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

• Decision Date: 23 June 2022
• Docket Number: 2021-1888
• Citation: 38 F.4th 1025
• Parties: CENTRIPETAL NETWORKS, INC., Plaintiff-Appellee v. CISCO SYSTEMS, INC., Defendant-Appellant
• Court: U.S. Court of Appeals — Federal Circuit

38 F.4th 1025

CENTRIPETAL NETWORKS, INC., Plaintiff-Appellee

v.CISCO SYSTEMS, INC., Defendant-Appellant

2021-1888

United States Court of Appeals, Federal Circuit.

Decided: June 23, 2022

Paul J. Andre, Kramer Levin Naftalis & Frankel LLP, Menlo Park, CA, argued for plaintiff-appellee. Also represented by James R. Hannah, Lisa Kobialka, Hannah Yunkyung Lee; Christopher Cotropia, Bey & Cotropia PLLC, Richmond, VA; Alan J. Heinrich, Andrei Iancu, Irell & Manella LLP, Los Angeles, CA; Philip J. Warrick, Washington, DC; Blair A. Silver, Banner & Witcoff, Ltd., Washington, DC.

Mark Christopher Fleming, Wilmer Cutler Pickering Hale and Dorr LLP, Boston, MA, argued for defendant-appellant. Also represented by Sofia Caroline Brooks, I, Annaleigh E. Curtis, William F. Lee, Courtney C. Merrill ; Heath Brooks, Thomas Saunders, Washington, DC; Thomas Gregory Sprankling, Palo Alto, CA; Matthew Christopher Gaudet, L. Norwood Jameson, Duane Morris LLP, Atlanta, GA.

Robert P. Taylor, RPT Legal Strategies PC, San Francisco, CA, for amici curiae Alliance of U.S. Startups and Inventors for Jobs, Innovation Alliance.

Andrew John Pincus, Mayer Brown LLP, Washington, DC, for amicus curiae High Tech Inventors Alliance. Also represented by Carmen Longoria-Green.

Before Dyk, Taranto, and Cunningham, Circuit Judges.

Dyk, Circuit Judge.

Appellant Cisco Systems, Inc. ("Cisco") appeals from the judgment of the U.S. District Court for the Eastern District of Virginia holding that Cisco willfully infringed claims 9 and 17 of U.S. Patent No. 9,203,806 ("the ’806 patent") ; claims 11 and 21 of U.S. Patent No. 9,560,176 ("the ’176 patent") ; claims 18 and 19 of U.S. Patent No. 9,686,193 ("the ’193 patent") ; and claims 24 and 25 of U.S. Patent No. 9,917,856 ("the ’856 patent"). The court awarded enhanced damages and royalties exceeding $2.75 billion to patentee-appellee Centripetal Networks, Inc. ("Centripetal"). See Centripetal Networks, Inc. v. Cisco Sys., Inc. , 492 F. Supp. 3d 495, 608 (E.D. Va. 2020) (" Merits Op. ").

Because we hold that the district court judge was disqualified from hearing the case once he became aware of his wife's ownership of Cisco stock on August 11, 2020, see 28 U.S.C. § 455(b)(4), we reverse the district court's denial of Cisco's motion for recusal, Centripetal Networks, Inc. v. Cisco Sys., Inc. , 492 F. Supp. 3d 615 (E.D. Va. 2020) (" Recusal Op. "), vacate all orders and opinions of the court entered on or after August 11, 2020, including the final judgment, and remand for further proceedings before a different district court judge.

BACKGROUND

This case began on February 13, 2018, when Centripetal sued Cisco for infringement of ten of Centripetal's U.S. patents in the Eastern District of Virginia.¹ The patents relate to systems that perform computer networking security functions. Cisco petitioned for inter partes review ("IPR") of many of the asserted claims, and Centripetal subsequently narrowed the claims in the district court proceeding to those not undergoing IPR.²

The case was originally assigned to Judge Mark S. Davis. On November 6, 2018, Centripetal requested that the case be reassigned to Judge Henry C. Morgan, Jr., who had recently presided over a jury trial involving related technology and five of the same patents. That motion was granted on November 27, 2018, over Cisco's opposition. Beginning on May 6, 2020, Judge Morgan presided over a 22-day bench trial, which included an over 3,507-page record, 26 witnesses, and over 300 exhibits. Judge Morgan heard final arguments on June 25, 2020.

While the case was still pending before him, Judge Morgan learned that his wife owned Cisco stock. He sent an email to the parties on August 12, 2020, notifying them that while preparing his 2019 financial disclosure report to the judiciary the previous day, his judicial assistant had discovered that his wife owned 100 shares of Cisco stock valued at $4,687.99. The judge informed the parties that his wife had purchased the stock in October 2019 on the advice of her stockbroker and had "no independent recollection of approving the transaction." Recusal Op. , 492 F. Supp. 3d at 617. He further explained that at the time he was informed of the existence of the stock, a "full draft of [his] opinion [on the bench trial] had been prepared" and "[v]irtually every issue was decided prior thereto." Id. (citation omitted). Finally, he stated that the "shares did not and could not have influenced [his] opinion on any of the issues in th[e] case." Id. (internal quotation marks and citation omitted).

