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Cisco Ordered to Pay $1.9 Billion in Patent Lawsuit

By Eric Volkman – Oct 5, 2020 at 8:16PM

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A judge finds that the networking giant infringed four out of five patents a much smaller peer held.

Cisco Systems (CSCO 2.98%) has lost the first round of a David-and-Goliath legal battle. The company has been ordered to pay roughly $1.9 billion in a patent infringement lawsuit brought by a far smaller business, privately held cybersecurity solutions provider Centripetal Networks.

U.S. District Judge Henry Morgan issued the ruling on Monday in the non-jury trial, finding that Cisco engaged in "willful and egregious" infringement of four out of five patents Centripetal held. The patents in dispute cover network protection technology; Centripetal accused Cisco of improperly appropriating its intellectual property for use in its own products. 

Judge banging a gavel.

Image source: Getty Images.

In addition to the $1.9 billion, Cisco will, over the next five years, have to pay a 10% royalty on some of its products. After that, the royalty rate will drop to 5% for the next three years.

While the amounts involved are quite high, as a top networking equipment company, Cisco has more than enough financial resources to pay the penalties. At the end of its most recently reported quarter, it had over $11.8 billion in cash on its books. The company's latest annual revenue figures topped $49 billion, and its net profit exceeded $11 billion.

Reuters reported that Cisco was unhappy with the ruling, "given the substantial evidence of non-infringement, invalidity, and that Cisco's innovations predate the patents by many years." The company intends to appeal.

One of Centripetal's lawyers, Paul Andre, wrote in a statement: "With this judgment, the court rejected the primitive doctrine that might makes right. This is a significant win for all small, innovative companies."

On Monday, Cisco's shares rose by just under 0.8%, lagging behind the rise of the S&P 500 index on the day.

Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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