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Imagine a situation where someone becomes close to you and that person tends to know a lot about your life and secrets. Later he/she uses that information for their own benefit. How would you feel about that? Cheated, right? Similarly, in Centripetal Networks Inc. v. Cisco Systems Inc., 18-94, U.S. District Court for the Eastern District of Virginia Cisco was declared guilty for infringement of four Centripetal’s patents.
Cisco Systems was ordered to pay $1.89 billion for cybersecurity patent-infringement against cybersecurity tech firm Centripetal Networks. The Centripetal Networks, which is a Virginian company, alleged at the start of 2018 that:
- Cisco's network devices made use of its solutions and patents.
- Cisco also pushed Centripetal Networks out of lucrative government contracts.
Senior District Judge Henry Morgan gave the decision after a month-long trial over video conferencing. He said, “it was clear and not a close call for me". The trial avoided using a jury keeping in mind the coronavirus pandemic.
What is a Patent Infringement?
A patent gives the exclusive right to the patentee to make, distribute, or sell the invention. An infringement would occur when any of these exclusive rights is violated. A patentee may assign or license all or some of these rights. The exercise of the right so transferred in favor of the assignee or the licensee by the assignor or the licensor would not amount to infringement of the patent.
An infringement of a patent occurs when the exclusive rights of a patentee are violated. The decisive parameters for the infringement by the act of a person other than the patentee are:
- The extent of the monopoly right conferred by the patent is interpreted from the specification and claims contained in the application of the patentee. Any action falling outside the scope of the claims would not amount to infringement.
- Whether he is infringing any of the monopoly rights of the patentee to make, distribute, or sell the invention.
In the case of a product patent, the right of the patentee is infringed by anyone who makes or supplies that substance commercially. In the case of a process patent, infringement occurs when anyone other than the patentee uses such a method or process.
Centripetal Networks’ Claims: Centripetal Networks is based in Herndon, Virginia.
- Cisco infringed on the four patents. The Virginia court also agreed to this fact. The four Centripetal patents that Cisco infringed upon are:
- US 9,203,806
- US 9,560,176
- US 9,686,193
- US 9,917,856
- Cisco had infringed its patents relating to the company’s Threat Intelligence Gateway network protection system. The development of the technology had been partly funded by the U.S. Department of Homeland Security.
- Cisco breached their patents after both companies had discussed a partnership in 2017.
Judge Henry Morgan’s observations:
- The infringement was “willful and egregious.” Therefore, he multiplied the original $756m owed by a factor of 2.5 to a total fine of $1,889,521,362.50. With interest, Cisco faces a total amount to be paid of $1,903,239,287.50.
- “Cisco released products with Centripetal’s functionality within a year of these meetings goes beyond mere coincidence,” said Morgan.
- Cisco had continually gathered information from Centripetal as if it intended to buy the technology from Centripetal.
- Cisco appropriated the information gained in these meetings to learn about Centripetal’s patented functionality and embedded it into its own products.
- “Virtually all of Cisco's exhibits, technical documents, and demonstratives for the trial focused on its old technology rather than the accused products. Their demonstratives of the functionality of Cisco's accused products were not based upon their own current technical documents, but rather upon inaccurate animations produced post facto for use in the litigation which served to confuse the issues, rather than inform the court,” Morgan added.
Cisco must pay ongoing royalty fees:
The court also imposed a royalty of ten percent of some of Cisco’s products for the next three years, and five percent for three years after that. The judge ruled that the royalty must be at least $168m for the first three years, and at least $84m for the next three.
“The company was thrilled with the ruling. It’s been a long time coming and was very hard-fought,” said Jonathan Rogers, Centripetal’s chief operating officer.
The total damage award accounts for less than three months of profit for Cisco. The company reported a net income of more than $11.04 billion for the calendar year 2019. It’s also one of the most cash-rich companies in technology. In August it reported cash, cash equivalents, and investments of $29.4 billion. The initial $1.89 billion is “payable in a lump sum due on the judgment date,” the court said. Although the sums to be paid to seem large, they only represent three months of profit for Cisco. Cisco said it will appeal to the U.S. Court of Appeals for the Federal Circuit, which specializes in patent law. “We are disappointed with the trial court’s decision given the substantial evidence of non-infringement, invalidity and that Cisco’s innovations predate the patents by many years,” Cisco said in a statement.