Cisco Must Pay $70 Million in XpertUniverse Patent Case

Cisco Systems Inc. (CSCO), the world’s largest maker of networking equipment, must pay patent-licenser XpertUniverse Inc. $70 million in civil fraud damages in connection with a failed partnership, a federal jury decided.

After a two-week trial, the jury of six women and two men in federal court in Wilmington, Delaware, also decided Cisco infringed two patents for contacting experts online to answer questions and owes more than $33,000 on those counts.

XpertUniverse, based in New York, sued San Jose, California-based Cisco in 2009, contending officials strung it along for more than six months, holding out the possibility of a lucrative partnership, without revealing that Cisco had rejected the deal.

Alleging “fraudulent concealment,” XpertUniverse lawyer Charles Cantine told jurors Cisco’s actions “led to destruction of the company,” when it might have pursued potentially more- profitable alliances and survived.

Cisco’s lawyer, Brett Schuman, told the jury that XpertUniverse “never had a product, customers or revenue,” that Cisco was at first interested in a partnership and backed out after realizing the only result of the smaller company’s research was “a demo” for a future product.

Schuman told the jury “mismanagement” and “lack of leadership” caused XpertUniverse’s failure.

‘Small Company’

“XpertUniverse is a small company with intellectual property as its primary asset,” it said in court papers. The software-development firm was founded in the 1990s by Ukrainian immigrant Victor Friedman as Homework911 to help schoolchildren. It changed its name as it switched to the richer corporate call- center market, Friedman testified when the trial began March 12.

Cantine said his client was “very happy that Friedman and the company were vindicated.”

“We are surprised and extremely disappointed with the jury’s verdict,” Kristin Carvell, a Cisco spokeswoman, said today in an e-mailed statement. “We are confident that Cisco’s conduct was appropriate throughout our relationship with XpertUniverse.”

Cisco fell 5 cents to $20.79 at 2:47 p.m. New York time in Nasdaq Stock Market trading. The shares fell the most in almost eight months yesterday after FBR & Co. lowered its rating on the stock, citing reduced demand for the company’s switches and routers.

“We do not believe the evidence presented at trial supports this verdict, and as a result, there are a number of issues for the judge to consider that will determine whether this verdict remains intact,” Carvell said. “If necessary, we will pursue an appeal.”

The case is XpertUniverse Inc. v. Cisco Systems Inc., 09- cv-00157, U.S. District Court, District of Delaware (Wilmington).

To see the patents, click: 7,366,709 and 7,499,903

To contact the reporters on this story: Phil Milford in Wilmington, Delaware, at pmilford@bloomberg.net; Dawn McCarty in Wilmington at dmccarty@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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