Patent as well as a new trial as to willfulness and damages. Cisco simultaneously filed a Rule 52(b) motion regarding direct infringement, damages, and an amended judgment as well as a Rule 54(b) request for partial judgment. There are overlapping findings of fact and conclusions of law applicable to Cisco's several motions and the Court will therefore rule upon all of Cisco's motions in this opinion and order.

For the reasons that follow, the Court DENIES each of Cisco's motions.

I. INTRODUCTION

As to infringement and validity, Centripetal and its experts relied on 1) Cisco's technical documents as interpreted by Centripetal's experts, 2) admissions in Cisco's pleadings, and 3) the testimony of Cisco's own engineers, principally Mr. Llewallyn and Mr. Jones, Cisco's distinguished engineers. Cisco attempts to classify the Court's rulings as sua sponte, however, the most compelling evidence originated in Cisco's own technical documents introduced at trial by Centripetal and thus are anything but sua sponte. Cisco attempted to avoid the impact of its own technical publications by using animations prepared solely for trial as the basis for its expert testimony. The Court found that the animations misrepresented the functionality of the infringing products and found Cisco's retained experts’ testimony unpersuasive as to infringement and validity as well as damages.

The four Centripetal patents which the Court found Cisco infringed, when combined, cover a broad spectrum of security software which promoted Cisco's security products from an also ran to a leader in the security marketplace. See PTX-1460. Cisco portrays itself as "the largest provider of network infrastructure and services for many years before any of the patents issued." Cisco's Reply Brief in Support of 59(a)(2) at 17¹ . This was probably accurate as to hardware, but not as to the software required to operate it until Cisco began infringing the Centripetal patents on June 20, 2017.

The Centripetal ‘193 Patent, referred to at trial as the "FORWARD OR DROP EXFILTRATION PATENT," the technology from which is embedded in Cisco's switches and routers, enabled Cisco to proactively search for bad actors attempting to exfiltrate confidential data from the switches and routers which operate its networks. The ‘856 Patent, referred to at trial as the "ENCRYPTED TRAFFIC PATENT," the technology from which is also embedded in Cisco's switches and routers, enabled Cisco to proactively search for and find bad actors and malware in the unencrypted portion of encrypted packets without decrypting them. Cisco repeatedly claimed that it was the first to possess this technology, but in fact it copied the technology from Centripetal. See e.g. , PTX-383; PTX-569; PTX-1009.

The ‘176 Patent, referred to at trial as the "CORRELATION PATENT," the technology from which is also embedded in its switches and routers, enabled Cisco to correlate its NetFlow intelligence with proxy data from multiple third party sources as well as to correlate intelligence from multiple sources within NetFlow. This enabled Cisco to proactively obtain up to date intelligence data for use in its infringing security software embedded in its switches and routers.

The ‘806 Patent, referred to at trial as the "RULE SWAP PATENT," the infringing technology from which is also embedded in its switches, routers and firewalls enabled Cisco to more efficiently and proactively transform up to date data and collate this intelligence into rules which are then used to detect and stop malware, bad actors (i.e. hackers) and exfiltration.

Accordingly, the patent claims within Centripetal's patented technology work in combination with one another on Cisco's hardware to transform the obsolete portions of Cisco's software from reactive to proactive. The four infringed patents then work together to furnish Cisco's customers with proactive security software throughout its network hardware, thereby contributing to Cisco's goal of transforming itself from a hardware supplier to a full-service network security supplier.

Although Cisco began infringing on June 20, 2017, it continued its copying of Centripetal's patents through 2019 and later, as is illustrated by its technical documents introduced at trial by Centripetal.

II. JUNE 20, 2017 AS THE DATE OF FIRST INFRINGEMENT AND A BASELINE TO COMPARE SALES

Cisco alleges that the Court ruled sua sponte in fixing the date of Cisco's first infringement. The evidence contradicts this claim. In determining the damages based on a reasonable royalty, the Court employed the hypothetical negotiation approach. Also known as the "willing licensor-willing licensee" approach, this calculation "attempts to ascertain the royalty upon which the parties would have agreed had they successfully negotiated an agreement just before infringement began." Lucent Techs., Inc. v. Gateway, Inc. , 580 F. 3d 1301, 1324 (Fed. Cir. 2009). "The date used for the occurrence of the hypothetical negotiation is the date that infringement began." Centripetal Networks, Inc. v. Cisco Sys., Inc. , 2:18-CV-94, 2020 WL 5887916, 56 (E.D. VA Oct. 5, 2020) (citing Wang Labs., Inc. v. Toshiba Corp. , 993 F. 2d 858, 870 (Fed. Cir. 1993) ) [hereinafter October 5, 2020 Opinion]. Cisco stated in its opening statement that Encrypted Traffic Analytics, an infringing technology, came to the marketplace in June of 2017. See Trial Transcript [Docket Nos. 496-550] [hereinafter Tr.] at 221:19. As per PTX-1135, Cisco's own press release from June 20, 2017 marked the date of first infringement. Lance Gunderson, Centripetal's damages expert, explained why this date should apply to all four patents:

"[T]hese patents really work in concert. They work together. They provide this operationalization of threat intelligence, this new concept that was a new and innovative concept brought about by Centripetal. So they really kind of worked together.

... [T]hey have equal weight, each of them adds an important element to this operationalization. ... [I]t seems like that they work in concert, and it's my opinion that any negotiation would have negotiated a license to all of the patents. Even some of the patents that actually issued afterwards. My understanding is the patents were actually filed for prior to this hypothetical negotiation, they would have been known, and these reasonable actors would have licensed everything." Tr. 1445:14-1446:2.

Cisco's damages expert, Dr. Stephen Becker, agreed that June 20, 2017 would be about the date of the hypothetical negotiation. See Tr. at 2993. Further, Becker agreed that the date of first infringement for at least some of the patents at issue would be June 20, 2017:

Q: And you agree that the start date of damages for purposes of this case, as it relates to the various [four] patents, begins starting June 20 of 2017; is that right?

A: Yes. It's not every single patent and every single product, but generally that's when it starts. Tr. 2964:4-8 (cross-examination by Ms. Kobialka).

The Court found the date of first infringement to be June 20, 2017. See Tr. 725:3-8 (Dr. Michael Mitzenmacher stating this as the date of first infringement); see also , Tr. 1534:17 (Cisco cross-examining Mr. Gunderson and confirming his stated date of first infringement was June 20, 2017). The damages are calculated by positing what would be agreed upon at a hypothetical negotiation. See Lucent at 1324. Because all the infringing patents work in concert—and because three of the four infringed patents had been granted and the fourth filed for prior to June 20, 2017 and would have been known—it is reasonable to determine that all four patents would be negotiated for licensing at the same time. See Tr. at 1445:14-1446:2. As Mr. Gunderson stated in his testimony:

You look for the date of first infringement. You have a variety of patents, it's the same month that the ‘193 Patent was issued. There were also some accused products that were sold that month. So there's not a lot of dispute about this date that I'm aware of. They would negotiate a reasonable royalty for all [four] patents, in my opinion, at this time. Tr. 1444:24-1445:5. (direct examination by Ms. Kobialka).

This date was put forth by Centripetal, based upon a Cisco Publication PTX-1135, acknowledged by Cisco's own damages expert during his trial testimony, and certainly was not a sua sponte ruling of the Court as claimed by Cisco.

III. DAMAGES - GENERALLY

In its damages case Centripetal relied upon 1) an apportionment formula approved by the Federal Circuit, 2) the only royalty rate cited by either party previously utilized in an infringement claim relating to the same family of patents, and 3) sales data obtained from Cisco which corroborated the damages claimed by Centripetal and accorded with economic reality.

Cisco presented a damages expert whose theory lacked any precedential or evidentiary support in patent law, and was completely devoid of economic reality.

The Court found Centripetal's evidence on infringement, validity, and damages credible and persuasive. The Court found Cisco's defenses objectively unreasonable and in many areas not credible, as well as finding its conduct willful and egregious in infringing the four patents. The Court found that Centripetal did not prove by a preponderance of the evidence that the ‘205...