CENTRIPETAL NETWORKS, INC. v. CISCO SYSTEMS, INC.

Centripetal sued Cisco for infringement of ten U.S. patents relating 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. The case was originally assigned to Judge Davis, but the court granted Centripetal’s motion to be reassign the case to Judge Morgan, who had recently presided over a jury trial involving related technology and five of the same patents. Judge Morgan presided over a 22-day bench trial, which included an over 3,507-page record, 26 witnesses, and over 300 exhibits and heard final arguments. While the case was still pending before him, Judge Morgan learned that his wife owned 100 shares of Cisco stock valued at $4,687.99. He notified the parties, and while Centripetal had no objection to the judge’s continuing to preside over the case, Cisco filed a motion requesting Judge Morgan’s recusal. At the hearing, Judge Morgan stated that he had already completed a 130-page draft of his opinion, though he had not “decided 100 percent of it,” and denied the motion. Judge Morgan then issued a 167-page Opinion and Order finding that Cisco willfully infringed the asserted claims of four patents. He awarded Centripetal damages of over $755MM (enhanced 2.5 times to about $1.9 billion), pre-judgment interest of about $13MM, and a running royalty on sales of the accused products. Cisco appeals, arguing (and Centripetal does not dispute) that Judge Morgan was required to recuse absent divestiture. The CAFC agrees and addresses two questions – – 1) whether Judge Morgan was relieved of his duty to disqualify because his wife had divested herself of the financial interest in Cisco; and 2) if not, what is the proper remedy, which turns in large part on whether Judge Morgan’s failure to disqualify himself was harmless error. The CAFC holds that placing assets in a blind trust is not divestment, and Judge Morgan was disqualified from further proceedings in the case. The CAFC further finds that each of the three factors courts should consider when deciding whether to vacate a judgment (the risk of injustice to the parties in the particular case; the risk that the denial of relief will produce injustice in other cases; and the risk of undermining the public’s confidence in the judicial process) weighs against a finding of harmless error in this case.  Accordingly, the CAFC vacates any rulings issued after Judge Morgan learned of his wife’s financial interest in Cisco, and remands for further proceedings before a newly appointed judge (due to the unfortunate death of Judge Morgan), who shall decide the case without regard for the vacated opinions and orders.

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