Question: When is the Largest Patent Infringement Judgement in U.S. History Not a Judgement?
Answer: When the judge’s wife owns $5,000 worth of stock in the infringer!
The amount at stake was $2.75 Billion. That’s Billion, with a ‘B,’ the largest patent infringement judgement in U.S. history. The parties were Centripetal Networks, Inc., the patent owner, and Cisco Systems, Inc., the patent infringer. Centripetal sued Cisco for deliberate and intentional infringement of Centripetal’s computer security patents. Neither party asked for a jury, so the case was tried before U.S. District Judge Henry C. Morgan of the Eastern District of Virginia. Judge Morgan handled the pre-trial proceedings and presided over the trial. While Judge Morgan was preparing his decision, he discovered that his wife owns about $5,000.00 in stock in Cisco, the defendant.
Yikes !!!! , he thought.
OK, so I’m taking liberties with Judge Morgan’s thought processes, but I’m confident that he mentally uttered one colorful phrase or another.
What to do now? The parties and Judge Morgan had a lot of time and effort tied up in the trial. It would be a shame to allow all that work to go for naught. On the other hand, Federal judges (and Supreme Court Justices, too) are prohibited from conflicts of interest that may influence their decisions or that may appear to others to influence their decisions. Here’s what the law says, in part and with emphasis added:
(a)Any justice, judge, or magistrate judge 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… or his spouse…, has a financial interest in the subject matter in controversy…
…
(4)“financial interest” means ownership of a legal or equitable interest, however small… (28 USC section 455)
Judge Morgan’s spouse clearly has a ‘financial interest’ in Cisco even though that interest is small in the grand scheme of things. Paragraph (b) says that he ‘shall’ disqualify himself.
Oh, man, it looks like Judge Morgan is toast. He’ll have to withdraw from the case and the whole matter will start over with another judge. Really embarrassing and a huge waste of money and time. Maybe there’s a way to save the case. Judge Morgan asked for the parties to waive the conflict to allow Judge Morgan to continue on the case. Reading the tea leaves of how the case was going, Centripetal agreed. Being equally fluent in tea leaves, Cisco declined – not that waivers would have helped:
(e)No justice, judge, or magistrate judge shall accept from the parties to the proceeding a waiver of any ground for disqualification enumerated in subsection (b). … (28 USC section 455(e))
But wait, perhaps Judge Morgan can avoid the whole problem by having his wife sell the stock.
(f) …if any… judge… would be disqualified, after substantial judicial time has been devoted to the matter, because… or his or her spouse…, has a financial interest in a party…, disqualification is not required if the… judge… divests himself or herself of the interest that provides the grounds for the disqualification. (28 USC section 455(f))
But wouldn’t sale of the stock be criminal insider trading, since Judge Morgan had insider information that Cisco was about to be liable for $2.75 Billion. Such a judgement would undoubtedly drive down the stock price after his wife sold. Sale of the stock was out of the question.
But perhaps ‘divest’ means something other than ‘sell.’ Judge Morgan settled on a blind trust for the stock. The stock was transferred to a trustee and neither Judge Morgan nor his wife had any say in when, or if, the stock was sold. Judge Morgan then proceeded to issue the decision of the District Court, including findings of patent infringement and the $2.75 Billion judgement against Cisco.
“OH MY [insert your favorite Deity here],” said Cisco, and appealed to the Federal Circuit Court. In an easy case, the Federal Court concluded that the blind trust was not authorized by the statute, that Judge Morgan’s wife did not ’divest’ the stock, and that the error was not excused as ‘harmless error.’ The judgement is set aside and a new district court judge will start from scratch. Centripetal has asked the Supreme Court to review the Federal Circuit’s decision, but don’t hold your breath.
What could Judge Morgan have done? His wife could have given the stock away. In any event, the huge numbers mean that the matter will be fully litigated again, and probably appealed again.
— Robert Yarbrough, Esq.