Finjan LLC v. ESET, LLC

• Court: District Court, S.D. California
• Decided: October 16, 2019
• Docket: 3:17-cv-00183
• Status: Unknown

Opinion

1 2 3 4 5 6 7 8 UNITED STATES DISTRICT COURT 9 SOUTHERN DISTRICT OF CALIFORNIA 10 11 FINJAN, INC., Case No.: 17-CV-183-CAB-BGS

12 Plaintiff, ORDER ON MOTIONS FOR 13 v. SUMMARY JUDGMENT AND MOTIONS TO EXCLUDE OR 14 ESET, LLC et al., STRIKE 15 Defendants. [Doc. Nos. 466, 467,469, 470, 474, 476, 16 478, 479, 481, 483, 484, 486, 488, 490, 17 AND RELATED COUNTERCLAIMS 492, 494, 497, 499, 501, 506, 509, 510, 18 513, 515, 524, 526, 530, 531] 19

20 I. Introduction 21 At the close of fact and expert discovery and in accordance with the scheduling order 22 in this case, the parties filed motions for summary judgment, Daubert motions challenging 23 each other’s experts, and motions to exclude certain evidence. The Court provided no 24 limitations regarding the number of dispositive motions that could be filed or total page 25 limitations. The parties took extreme advantage of this and filed in total twenty-eight 26 complex motions, putting before the Court an extraordinary number of issues purportedly 27 without material facts in dispute and therefore proper for adjudication as a matter of law. 28 Having reviewed the voluminous briefing, declarations and exhibits submitted by both 1 parties, the Court concludes that for the majority of the substantive motions, facts were 2 most definitely in dispute and summary judgment was not appropriate. Similarly, for the 3 majority of the challenges to the admissibility of expert testimony, the Court concludes that 4 the challenges go to the weight to be afforded the opinions. They are best challenged by 5 cross-examination rather than deemed inadmissible and excluded as an exercise of the 6 Court’s gatekeeper role. 7 A number of the motions to exclude certain evidence centered on accusations of 8 untimely disclosures and resulting prejudice to the moving party. These accusations flew 9 in both directions, and the pages of briefing allocated to these arguments of attorney 10 misconduct were exhausting. Generally, the Court concludes that there was no undue 11 prejudice and that all of the evidence in question can be presented to a jury. 12 Of the twenty-eight motions, the Court held a hearing on six motions on September 13 26, 2019. [Doc. No. 679, transcript of 9/26/19 hrg.] Those six motions are addressed 14 below. As to the remaining twenty-two motions, the Court issued tentative rulings [Doc. 15 No. 695] which remain unchanged. 16 II. ESET’s Motions 17 A. Summary Judgment of Non-Infringement, License or Unenforceability 18 The Court finds numerous material facts in dispute as to the following motions and 19 they are therefore DENIED. 20 • Doc. No. 470 Motion for Non-Infringement of CMPS 21 • Doc. No. 476 Motion for Non-Infringement of ‘621/’755 Patents 22 • Doc. No. 481 Motion for Non-Infringement of ‘844 Patent 23 • Doc. No. 484 Motion for Non-Infringement of ‘086 Patent 24 • Doc. No. 488 Motion for Non-Infringement of ‘780 Patent 25 • Doc. No. 486 Motion for License Defense 26 • Doc. No. 531 Motion for Unenforceability of ‘086, ‘621 and ‘755 Patents 27

28 1 B. Motions to Exclude Experts and Strike Contentions 2 The Court declines to exclude the experts contested in the motions listed below 3 because their opinions are best challenged by cross-examination rather than exclusion. The 4 motions are therefore DENIED. ESET’s request to strike Finjan’s Third Amended 5 Infringement Contentions is also DENIED. 6 • Doc. No. 474 Exclusion of Bims 7 • Doc. No. 479 Exclusion of Mitzenmacher, Medvidovic, Goodrich and Cole 8 • Doc. No. 469 Exclusion of Orso1 9 • Doc. No. 492 Motion to Strike Third Amended Contentions 10 III. FINJAN’s Motions 11 A. Summary Judgment of Infringement or of ESET’s Defenses 12 The Court finds numerous material facts in dispute as to the following motions and 13 they are therefore DENIED. 14 • Doc. No. 497 Motion for Infringement of ‘086 Patent 15 • Doc. No. 499 Motion for Infringement of ‘621 Patent 16 • Doc. No. 501 Motion for Infringement of ‘780 Patent 17 • Doc. No. 506 Motion for No License Defense 18 • Doc. No. 509 Motion for No Inequitable Conduct 19 • Doc. No. 513 Motion for Validity over Certain Prior Art References 20 B. Motions to Exclude Experts and Strike Evidence 21 The Court declines to exclude the experts contested in the motions listed below 22 because their opinions are best challenged by cross-examination rather than exclusion. The 23 24 25

