Network Protection Sciences, LLC v. Juniper Networks, Inc. et al, No. 3:2012cv01106 - Document 334 (N.D. Cal. 2013)
Court Description: OMNIBUS ORDER DENYING SUMMARY JUDGMENT, DENYING MOTION TO STRIKE REPORT AND TESTIMONY OF DR. KEROMYTIS, AND GRANTING MOTION TO STRIKE REPORT AND TESTIMONY OF MR. JAROSZ by Judge Alsup denying 230 Motion for Summary Judgment; denying 249 Motion to Strike ; granting 251 Motion to Strike (whalc1, COURT STAFF) (Filed on 9/26/2013)
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Network Protection Sciences, LLC v. Juniper Networks, Inc. et al Doc. 334 1 2 3 4 5 6 IN THE UNITED STATES DISTRICT COURT 7 FOR THE NORTHERN DISTRICT OF CALIFORNIA 8 9 11 For the Northern District of California United States District Court 10 NETWORK PROTECTION SCIENCES, LLC, 14 OMNIBUS ORDER DENYING SUMMARY JUDGMENT, DENYING MOTION TO STRIKE REPORT AND TESTIMONY OF DR. KEROMYTIS, AND GRANTING MOTION TO STRIKE REPORT AND TESTIMONY OF MR. JAROSZ Plaintiff, 12 13 No. C 12-01106 WHA v. FORTINET, INC., Defendant. 15 / 16 17 INTRODUCTION 18 In this patent infringement action involving network firewalls, defendant moves for 19 summary judgment and moves to strike the reports and testimony of plaintiff’s infringement and 20 damages experts. For the reasons stated below, the motion for summary judgment is DENIED. 21 The motion to strike the expert report and exclude the testimony of plaintiff’s infringement 22 expert is DENIED. The motion to strike the expert report and exclude the testimony of plaintiff’s 23 damages expert is GRANTED. STATEMENT 24 25 1. THE PARTIES. 26 Fortinet was founded in 2000 and is headquartered in Sunnyvale. It manufactures and 27 sells network security products. Fortinet employs over 2000 people, is publicly traded, and 28 serves enterprises and government entities worldwide. Dockets.Justia.com 1 Plaintiff Network Protection Sciences (NPS) is one of 22 companies set up by Innovation 2 Management Sciences, LLC. NPS appears to have virtually no assets apart from asserting the 3 patent at issue in this action: U.S. Patent No. 5,623,601. 4 2. THE ’601 PATENT. 5 The ’601 Patent, entitled “Apparatus and Method for Providing a Secure Gateway for issued on April 22, 1997. NPS is the most recent of a long string of owners. In 2011, Fortinet 8 filed a request for reexamination, and in May 2012 the USPTO issued a reexamination certificate 9 for the patent confirming all claims (1–41) and adding new claims (42–59). The technology at 10 issue in this action relates to firewall technology intended to improve network security and user 11 For the Northern District of California Communication and Data Exchanges Between Networks,” was filed on November 21, 1994, and 7 United States District Court 6 convenience. NPS currently alleges infringement of claims 19, 29, and 57. Claims 19 and 29 12 are independent claims. Claim 57 is dependent on claim 19. 13 3. 14 NPS accuses over 70 Fortinet applications and products of infringing five asserted claims THE ACCUSED PRODUCTS. 15 in the ’601 patent. NPS’s infringement contentions are primarily crafted around a computer 16 software product called FortiOS 4.0 MR2. The infringement contentions, however, purport to 17 cover both software and hardware devices manufactured by Fortinet. 18 FortiOS 4.0 MR2 is a software operating system. In all instances except one, FortiOS 4.0 19 MR2 (and other accused versions of the FortiOS operating system) is installed onto a hardware 20 device such as a FortiGate device. The exception is FortiGate Virtual Applicances, which offers 21 “virtualized” security services (i.e., where the hardware portion is emulated by software). In all 22 instances, the accused products contain both allegedly patented components and non-accused 23 components. 24 Fortinet launched the first version of the FortiOS in 2002, and has released major and 25 minor updates on a regular basis since then. The damages calculation period in this action runs 26 from 2004 to 2012. 27 28 2 1 3. THE PENDING MOTIONS. 2 This order addresses three motions by Fortinet: a motion for summary judgment and 3 motions to strike and exclude the expert reports and testimony of NPS’s infringement expert Dr. 4 Angelos Keromytis, and NPS’s damages expert Mr. John Jarosz. This order follows full briefing 5 and oral argument. 6 ANALYSIS 7 1. 8 Fortinet moves for summary judgment on multiple grounds. As further explained below, 9 the motion is DENIED. For the Northern District of California United States District Court 10 11 FORTINET’S MOTION FOR SUMMARY JUDGMENT. A. CLAIM 29. Claim 29 of the ’601 patent is a means-plus-function claim. To prove infringement of a 12 means-plus-function claim, a patentee must persuade a jury that the structure in the patent 13 specification corresponding to each function is found in the accused product and performs the 14 same function. Mas-Hamilton Grp. v. LaGard, Inc., 156 F.3d 1206, 1211–12 (Fed. Cir. 1998). 15 Fortinet argues that NPS has not identified any specific algorithms in the accused 16 products or the ’601 patent that form the structure performing the disclosed functions of claim 17 29. This order disagrees. The basis of Fortinet’s motion regarding claim 29 is a mystery. 18 Casual perusal of the claim chart attached as Exhibit J to Dr. Keromytis’ infringement report 19 shows that Fortinet’s contention is incorrect. The claim chart breaks each means limitation of 20 claim 29 into a separate section. The sections begin by stating the claimed function and 21 corresponding structure in the patent, followed by citations to specific figures, columns, and line 22 numbers in the patent specification where that structure is disclosed. Each section then cites to 23 Fortinet technical documents, deposition testimony, and source code that allegedly demonstrate 24 the structure in the accused products. 25 Fortinet claims that NPS provides only attorney conclusions and a declaration attached to 26 the summary judgment opposition (Dkt. 252 at 9). In light of the claim chart appended to the 27 infringement expert report, Fortinet’s contentions are incorrect. Summary judgment on this issue 28 is DENIED. 3 1 2 3 B. Following the close of briefing on the instant motion, NPS abandoned its assertion of claims 10 and 43 in this action. This will constitute res judicata as to these claims. 4 5 CLAIMS 10 AND 43. C. CLAIMS 19 AND 57. Fortinet moves for summary judgment of non-infringement on claims 19 and 57 on the 6 ground that the accused products do not practice a limitation. Specifically, both claims contain 7 the following limitation: “a kernel of the operating system having been modified so that the 8 operating system . . . cannot forward any communications packet.” The parties disagree over the 9 correct construction of the term “modified.” The term was not raised by the parties or construed 11 For the Northern District of California United States District Court 10 during the claim construction phase of this action. Although the parties are entitled to a construction of all disputed and litigated claim terms 12 before the jury is instructed, this order declines to construe the term at this time. After evidence 13 is heard at trial, the judge will be in the best position to construe this term. Summary judgment 14 on this issue is DENIED. 15 16 D. INFRINGEMENT THEORIES FOR THE ACCUSED PRODUCTS. Fortinet contends that NPS has failed to advance infringement theories for any products 17 other than FortiOS 4.0 MR2 (i.e., products or services sold in combination with FortiOS 4.0 18 MR2). Thus, Fortinet argues that summary judgment should be granted as to all of Fortinet’s 19 other products. This order disagrees. 20 NPS’s complaint, infringement contentions, and expert reports all focus on the FortiOS 21 4.0 MR2 product. Fortinet’s other accused products and services orbit around these core 22 allegations and evidence. The issues, therefore, are (1) whether NPS’s infringement contentions 23 comply with the notice requirements in our patent local rules and (2) whether the allegations and 24 evidence in the record are sufficient to allow the case to proceed to trial on all of the accused 25 products. 26 27 It is notable that Fortinet itself has resorted to collective disclosures on invalidity and specifically regarding the so-called “Janus” refernce (Dkt. No. 191-3). Fortinet is trying to have 28 4 1 it both ways. Fortinet will not be allowed to insist on a higher standard of disclosure than the 2 standard it has used itself. 3 Apart from that, NPS contends that it was not obligated to provide 70+ separate claim 4 charts. Instead, it listed all of the accused products individually and used the FortiOS 4.0 MR2 5 product as a representative example. NPS says this satisfies the notice requirements under the 6 local patent rules. In support, NPS cites several decisions from this district where representative 7 infringement contentions were permitted. See, e.g., Infineon Techs AG v. Volterra 8 Semiconductor, No. 11-6239, 2013 U.S. Dist. LEXIS 109165, at *15–18 (N.D. Cal. July 8, 2013) 9 (Magistrate Judge Donna Ryu) (approving representative infringement contentions supported by analysis and collecting cases). This order agrees that, when supported by adequate analysis 11 For the Northern District of California United States District Court 10 showing that the accused products share the same critical characteristics, representative 12 infringement contentions may suffice. 13 Fortinet cites L & W, Inc. v. Shertech, Inc., 471 F.3d 1311 (Fed. Cir. 2006), for the 14 proposition that a single product cannot be used as a stand-in for other products. Fortinet 15 misstates the holding of this decision. In L & W, the Federal Circuit concluded that an 16 infringement expert could not assume “without support” that one accused product was “typical” 17 of all the accused products. 471 F.3d at 1317–18. NPS’s typicality showing was sufficient 18 under our local rules subject to proof at trial. 19 The next issue is whether, apart from the local rule disclosure, NPS has advanced 20 sufficient evidence to go to the jury to prove up typicality. NPS relies on a passing reference to 21 proxy processes in the deposition transcript of Fortinet’s Rule 30(b)(6) witnesses, and five 22 paragraphs from Dr. Keromytis’ infringement report. The report first states that “all versions of 23 the code literally infringe all of the elements of the asserted claims.” The next three paragraphs 24 lump all of the accused products into three different time periods and discuss the technical 25 features used in each time period. The fifth paragraph provides excerpts from four Fortinet 26 engineering documents that allegedly establish that all the accused products all practice the 27 patented technology (Keromytis Rpt. ¶¶ 81–85). 28 5 1 This evidence and analysis by Dr. Keromytis does not analyze typicality for accused 2 products other than FortiOS 4.0 MR2 on a element-by-element or product-by-product basis. 3 Yet, Fortinet does not contend that NPS has failed to argue infringement on an element-by- 4 element basis for the representative FortiOS 4.0 MR2 product. Although somewhat lacking in 5 detail, Dr. Keromytis’ report evinces an effort to analyze the relevant features of all the accused 6 products. On its face, it does not show that Dr. Keromytis used a flawed methodology or made a 7 set of impermissible assumptions. 8 Fortinet objects that “NPS cannot credibly assert that all FortiOS versions operate in the on this point is flawed. It does not necessarily follow from these admissions that the FortiOS 11 For the Northern District of California same manner” in light of admissions that FortiOS has also changed over time. Fortinet’s logic 10 United States District Court 9 products changed in a manner relevant to the patent claims at issue. At the hearing, the Court 12 asked Fortinet counsel to give an example of an earlier version of FortiOS that operated 13 differently from FortiOS 4.0 MR2 insofar as the claim limitations were concerned. Fortinet 14 counsel skillfully changed the subject and never answered the question. 15 Fortinet also objects that Dr. Keromytis’ report does not identify which source code he 16 reviewed in forming his expert opinions. The report implies that Dr. Keromytis reviewed all of 17 the relevant source code, but does not specifically so state. The report also states that Dr. 18 Keromytis relied on an assistant to review at least some of the source code. Whether Dr. 19 Keromytis’ implicit assertion and alleged comprehension of the source code are believable is a 20 matter for the jury. Moreover, Dr. Keromytis relied on both source code and technical 21 documentation in support of his opinion that the accused products are the same in all material 22 respects. Exhaustive citation of source code is not necessary when equivalent information is 23 available from other sources. 24 While the items advanced by NPS seem general and conclusory, it is exceedingly 25 difficult in the haze and maze of this technology to say, as a matter of law, that NPS has not 26 supplied enough evidence to persuade a jury that all of the operating versions worked like 27 FortiOS 4.0 MR2 insofar as claim limitations are concerned. Accordingly, Fortinet’s motion for 28 summary judgment on this issue is DENIED. Be aware that at trial the evidence may come in (or 6 1 not come in) in a different way with a different record, particularly with the benefit of cross- 2 examination, such that Fortinet may then prevail on a Rule 50 motion, notwithstanding its loss 3 on this Rule 56 motion. 4 2. FORTINET’S MOTION TO STRIKE AND EXCLUDE THE EXPERT TESTIMONY OF DR. KEROMYTIS. 5 Fortinet raises numerous objections to the testimony and expert report of NPS’s 6 infringement expert Dr. Keromytis. Fortinet requests that his report be stricken and that he be 7 precluded from testifying. The motion is DENIED. 8 Fortinet’s motion for summary judgment (discussed above) regarding NPS’s failure to 9 address versions of the FortiOS software other than FortiOS 4.0 MR2 raises two key issues: (1) 10 (2) whether NPS has carried its burden to adduce sufficient evidence of infringement, via the For the Northern District of California United States District Court whether NPS complied with its discovery disclosure obligations under the patent local rules, and 11 12 expert report of Dr. Keromytis and otherwise, for this action to proceed to trial on all of the 13 accused products. Fortinet’s motion to strike, in contrast, addresses the admissibility of Dr. 14 Keromytis’ expert opinions given the same failure to address specific versions of FortiOS other 15 than FortiOS 4.0 MR2. Fortinet’s numerous objections to Dr. Keromytis’ report and testimony 16 will now be analyzed in turn. 17 First, in parallel with its summary judgment motion Fortinet objects that Dr. Keromytis’ 18 report did not indicate which version(s) of the FortiOS source code it was based on. On this 19 basis, Fortinet contends that the report should be stricken as methodologically flawed. This 20 order disagrees. Standing alone, Dr. Keromytis’ failure to cite particular versions of the FortiOS 21 source code does not prove that Dr. Keromytis’ methodology was flawed. Fortinet’s argument 22 presupposes that the source code for the accused products differs in ways that are relevant to the 23 asserted claims. NPS and Dr. Keromytis, however, contend that the source code is functionally 24 identical for all the accused products. If this is true, citing particular versions of the code would 25 be unnecessary and redundant. The veracity of Dr. Keromytis’ position shall be resolved at trial. 26 Fortinet’s repeated citation to L & W, Inc. v. Shertech, Inc., 471 F.3d 1311 (Fed. Cir. 27 2006), is again misplaced. Fortinet contends that “Dr. Keromytis has simply assumed, without 28 basis, that all versions of the accused products operate in the same manner as version 4.0 MR2” 7 1 (Dkt. No. 249 at 17). Unlike L & W, however, there is no admission in the present record that 2 Dr. Keromytis relied on any such assumptions. See L & W, 471 F.3d at 1316–18 (expert 3 reviewed “approximately all” of the accused products and provided conclusory analysis). To the 4 contrary, NPS maintains that “Dr. Keromytis inspected all versions of the source code [Fortinet] 5 produced.” 6 Second, Fortinet similarly contends that Dr. Keromytis’ testimony should be limited to 7 FortiOS MR2 because his report and accompanying claim charts were based on that product. 8 Again, Fortinet presumes (without showing) that the accused products differed in material 9 respects, which is a disputed issue of fact. It would be premature to limit or strike Dr. Keromytis’ testimony before this question is resolved. Fortinet’s contention that NPS has shifted 11 For the Northern District of California United States District Court 10 the burden on infringement on this issue is also incorrect. NPS still carries the burden at trial to 12 prove that all of the accused products are functionally identical in all material respects. 13 Third, Fortinet argues the merits of whether the accused products have changed 14 materially over time, as well as the merits of how various deposition testimony relied on by NPS 15 should be interpreted. These merits questions shall be resolved at trial. They are not appropriate 16 to resolve on a motion to strike. 17 Fourth, Fortinet objects that source code for the accused products was also reviewed by 18 an assistant to Dr. Keromytis. Dr. Keromytis admitted this fact in his report, and further stated 19 that he relied on information provided by the assistant (Keromytis Rpt. ¶ 15). Fortinet provides 20 no authority that this methodology is improper as a matter of law and this order will not so hold. 21 If, as NPS contends, it is proven that all of the accused products function identically with respect 22 to the asserted patent claims, it might not be necessary for one individual to inspect 73 products’ 23 worth of source code. On the other hand, factors that are not apparent in the current record could 24 render Dr. Keromytis’ use of an assistant problematic. These issues are proper topics for cross- 25 examination. 26 Fifth, Fortinet objects that Dr. Keromytis never personally operated any of the accused 27 products in an infringing manner. Again, Fortinet provides no authority that this fact renders Dr. 28 Keromytis’ analysis flawed as a matter of law. It is undisputed that Dr. Keromytis reviewed at 8 1 least some source code for the accused products, technical documentation, and the deposition 2 transcripts of Fortinet’s Rule 30(b)(6) witness. And, on the present record, it cannot be 3 determined whether Dr. Keromytis’ review overlooked any particular accused product(s). 4 Sixth, Fortinet objects that Dr. Keromytis was unable to recall at his deposition which 5 specific version numbers of the FortiOS source code he reviewed. He also could not recall the 6 FortiOS file names. The extent to which Dr. Keroymytis’ memory failures at his deposition 7 affect his credibility as an expert is an issue for the jury to consider. It does not necessarily mean 8 that the analysis in his report was flawed. 9 Finally, Fortinet’s motion takes issue with Dr. Keromytis’ discussion of EO Johnson and Qdoba customer configuration files. This order notes that NPS has withdrawn its indirect 11 For the Northern District of California United States District Court 10 infringement claims and further stated that it does not intend to rely on the EO Johnson and 12 Qdoba evidence for that purpose. If Dr. Keromytis testifies regarding the EO Johnson and 13 Qdoba files at trial for some other purpose, the admissibility of the evidence may be raised at 14 that time. 15 16 17 For the foregoing reasons, Fortinet’s motion to strike and exclude the testimony of Dr. Keromytis is DENIED. 3. FORTINET’S MOTION TO STRIKE THE EXPERT REPORT AND TESTIMONY OF EXPERT JOHN JAROSZ. 18 Fortinet objects to the report and testimony of NPS’s damages expert John Jarosz on 19 multiple grounds. It is only necessary to address one of them here. Fortinet contends that Mr. 20 Jarosz’s damages analysis improperly based royalties on the entire market value of the accused 21 products. This order agrees. Because this flaw is integral to Mr. Jarosz’s analysis, the report and 22 Mr. Jarosz’s opinion must be excluded in their entirety. 23 “When a patentee seeks damages on unpatented components sold with a patented 24 apparatus, courts have applied a formulation known as the ‘entire market value rule’ to 25 determine whether such components should be included in the damage computation, whether for 26 reasonable royalty or for lost profits purposes.” Rite-Hite Corp. v. Kelley Co., Inc., 56 F.3d 27 1538, 1549 (Fed. Cir. 1995). 28 9 1 The entire market value rule — which has varied somewhat in formulation over time — 2 has been a highly-criticized and highly-litigated methodology. In recent years, the Federal 3 Circuit has restricted its use, most notably in LaserDynamics v. Quanta Computer, Inc., 694 F.3d 4 51, 67 (Fed. Cir. 2012). In that action, the Federal Circuit explained it as follows (per Judge 5 Jimmie Reyna): 6 7 8 Where small elements of multi-component products are accused of infringement, calculating a royalty on the entire product carries a considerable risk that the patentee will be improperly compensated for non-infringing components of that product. Thus, it is generally required that royalties be based not on the entire product, but instead on the smallest salable patent-practicing unit. 9 11 For the Northern District of California United States District Court 10 12 13 14 15 The entire market value rule is a narrow exception to this general rule. If it can be shown that the patented feature drives the demand for an entire multi-component product, a patentee may be awarded damages as a percentage of revenues or profits attributable to the entire product. The entire market value rule is derived from Supreme Court precedent requiring that “the patentee . . . must in every case give evidence tending to separate or apportion the defendant’s profits and the patentee’s damages between the patented feature and the unpatented features, and such evidence must be reliable and tangible, and not conjectural or speculative.” The Court explained that “the entire value of the whole machine, as a marketable article, [must be] properly and legally attributable to the patented feature.” 16 694 F.3d at 67 (emphasis added, citations and quotation marks omitted). Notwithstanding the 17 high bar set on the use of the entire market value of an accused, multi-component product, Mr. 18 Jarosz’s damages report used this very method in his calculation of a reasonable royalty for the 19 alleged infringement of the ’601 patent. 20 Mr. Jarosz did not admit that he used the entire market value rule in his report. Instead, 21 based on sales data and deposition testimony, Mr. Jarosz first determined that the FortiOS 22 software was not sold separately from its hardware (or virtual machine) ‘chassis.’ The “smallest 23 salable units,” therefore, were the accused Fortinet products (though they contain substantial 24 non-accused components). Mr. Jarosz then stated: “Accordingly, when evaluating the 25 quantitative evidence discussed below, I have used as the royalty base the price of the accused 26 Fortinet hardware product or virtual machine that utilizes the FortiOS operating system” (Jarosz 27 Rpt. at 35–36). His analysis was therefore based on the entire market value of the overall unit. 28 10 1 Mr. Jarosz then looked at different measures of the contribution the accused features 2 made to the whole accused products. For example, Mr. Jarosz attempted to quantify the 3 percentage of users who relied on the accused features and arrived at a rough estimate of fifty 4 percent. He attempted to calculate the effects on Fortinet’s revenue if the accused features were 5 disabled in its products between 2004 and 2012. He also considered the Georgia Pacific factor 6 concerning the “profit credited to the invention as distinguished from non-patentable elements” 7 and concluded that the non-accused features exerted “substantial . . . downward pressure” on the 8 royalty calculation. He ended up with a running royalty rate of four percent of sales of the 9 accused products (id. at 62–64, 75–77). This order agrees with Fortinet that NPS has failed to provide sufficient evidence that the 11 For the Northern District of California United States District Court 10 patented features drive demand for any Fortinet product, much less for all 70+ products. 12 Therefore, use of the entire market value rule will not be allowed. 13 NPS replies that Mr. Jarosz “correctly performed the apportionment analysis required by 14 the Federal Circuit by first ascertaining the smallest salable patent-practicing unit, and then 15 analyzing the proportion of product value derived from the allegedly infringing technology” 16 (Dkt. No. 261 at 5). Analytically, this statement is incomplete. When using a multi-component 17 product as a royalty base, even if it is the smallest salable unit, a patentee must still show that the 18 patented feature drives demand for the entire product. 19 LaserDynamics is controlling. There, the patented technology permitted an optical disk 20 drive (ODD) to automatically distinguish between the type of disk inserted in the drive — for 21 example, whether the disk was CD or a DVD. Since Quanta did not sell ODDs, the plaintiff 22 LaserDynamics argued that the smallest salable units were defendant’s laptop computers. The 23 district court granted a new trial on the ground that the LaserDynamics’ damages expert 24 improperly relied on the entire market value of the accused product. On appeal, LaserDynamics 25 argued that, given the lack of reliable information about the price of the ODD component, 26 practical necessity compelled using the laptop as a royalty base. The Federal Circuit disagreed, 27 stating: 28 LaserDynamics’ necessity argument also fails to address the fundamental concern of the entire market value rule, since 11 1 permitting LaserDynamics to use a laptop computer royalty base does not ensure that the royalty rate applied thereto does not overreach and encompass components not covered by the patent. That is, if difficulty in precisely identifying the value of the ODDs is what justifies using complete laptop computers as the royalty base, when it comes time to then apportion a royalty rate that accounts for the ODD contribution only, the exceedingly difficult and error-prone task of discerning the ODD’s value relative to all other components in the laptop remains. 2 3 4 5 6 LaserDynamics, 694 F.3d at 56, 60 (emphasis added). 7 Substantial risk of calculation error and impermissible speculation are not the only 8 concerns addressed by the entire market value rule. The rule also prevents the creation of unfair 9 jury prejudice: 18 Regardless of the chosen royalty rate, one way in which the error of an improperly admitted entire market value rule theory manifests itself is in the disclosure of the revenues earned by the accused infringer associated with a complete product rather than the patented component only. In Uniloc, we observed that such disclosure to the jury of the overall product revenues “cannot help but skew the damages horizon for the jury, regardless of the contribution of the patented component to this revenue.” Id. at 1320 (noting that “the $19 billion cat was never put back into the bag,” and that neither cross-examination nor a curative jury instruction could have offset the resulting unfair prejudice). Admission of such overall revenues, which have no demonstrated correlation to the value of the patented feature alone, only serve to make a patentee’s proffered damages amount appear modest by comparison, and to artificially inflate the jury’s damages calculation beyond that which is “adequate to compensate for the infringement.” Id.; see 35 U.S.C. § 284. 19 LaserDynamics, 694 F.3d at 68, citing Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1320 20 (Fed. Cir. 2011). 11 For the Northern District of California United States District Court 10 12 13 14 15 16 17 21 NPS’s reliance on Lucent Technologies, Inc. v. Gateway, Inc., 580 F.3d 1301 (Fed. