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Finjan, Inc. v. Blue Coat Systems, Inc.

Failure to Account for Noninfringing Functionality in Smallest Salable Unit Undermines Damages Computation

Finjan, Inc. v. Blue Coat Systems, Inc., 2018 U.S. App. LEXIS 601 (Fed. Cir. Jan. 10, 2018) (DYK, Linn, Hughes) (N.D. Cal.: Freeman) (3 of 5 stars)

Fed Cir part affirms, part reverses judgment of infringement liability for four Finjan patents (’844, ’731, ’968, ’633). The opinion affirms denial of JMOLs of subject matter ineligibility for the ’844 patent, and of noninfringement for the ’844 and ’731 patents, but reverses the denial of JMOL of noninfringement for the ’968 patent (there was no appeal as to infringement of the ’633 patent). It also affirms the damages award for the ’731 and ’633 patents, vacates as to the ’968 patent, and vacates/remands as to the ’844 patent. Finjan’s patents related to identifying and protecting against malware.

Subject matter eligibility (’844 patent): The district court did not err in denying JMOL of subject matter ineligibility as to one Finjan patent. Applying Intellectual Ventures I, 838 F.3d 1307 (Fed. Cir. 2016), and Enfish, 822 F.3d 1327 (Fed. Cir. 2016), the opinion reasons that, although virus scanning alone may be an abstract idea, the patent’s method of scanning files and creating a “security profile” was “a good deal more,” Op. at 6, and so the patent was non-abstract under step one of Alice, 134 S. Ct. 2347 (2014). It rejects Blue Coat’s contention that the patent had failed to describe how to implement the core idea, and notes that “here, the claims recite more than a mere result,” but addressed specific steps to accomplish that result. Id. at 9.

Infringement (’844 patent): Substantial evidence supported the jury’s infringement determination, and the opinion rejects Blue Coat’s attempt to raise a claim construction issue for the first time in post-trial motions, as per Hewlett-Packard, 340 F.3d 1314 (Fed. Cir. 2003).

Infringement (’731 patent): Substantial evidence supported the jury’s infringement determination. The opinion rejects Blue Coat’s argument that the record failed to teach a certain limitation. As Blue Coat had not requested a construction of that term, the opinion applies its ordinary meaning, and finds the record sufficient to support the judgment.

Infringement (’968 patent): The opinion applies the district court’s claim construction, noting that it required proof that Blue Coat’s product stored certain “condition determinations” meeting the claim requirements. Finjan had failed present evidence on this point; thus Blue Coat was entitled to JMOL of noninfringement. The damages award for this patent is also vacated.

Damages (’844 patent): The district court erred in resting damages on a royalty base insufficiently apportioned to the infringing functionality. It was insufficient for Finjan to simply multiply the overall number of users of the infringing product by the percentage web traffic passing through that portion of the product performing the infringing method (called “DRTR,” dynamic real-time rating). The opinion rejects Finjan’s argument that DRTR was the “smallest, identifiable technical component” tied to the invention because DRTR had noninfringing features. “As we noted in VirnetX, [767 F.3d 1308 (Fed. Cir. 2014),] if the smallest salable unit—or smallest identifiable technical component—contains non-infringing features, additional apportionment is still required.” Op. at 19.

It was further improper for Finjan to apply an $8-per-user royalty rate. Though Finjan urged that this was consistent with an “8–16% rate” obtained by Finjan in other litigation, that statement was conclusory and Finjan generally failed to establish that the present case was consistent with that prior case. The opinion rejects Blue Coat’s request for straight reversal of the JMOL denial, as this could lead to Finjan recovering no compensation for Blue Coat’s infringement. On remand, the district court will determine whether Finjan waived its right to present an alternate theory of damages.

Damages (’731 and ’633 patents): The opinion rejects Blue Coat’s argument that Finjan’s apportionment of its royalty base as to these patents was insufficient. The record supported the analysis of Finjan’s expert. It also rejects Blue Coat’s argument that the damages award was flawed because the jury awarded more than Finjan’s damages expert had computed. “A jury may not award more than is supported by the record, but here the record contains evidence that the expert’s estimates were conservative and that the underlying evidence could support a higher award.”