26 1 ESET moved to exclude the testimony of Dr. Alexxandro Orso regarding his opinions as to secondary 27 considerations of non-obviousness. The Court RESERVES on this motion. ESET may voir dire this witness out of the presence of the jury to determine if his opinions are supported by the requisite nexus 28 1 motions are therefore DENIED. Finjan’s motions to exclude certain prior art and non- 2 infringing alternatives are also DENIED. 3 • Doc. No. 510 Exclusion of Thompson 4 • Doc. No. 515 Exclusion of Spafford 5 • Doc No. 524 Exclusion of Britven 6 • Doc. No. 530 Motion to Exclude Certain Prior Art 7 • Doc. No. 526 Motion to Exclude Non-Infringing Alternatives. 8 IV. The Remaining Motions 9 A. Priority Dates [Doc. No. 483] 10 As stated on the record at the hearing, this motion is DENIED as to ESET’s 11 proposed priority dates for the ‘780, ‘086, ‘621 and ‘755 patents. There are material facts 12 in dispute regarding whether the earlier patents to which Finjan claims priority disclose the 13 inventions claimed in these patents. 14 The Court, however, was prepared to adopt the IPR decision that the inventors of the 15 ‘844 patent were not in possession of the subject matter of the challenged claims of that 16 patent any time prior to the December 22, 1997 filing date of the 08/995,648 application. 17 [Doc. No. 483-20, at 21-25; Doc. No. 697, at 51.] The parties represented that there had 18 been further developments in the Patent Office regarding that determination. The matter 19 therefore remains under submission pending updates from the parties. 20 B. ESET Motion re: Indefiniteness of “Downloadable” [Doc. No. 478] 21 The genesis of this motion goes back to the claim construction of the term 22 “Downloadable.” The Court references the claim construction order [Doc. No. 195], the 23 portion of the claim construction hearing regarding this term [Doc. No. 610-3], and the 24 portion of the hearing on this motion [Doc. No. 697 at 3:13-22:19] for context. In 25 summary, the term “Downloadable” is defined by the inventor somewhat differently in the 26 lineage of the patents at issue. In U.S. Patent No. 6,167,520, filed January 29, 1997, it is 27 defined as, “a small executable or interpretable application program which is downloaded 28 from a source computer.” In U.S. Patent No. 6,092,194, filed November 6, 1997 and 1 incorporating the ‘520 patent, it is defined as “an executable application program which is 2 downloaded from a source computer.” Both specifications use the sample examples of 3 executable and interpretable application programs to identify what constitutes a 4 “Downloadable.” Because both definitions are incorporated by reference throughout the 5 patents, and the Court found they could be reconciled, the Court adopted the definition set 6 for in U.S. Patent 6,167,520, that patent being incorporated into all the subsequent patents 7 in the family tree. 8 The definition of “Downloadable” in the ‘520 patent includes “small” as a 9 description of the executable programs that are defined as a “Downloadable.” At the time 10 of claim construction the Court noted that this term of size might lead to an indefiniteness 11 issue if persons of skill in the art on January 29, 1997, the date the ‘520 patent was filed, 12 did not understand what would constitute “small” with respect to “executable programs 13 from a source computer that run on the destination computer.” That question, however, 14 was left for another day.2 15 That day has come and ESET now contends that “Downloadable” is an indefinite 16 term and as it is a claim limitation in all asserted claims of the five asserted patents, each 17 is invalid under 35 U.S.C. § 112, which requires “that a patent’s claims, viewed in light of 18 the specification and prosecution history, inform those skilled in the art about the scope of 19 the invention with reasonable certainty.” Nautilus, Inc. v. Biosig Instruments, Inc., 572 20 U.S. 898, 910 (2014). While there need not be precise numerical certainty, there must be 21 no more than a “modicum of uncertainty.” Id. 22 ESET has the burden of proving indefiniteness by clear and convincing evidence. 23 Biosig Instruments, Inc. v. Nautilus, Inc., 783 F.3d 1374, 1377 (Fed. Cir. 2015). ESET 24 presented evidence in its motion that Finjan’s experts had difficulty setting forth a 25 26 27 2 Finjan’s objection that the defense of indefiniteness is untimely and should be struck is denied. This issue was identified at claim construction and Finjan was on notice that ESET would likely pursue it. 28 1 consistent understanding of how a person of skill in the art in 1997 would interpret a “small 2 executable program.” Finjan countered that the kinds of programs identified as examples 3 in the patent disclosure would provide adequate notice to a person of skill what was 4 encompassed by the term “small.” Based on conflicting record before the Court, the Court 5 cannot find at this time that ESET has demonstrated by clear and convincing evidence that 6 the definition of “Downloadable” is indefinite. The motion for summary judgment is 7 therefore DENIED without prejudice to ESET demonstrating this invalidity defense at 8 trial. 9 C. Exclusion of Dr. Ricardo Valerdi Testimony [Doc. No. 490] 10 ESET moves to exclude the testimony of Dr. Ricardo Valerdi. Federal Rule of 11 Evidence 702 creates “a gatekeeping role for the judge” to “ensure that an expert’s 12 testimony both rests on a reliable foundation and is relevant to the task at hand.” Daubert 13 v. Merrell Dow Pharmaceuticals, Inc., 509 U.S. 579, 597 (1993). Dr. Valerdi offers an 14 opinion employing a computer model to ascertain the cost he estimates that ESET incurred 15 to develop and maintain the accused software incorporated into the accused products. 16 Finjan however acknowledges that it has “verified ESET’s costs by analyzing (i) financial 17 statements produced by ESET to estimate the maintenance and ongoing development costs 18 ESET actually incurred related to the infringing systems; and (ii) the testimony of ESET’s 19 head of finance, Ms. Jana Michalakova, regarding ESET’s actual development and costs 20 related to the accused technologies for the relevant time period.” [Doc. No. 602 at 20.] 21 Rather than rely on estimates derived from actual financial data, Finjan employed Dr. 22 Valerdi to model the costs to develop and maintain the accused systems. 23 This model is offered as evidence to support a cost savings analysis. Dr. Valerdi’s 24 modeling however estimates the cost of developing the existing ESET software, not 25 alternative non-infringing software. It therefore has no relevance to a cost savings analysis. 26 “Reliance upon estimated cost savings from use of the infringing product is a well settled 27 method of determining a reasonable royalty.” Hanson v. Alpine Valley Ski Area, Inc., 718 28 F.2d 1075, 1080-81 (Fed. Cir. 1983). The comparison, however, should be to the costs of 1 developing a non-infringing alternative. Prism Techs. LLC v. Sprint Spectrum L.P., 849 2 F.3d 1360, 1376 (Fed. Cir. 2017) (costs saved by renting an infringing structure versus 3 building a non-infringing structure). Dr. Valerdi’s modeling exercise is based not on 4 creating a non-infringing alternative system, but on recreating the accused system. 5 The Court finds no value in substituting the estimated actual costs of developing and 6 maintaining ESET’s alleging infringing system with Dr. Valerdi’s model. Such modeling 7 may be of assistance when actual costs cannot be determined, but that is not the situation 8 here. Because the actual costs can be determined, Dr. Valerdi’s hypothetical construction 9 of ESET’s costs is facially unreasonable. Such proposed testimony on the creation of 10 unverifiable estimates from disputed inputs to come to a facially unreasonable hypothetical 11 number as to the costs of developing and maintaining the accused technologies will be 12 confusing and misleading to the jury, prejudicial to the defendant, and a waste of time. The 13 motion to exclude the testimony of Dr. Valerdi is GRANTED pursuant to Federal Rule of 14 Evidence 403. 15 D. Exclusion of Dr. Eric Cole Testimony [Doc. No. 494] 16 ESET moves to exclude the testimony of Dr. Eric Cole. Dr. Cole provides opinions 17 on the infringement of the ‘844 patent, the cost to ESET of implementing a non-infringing 18 alternative to all the patents-at-issue, inputs for Dr. Valerdi’s cost estimation model, and 19 willfulness. 20 The motion to exclude as to Dr. Cole’s opinion regarding infringement of the ‘844 21 patent is DENIED. ESET challenges many of the assumptions and conclusions of Dr. 22 Cole’s infringement opinion, but the Court concludes that is best left to cross-examination. 23 Regarding Dr. Cole’s other opinions, however, the motion is GRANTED. The 24 Court has excluded Dr. Valerdi’s testimony, therefore the Court strikes as irrelevant and 25 confusing, under Rule 403, any testimony by Dr. Cole regarding the number of lines of 26 code that make up the infringing functionality of the patents-at-issue. This testimony is 27 also excluded in that Dr. Cole was not identified as an expert on the infringement of any 28 1 patents except the ‘844 patent. Consequently, his opinions of what source code executes 2 the infringing functionality of the patents not within his purview are excluded. 3 Dr. Cole’s opinion on the costs of ESET providing its services through a “non- 4 infringing alternative,” (i.e., manually processing the files) is also excluded. Finjan 5 acknowledged at the hearing on this motion that this proposed alternative is not viable. 6 [Doc. No. 697, at 81:17-82:12.] Introducing the prohibitive cost and time of performing 7 such processing manually, when it is recognized by all Finjan’s experts as a non-viable 8 alternative, would only serve to mislead and confuse the jury and introduce a prejudicial 9 damages figure into the discussion. It is excluded under Rule 403.3 10 Similarly, Dr. Cole’s opinion regarding willfulness is excluded. Dr. Cole offers an 11 opinion regarding what Finjan calls the standard of care in the industry. Based on Dr. 12 Cole’s personal experience at McAfee, he would opine to the jury that a reasonable 13 company would have reviewed Finjan’s “patented technology” upon learning of Finjan and 14 its enforcement of its patent portfolio. Finjan concedes Dr. Cole does not opine on what 15 ESET did – only what he believes similarly situated reasonable companies would have or 16 should have done. [Doc. No. 589, at 16.] 17 This opinion suggests that there is duty to investigate a competitor’s portfolio rather 18 than a duty to determine if a known patent is infringed. Dr. Cole’s opinion is not whether 19 ESET’s actions when it learned of specific Finjan patents was reasonable. He instead offers 20 an opinion that a prudent company would be actively monitoring a competitor’s patent 21 holdings and failure to do so is below a standard of care. This opinion is likely to mislead 22 and confuse the jury in reaching a determination of whether ESET took due care to 23

