Cisco Ordered to Pay $1.9 Billion in Patent Case for 'Egregious' Misconduct

The federal District Court for Eastern Virginia has ordered networking giant Cisco Systems Inc. (NASDAQ: CSCO) to pay Herndon, Virginia-based Centripetal Networks $1.9 billion for infringing on four patents held by Centripetal. The ruling brings down the curtain on the likely first act of a case initiated two and a half years ago.

At issue were patents on network security features Cisco used in nine of its products between June 2017 and June 2020. According to the court ruling, Cisco’s gross revenue from the nine products during that period totaled nearly $21.5 billion. The portion of the revenue apportioned to the Centripetal patents varied from 25% to 80% for the nine products and totaled $7.6 billion.

The factual findings in the case included detailing that Centripetal provided Cisco with demonstrations and confidential information related to the Centripetal proprietary algorithms. Within a year, Cisco released its so-called network of the future, a “release of older products embedded with new software functionality” garnered from demonstrations and discussions with Centripetal.

Presiding Judge Henry Morgan commented: “The fact that Cisco released products with Centripetal’s functionality within a year of these meetings goes beyond mere coincidence.”

Calling Cisco’s actions an “egregious case of willful misconduct beyond typical infringement,” the judge awarded Centripetal 2.5 times actual damages for a total award of $1.9 billion.

At the end of August, Cisco reported a cash pile of $29.4 billion. During its 2019 fiscal year, the company reported more than $11 billion in profits.

Cisco, one of the 30 Dow Jones industrials, said in a statement that it was “disappointed” with the ruling and that it plans to appeal to the U.S. Court of Appeals for the Federal Circuit, the court that specializes in patent law.

Cisco’s stock traded up about 0.8% early Tuesday morning, at $38.88 in a 52-week range of $32.40 to $50.28. The consensus price target on the stock is $48.17, and the dividend yield is 3.73%.