Finjan v. Blue Coat was decided on January 10, 2018 on appeal from the Northern District of California. A jury found defendant Blue Coat liable for infringement of four patents (the ‘633, ‘731, ‘844, and ‘968) owned by plaintiff Finjan, and awarded approximately $39.5 million in reasonable royalty damages. The patents related to internet security and protection. After trial, the district court concluded that the ‘844 is directed to patent-eligible subject matter, and denied Blue Coat’s motions for JMOL and a new trial regarding infringement and damages. Blue Coat appealed.
The Federal Circuit affirmed the finding of subject-matter eligibility, reversed infringement finding regarding the ‘968, vacated the royalty award for the ‘968, and remanded regarding the ‘844 royalty award.
Finjan failed to apportion damages for the ‘844 patent. “When the accused technology does not make up the whole of the accused product, apportionment is required. The ultimate combination of royalty base and royalty rate must reflect the value attributable to the infringing features of the product, and no more.” In these cases, the patentee must give evidence tending to apportion the damages between the patented feature and the unpatented features. Such “evidence must be reliable and tangible, and not conjectural or speculative.”
The product infringing the ‘844 was a cloud-based system that associated URLs with different categories, including gambling, shopping, social networking, etc. The DRTR (“dynamic real-time rating engine”) was part of the infringing product, and processed URLs that had not been categorized. The DRTR performed both infringing and non-infringing functions. At trial, Finjan attempted to tie the royalty base to the incremental value of the infringement by multiplying the accused system’s total number of users (75 million worldwide) by the percentage of web traffic that passes through the DRTR (roughly 4%). Finjan didn’t perform any further apportionment of the royalty base.
This was not sufficient. Although the DRTR is the smallest salable patent-practicing unit of the web system, it still contained non-infringing features. “[I]f the smallest salable unit—or smallest identifiable technical component—contains non-infringing features, additional apportionment is still required.” Further, evidence showing that many of the non-infringing features are not important is not sufficient. The claimed unimportance of particular non-infringing features does not speak to the overall importance of the infringing feature. Accordingly, the percentage of web traffic handled by DRTR is not a proxy for the incremental value of the patented technology to the web system.
There was a second error in the ‘844 reasonably royalty calculation. To arrive at the royalty sum, Finjan simply multiplied the royalty base by an $8-per-user royalty rate. This $8-per-user rate was not supported by substantial evidence. There was no evidence that Finjan ever used or proposed an $8-per-user fee in any comparable license or negotiation. Rather, this fee was based on testimony from Finjan’s VP of licensing based on a 8-16% rate from a 2008 verdict obtained by Finjan against another company. There was no evidence to support the conclusory statement that an 8-16% rate would correspond to an $8-per-user fee; and Finjan failed to adequately tie the facts related to the 2008 verdict to the facts in this case. That case did not involve the ‘844 patent, and there was “no evidence showing that the patents that were at issue [were] economically or technologically comparable.”
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Although Finjan didn’t present a damages case that could support the jury verdict regarding the ‘844 patent, the Federal Circuit did not reverse the district court’s post-trial determinations. A district court “must award damages in an amount no less than a reasonable royalty when infringement is found,” unless the patent holder has “waived the right to damages based on alternate theories.” The Federal Circuit thus remanded for the district court to determine whether Finjan has waived the right to establish a reasonable royalty under a new theory and whether to order a new trial on damages.
The Federal Circuit affirmed the royalty award as to the ‘633 and ‘731 patents because Finjan’s expert did apportion the royalty base for the product infringing those patents. The Federal Circuit vacated the damages award regarding the ‘968 patent, as there was no infringement.
Finjan, Inc. v. Blue Coat Sys., Inc., 879 F.3d 1299 (Fed. Cir. 2018)