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Finjan, Inc. v. Secure Computing Corp. 626 F.3d 1197 (2010) was a patent infringement case by the United States Court of Appeals for the Federal Circuit involving “proactive scanning” technology for computer security. [1] The Federal Circuit made a mixed decision after hearing the appeals from both sides. Based upon the verdict by United States District Court for the District of Delaware, the Federal Circuit affirmed the system and storage medium claims but reversed the method claim. The damage award was also affirmed while the damages between the post-judgement and pre-injunction period were remanded for determination.[1]
| Finjan, Inc. v. Secure Computing Corp. | |
|---|---|
 | |
| Court | United States Court of Appeals for the Federal Circuit |
| Full case name | FINJAN, INC. (FORMERLY FINJAN SOFTWARE, LTD.), Plaintiff-Cross Appellant, v. SECURE COMPUTING CORPORATION, CYBERGUARD CORPORATION, AND WEBWASHER AG, Defendant-Appellant AND DOES 1 THROUGH 100, Defendants. |
| Decided | November 4 2010 |
| Citation | 626 F.3d 1197 |
| Case history | |
| Prior history | 06-CV-0369 (D. Dela. (2008)) |
| Holding | |
| The verdict of infringement on the asserted “system” and “storage medium” claims were affirmed, but the verdict of infringement on the asserted method claims were reversed. The damage award was affirmed, but the damages between the post-judgment and pre-injunction period were remanded for determination. | |
| Court membership | |
| Judges sitting | NEWMAN, GAJARSA, and LINN |
| Case opinions | |
| Majority | LINN |
Brief History in the Lower Court
Finjan, Inc sued Secure Computing Corp., Cyberguard Corp., and Webwasher AG in the United States District Court for the District of Delaware for infringement of three U.S. patents (U.S. Patents No. 6,092,194, No. 6,804,780, and No. 7,058,822). Defendants counterclaimed against Finjan for infringement of two U.S. Patents (No. 6,357,010 and No. 7,185,361). In the decisions, the jury concluded that all of the patents mentioned above were valid and Finjan did not infringe defendants’ patents. The defendants, however, infringed all the asserted patent claims by Finjan. The district court awarded enhanced damages to Finjan under 35 U.S.C. § 284, and imposed a permanent injunction against the defendants.[1]
After the verdict in the lower court, the defendants appealed the the district court’s finding of direct infringement of the system and storage medium claims, along with various other issues related to damages and infringement of method claims.[2] Finjan, on the other hand, cross-appealed only the district court’s damage ruling, claiming additional entitlement to the post-judgment and pre-injunction damages.[1]
Patents and Claims from Finjan
In this case, Finjan owned three patents related to proactive scanning technique. They were used to detect and defeat previously unknown, Internet-based threats to computers. The brief descriptions of each patent are listed below.
- '194 Patent:[3] It described the method and associated system and storage medium claims that enabled the steps of receiving, comparing and preventing in order to detect and prevent threats.
- '780 Patent:[4] The patent bore the same title as the '194 patent and covered method, system and medium claims in “caching,” or identifying previously encountered downloadable files.
- '822 Patent:[5] It included both method and system claims on “sandboxing” potentially dangerous downloadables with protective code.
Defendant's Non-infringement Theory
Secure Computing argued that they did not directly infringe Finjan's patents because the software they sold to customers was “locked,” meaning that none of the infringing features were functional until the customers “purchased keys and unlocked” the software components. This implied that the customers were the direct infringers, and the defendants were indirect infringers.[2]
On Infringement
System and Storage Medium Claims
To prove their non-infringement theory, the defendants cited the Southwest Software, Inc. v. Harlequin Inc. 226 F.3d 1280 (2000) case for the proposition that “locked [computer] code” cannot infringe. However, the Federal Circuit pointed out these two cases were actually different as the claims in this case were apparatus claims whereas the claims in the Southwest case were method claims.
The defendant's opinions were that since an infringement of a method claim required “performance of each claimed step,” a locked piece of software such as in Southwest necessarily could not infringe. However, an apparatus claim as in the Finjan case merely required “literal” presence of the software or binary code in the accused product in order for infringement to occur.[2]
In the end, referring to another case Fantasy Sports Props v. Sportsline.com Inc. 287 F.3d 1108 (2002) where the customers had to configure and activate features in the software to play football on the computer, the Federal Circuit concluded that inactive software features could still have direct infringement on apparatus claims.
