CISCO SYSTEMS, INC.

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Last Week In The Federal Circuit (June 21-24): Maintaining Confidence In Judicial Rulings In Cases Reviewed By The Federal Circuit

06/28/2022 | 02:10pm EDT

The Supreme Court dominated the news last week, and the Federal Circuit issued just four opinions. One of them was a doozy: to reinforce confidence in the judicial process, the Court vacated a $2 billion judgment that followed from a 22-day bench trial, with 26 witnesses, and over 300 exhibits. Below we provide our usual weekly statistics and a detailed discussion of this case of the week.

Precedential opinions: 3

Non-precedential opinions: 1

Rule 36: 0

Longest pending case from argument: Centripetal Networks, Inc. v. Cisco Systems, Inc., No. 2021-1888 (80 days)

Shortest (non-Rule 36) pending case from argument: Haggart v. United States, No. 21-1660 (50 days)

Case of the week: Centripetal Networks, Inc. v. Cisco Systems, Inc., No. 2021-1888

Panel: Judges Dyk, Taranto, and Cunningham, with Judge Dyk writing the opinion

You should read this case if: Your judge or their family owned stock in one of the parties

Last year we saw the news reports about judges who heard cases when they had financial interests in a case or a party in the case—either by virtue of their owning stock or a family member owning stock. We're now seeing some of the fallout.

This case began as a 10 patent case, and it led to a "22-day bench trial, which included an over 3,507-page record, 26 witnesses, and over 300 exhibits." It ended in a $2 billion judgment, which now has been vacated because the trial judge should have disqualified himself for his wife owning less than $5,000 in one party's stock.

Here's what happened: after the bench trial and final arguments, the judge learned that his wife owned 100 shares of defendant Cisco's stock (then worth $4,687.99); he sent an email to the parties the next day informing them of this fact. He told the parties he didn't remember his wife's purchase of the shares, and he already had a draft opinion on almost all the issues in the case. He noted that the shares "did not and could not" influence his decision.

Plaintiff notified the court that it had no objection to the judge continuing to preside over the case. Cisco, on the other hand, asked the judge to recuse. At the recusal hearing, the judge noted that he wouldn't divest of the Cisco stock because he was considering awarding damages which might adversely affect Cisco's stock price. It seems he was worried that if he sold then and the price went down after his ruling, it might appear that he had non-public information when trading the stock. So instead, the judge gave up control over the stock by putting it in a blind trust. In denying the recusal motion, he stated that the blind trust constituted a divestiture of the stock.

Three days later, the judge ruled against Cisco, finding willful infringement of four patents and awarding $1.9 billion plus prejudgment interest and a running royalty.

On appeal, the case became all about those 100 shares of Cisco stock. The Federal Circuit vacated the judgment. It noted that 28 U.S.C. § 455 governs recusals for federal judges. Under Section 455(b) a judge "shall . . . disqualify himself" for having (or for a spouse or minor child having) a financial interest in the case. Under Section 455(f), however, a judge who has a financial interest and has devoted substantial time to the case does not need to disqualify if the judge or the judge's family divests themselves of that financial interest.

On whether the judge was correct that a blind trust was divestiture, not much needs to be said: the Federal Circuit held that under the statute's plain language having stock in a blind trust still is a financial interest that isn't divested. By contrast, the only support for the other view, that a blind trust equals divestment, was "an unsupported assertion in a law review article."

Having concluded the judge should have recused, the Court turned to the remedy, noting that "mandatory recusal does not require mandatory vacatur." But here, the Court determined that vacatur was necessary. Of interest, the Court noted that the integrity of the judicial system was at stake. It said: "A vacatur here would signal to judges in other cases the importance of complying strictly with the procedures spelled out in § 455(f). A failure to vacate would suggest that sitting on a case in which the judge's family has a financial interest is not a serious issue." And "[i]t is seriously inimical to the credibility of the judiciary for a judge to preside over a case in which he has a known financial interest in one of the parties and for courts to allow those rulings to stand." The Court noted the recent public scrutiny reporting that many federal judges or their families owned stock while presiding over cases. The Court stated that "vacatur is essential to preserve public confidence." And it suggested that vacatur is nearly always required.

On a side note, the Court left open the possibility that Federal Circuit law should apply at some point going forward. The Court noted that, in the past, it had applied regional circuit law for recusal issues. But regardless what law applied here, "the outcome is the same." That said, the Court appeared to question whether that was the "correct approach in light of the substantial interest in having a uniform standard on issues of recusal, with respect to the various trial-level tribunals that we review." It almost seems that where the recusal law in some regional circuits is more lax, the Court's need for uniformity would suggest Federal Circuit law should apply. But whatever the Court meant, it stated that is something that "must await another case" to decide.

A final sad addendum to the Court's decision: the judge who presided over the case passed away close to two months before the Federal Circuit's decision.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

Mr Brian Matsui
Morrison & Foerster LLP
425 Market Street
San Francisco
California
CA 94105-2482
UNITED STATES
Tel: 4152687000
Fax: 4152687522
E-mail: mcervantes@mofo.com
URL: www.mofo.com

© Mondaq Ltd, 2022 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com, source Business Briefing

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Financials (USD)
Sales 2022 51 213 M - -
Net income 2022 11 803 M - -
Net cash 2022 12 641 M - -
P/E ratio 2022 16,0x
Yield 2022 3,33%
Capitalization 186 B 186 B -
EV / Sales 2022 3,39x
EV / Sales 2023 3,19x
Nbr of Employees 79 500
Free-Float 99,9%
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