The statute governing recusal of federal judges in such circumstances is 28 U.S.C. § 455. It provides, in relevant part:

(a) Any justice, judge, or magistrate of the United States shall disqualify himself in any proceeding in which his impartiality might reasonably be questioned.

(b) He shall also disqualify himself in the following circumstances: ...

(4) He knows that he, individually or as a fiduciary, or his spouse or minor child residing in his household, has a financial interest in the subject matter in controversy or in a party to the proceeding, or any other interest that could be substantially affected by the outcome of the proceeding...

(c) A judge should inform himself about his personal and fiduciary financial interests, and make a reasonable effort to inform himself about the personal financial interests of his spouse and minor children residing in his household....

(f) Notwithstanding the [above], if any ... judge ... would be disqualified, after substantial judicial time has been devoted to the matter , because of the appearance or discovery, after the matter was assigned to him or her, that he or she individually or as a fiduciary, or his or her spouse ... has a financial interest in a party (other than an interest that could be substantially affected by the outcome), disqualification is not required if the ... judge [or his spouse], as the case may be, divests himself or herself of the interest that provides the grounds for the disqualification.

28 U.S.C. § 455 (emphasis added).

Following Judge Morgan's disclosure, Centripetal notified the court that it had no objection to the judge's continuing to preside over the case. Recusal Op. , 492 F. Supp. 3d at 617–18. Cisco, on the other hand, filed a motion for miscellaneous relief nine days later (hereinafter "Motion for Recusal"), requesting Judge Morgan's recusal under both § 455(a) and (b)(4). Id. at 618. Judge Morgan ordered Centripetal to file a response. Centripetal opposed the Motion for Recusal on the grounds that § 455(b)(4) was inapplicable and, even if it were applicable, the § 455(b)(4) violation could be cured by divestiture pursuant to § 455(f).

On September 9, 2020, Judge Morgan heard oral argument on the motion. At the hearing, Judge Morgan stated that at the time he learned of his wife's ownership of the Cisco stock, he had already completed a 130-page draft of his opinion, though he had not "decided 100 percent of it." J.A. 18580. He told the parties that although he recognized "the simplest thing would be to sell the stock," he had "already strongly indicated that [he] might be considering awarding damages in the case" by "ask[ing] for additional evidence on damages" at trial, "and that might mean that [the final] judgment would have an adverse effect upon Cisco's stock." J.A. 18577. Selling the stock in light of that possibility, he said, "would defeat the very purpose of the Rules," implying concern about insider trading. Id.

Accordingly, Judge Morgan explained, instead of selling his wife's stock, he had it placed in a blind trust set up solely for the Cisco stock. Under the terms of the trust, Judge Morgan was to be notified when the trust assets had been completely disposed of or when their value became less than $1,000. See Appellant's Suppl. Br. 4. There is no suggestion in the briefs or record that Judge Morgan received any such notification while the case was pending before him.

On October 2, 2020, Judge Morgan issued an opinion and order denying Cisco's Motion for Recusal. Therein, he concluded that because "a reasonable person would not conclude that [he had known] of th[e] interest [in Cisco] and yet heard the case[,] ... [§] 455(a) d[id] not warrant recusal." Recusal Op. , 492 F. Supp. 3d at 622. As for § 455(b)(4), Judge Morgan found it did not apply in this case because he had not discovered his wife's interest in Cisco until he had decided "virtually" every issue and "mostly drafted [the] opinion." Id. at 623. Even if § 455(b)(4) did apply, Judge Morgan concluded that placing the Cisco shares in a blind trust "cured" any conflict because it constituted "divestiture" under a safe harbor provided by § 455(f). Id. at 624.

On October 5, 2020, Judge Morgan issued a 167-page Opinion and Order containing his findings of fact and conclusions of law that Cisco willfully infringed the asserted claims of the ’856, ’176, ’193, and ’806 patents. He awarded Centripetal damages of $755,808,545 (enhanced 2.5 times to $1,889,521,362.50), pre-judgment interest of $13,717,925, and "a running royalty of 10% on the apportioned sales of the accused products and their successors for a period of three years followed by a second three year term with a running royalty of 5% on said sales." Merits Op. , 492 F. Supp. 3d at 608.

Cisco moved for amended findings and judgment under Rule 52(b) with respect to direct infringement and damages and for a new trial under Rule 59(a)(2). See Centripetal Networks, Inc. v. Cisco Sys., Inc. , 526 F. Supp. 3d 137, 139–40 (E.D. Va. 2021). The court denied those motions on March 17, 2021. Id. at 140. Cisco timely appealed to this court, raising issues pertaining to the district court's infringement and damages findings and also raising the question "[w]hether the district judge should have recused himself under 28 U.S.C. § 455(b)." Appellant's Br. at 5. On March 18, 2022, we issued an order limiting the issues to be addressed at oral argument...