24 25 3 Finjan cited Prism Tech, 849 F.3d at 1375, for its holding that it was not error to admit cost savings evidence based on evidence of the cost Sprint would incur to avoid infringement by building a private 26 network instead of leasing the services from third-party providers. Prism, however, discusses the costs and availability of this non-infringing alternative and evidence that Sprint could have attempted to build 27 its own network. Id. at 1376-77. In this case, Finjan’s experts all agreed that the proposed manual processing system would not be a viable alternative, so introducing the purported exorbitant cost of 28 1 determine if it was infringing after it learned of the patents at issue. The opinion is 2 excluded under Rule 403 as well. 3 E. Exclusion of Kevin Arst’s Testimony [Doc. No. 467] 4 ESET moves to exclude the testimony of Kevin Arst, who is Finjan’s designated 5 expert on a reasonable royalty. Despite the fact that Finjan has a history of licensing the 6 patents at issue in this case, Mr. Arst apparently elected to ignore established royalty rates, 7 or comparable licenses as benchmarks for his analysis. 8 The reasonable royalty may be based upon an established royalty, if there is one, or 9 if not upon a hypothetical royalty resulting from arm’s length negotiations between a 10 willing licensor and a willing licensee. “Where an established royalty rate for the patented 11 inventions is shown to exist, the rate will usually be adopted as the best measure of 12 reasonable and entire compensation.” Hanson, 718 F.2d at 1078. 13 Mr. Arst’s opinion is based instead on a cost savings analysis – the amount ESET 14 would reasonably pay in lieu of the cost it would incur to manually process files.4 [Doc. 15 No. 599, at 16 (Mr. Arst’s cost-savings opinions are based on Dr. Cole’s assessment that 16 ESET would need to incur the full manual processing costs absent its infringement of the 17 patents-in-suit.).] Although cost savings is a “well settled method of determining a 18 reasonable royalty,” Hanson, 718 F.2d at 1080-81, the Court GRANTS the motion to 19 exclude Mr. Arst’s cost savings opinion because the opinion is based on the unreliable 20 assumption that manual processing is a viable alternative, when, as discussed supra with 21 respect to Dr. Cole’s opinion, it is not. 22 Finjan may revise Mr. Arst’s damages opinion, removing reliance on the opinions 23 of Dr. Valerdi and Dr. Cole. He may not however introduce new materials. ESET will be 24

25 26 4 Mr. Arst’s opinion also relies upon Dr. Valerdi’s analysis of the cost of developing and maintaining ESET’s existing system, as support for the cost “to build a new system.” Dr. Valerdi did not however 27 estimate the cost of building a non-infringing alternative system and therefore provides no factual assumption to support Mr. Arst’s royalty analysis. The motion to strike Mr. Arst’s opinion relying on 28 1 given an opportunity to provide a responsive opinion and depose Mr. Arst on any revised 2 opinion. [See Doc. No. 697, at 90:8-16.] 3 F. Summary Judgment of No Willful Infringement and No Pre-Suit 4 Damages [Doc. No. 466] 5 ESET moves for summary judgment on Finjan’s allegation of willful infringement 6 and to exclude any claim for damages prior to the filing of the complaint. Knowledge of 7 the patent alleged to be willfully infringed is a prerequisite to enhanced damages. Halo 8 Elecs., Inc. v. Pulse Elecs., Inc., 136 S. Ct. 1923, 1932-22 (2016). But knowledge of the 9 patent itself is not enough. Finjan is required to show that ESET “acted despite a risk of 10 infringement that was ‘either known or so obvious that it should have been known’” to 11 ESET. WesternGeco LLC v. ION Geophysical Corp. 837 F.3d 1358, 1362 (Fed. Cir. 2016). 12 Willful infringement is measured by the totality of the circumstances. Finjan claims 13 that Eset should have known of Finjan’s patents, but Finjan presents no evidence that ESET 14 was actually aware of any asserted Finjan patent prior to the receipt of a January 22, 2015 15 letter from Finjan. [Doc. No. 466-4.] In that letter Finjan identifies two of the patents in 16 suit, the ‘844 and ‘086 as relevant to ESET products or services, identifying specific 17 products that correspond to those identified patents. Although no claim charts were 18 provided in January 2015, at that time ESET was on notice of those two patents. No 19 reference was made to, and therefore no notice was given as to the ‘780 patent. The ‘621 20 patent and the ‘755 patent did not even issue until November 17, 2015, and December 22, 21 2015, respectively, so it was an impossibility for the January 22, 2015 letter to constitute 22 notice of infringement of those later issued patents. 23 Following the January 22, 2015 letter, the parties entered into a Standstill Agreement 24 to investigate whether there was infringement and to discuss potential licensing. [Doc. No. 25 466-6.] That Agreement was continued until June 30, 2016. On July 1, 2016 this lawsuit 26 was filed. During the term of the Standstill Agreement the parties agreed to disclose 27 confidential information to assist in the discussion but that the disclosure of such 28 information could not be used to establish a claim for damages or willful infringement. 1 Finjan asserts that based on publicly available information, ESET knew throughout 2 || the pendency of Standstill Agreement that it was infringing the Finjan patents at issue and 3 || that it was negotiating in bad faith. The Court DENIES the motion for summary judgment 4 willful infringement but cautions Finjan that it must produce evidence at trial that ESET 5 ||had knowledge of each of the asserted patents and committed subjective willful 6 ||infringement as of the dates it became aware of those patents. The evidence of ESET’s 7 || knowledge cannot be based on disclosures made by Finjan during the Standstill Agreement, 8 || but rather must be independent of those discussions. 9 With regard to notice, Finjan has presented no evidence it provided actual notice of 10 || infringement to ESET prior to January 22, 2015 for the ‘844 patent and ‘086 patent. Further 11 || Finjan has presented no evidence that it provided actual notice of infringement of the ‘780 12 || patent, the ‘621 patent and the ‘755 patent outside of disclosures subject to the Standstill 13 || Agreement provisions. The Court therefore finds that the damage period starts on January 14 || 22, 2015 for the ‘844 patent and the ‘086 patent, and on the filing date of the complaint 15 (July 1, 2016) for the ‘780 patent, the ‘621 patent, and the’755 patent. 16 Itis SO ORDERED. 17 ||Dated: October 16, 2019 € 18 Hon. Cathy Ann Bencivengo 19 United States District Judge 20 21 22 23 24 25 26 27 28