Method Claims
The defendant cited the standard established in Lucent Technologies v. Gateway, Inc. 580 F.3d 1307 (2009) and stated that “to infringe a method claim, a person must have practiced all steps of the claimed method.”
Since Finjan could not show that all steps of the claimed methods of their asserted patents were practiced in the United States, the defendant concluded that it was insufficient to show direct infringement in the United States as the Patent Act requires.[6]
Term Construction
Secure Computing argued that the district court erred by failing to construe the term “addressed to a client” from each asserted claim of the ’194 patent[6] and therefore requested for a new trial, as in the case O2 Micro International Ltd. v. Beyond Innovation Technology Co. 521 F.3d 1351 (2008).
However, the Federal Circuit noted that the rather than failing to resolve the parties' quarrel all together, the district court just rejected Secure Computing’s construction of the claim term in the present case. [1] Unlike the O2 Micro case, there were no errors made on term construction by the district court in this case. Therefore, Secure Computing's request for a new trial was rejected.
On Damages
Royalty Base
The defendant challenged that the jury 1) mis-applied of the entire market value rule by using the full value of the accused products and 2) erroneously included sales to the U.S. government.[6]
For the first challenge, the Federal Circuit was persuaded by Finjan's waiver and found that Secure Computing waived this argument when they did not raise it in its Judgment as a matter of law (JMOL) motion following the trial. As a result, based on the case Srein v. Frankford Trust Co. 323 F.3d 214,224 n.8 (2003), "Defendants may not raise these arguments for the first time on appeal."
For the second challenge, the defendant found that the district court had in fact instructed the jury at trial that sales to the United States Government should not be included in any damages calculation performed. Besides, the damage number the jury awarded was also different from Finjan’s calculation.[1] Therefore, no new trial was necessary for the royalty base.
Royalty Rates
The defendants argued that jury's royalty percentages lacked support under the Georgia-Pacific factors.[6]
However, The court found that the royalty percentages were made with substantial evidence and based on expert's opinion. As a result, the Federal defendant affirmed the denial of defendant's motions for JMOL or new trial on damages.
On Finjan’s Cross-Appeal on Damages
Even though the district court granted Finjan additional damages by multiplying the jury’s royalty rates against previously uncalculated sales,[6] the period was limited “to only those additional infringing sales that occurred up until the date of entry of the judgment in this case.” Finjan therefore claimed entitlement to damages for the 17-month period between the entry of the judge (March 28, 2008) and the injunction(August 28, 2009).
The court agreed and remanded for the district court to determine appropriate damages for the above mentioned period.
Impact
This case involved system and computer-readable medium (Beauregard) claims as well as method (Bilski) claims. It was seen as a zenith in the winning of Beauregard claims where the Federal Circuit held that not only was it okay for a computer-readable medium with instructions on it to be enforced, but that the code needn't even be active.[7]
On the other hand, the success of Beauregard claims as compared to the failure of Bilski claims in this case highlighted why Beauregard claims may be more desirable in a patent applications.[8]
Subsequent Cases
Several later patent infringement cases had cited this case from different perspectives.
Versata Software, Inc. v. SAP America, Inc. 2:07-CV-153 CE (2011) [9] and Bally Technologies, Inc v. Business Intelligence Systems Solutions, Inc. 2:10-CV-00440-PMP-GWF (2012) [10] adopted the opinion that "inactive" program could still infringe apparatus claims.
In Brocade Communications Systems, Inc. and Foundry Networks, LLC. 10-CV-03428-LHK (2012),[11] criterions on deciding method claim infringement were based this case.
In Cisco Systems, Inc., v. Teleconference Systems, LLC et al C 09-01550 JSW et al (2011)[12], the court made the same argument in that the court was not obligated to construe the term if it rejected one party's proposed construction.
The royalty calculation was also referred in the case of Whitserve, LLC v. Computer Packages, Inc. (2012),[13]
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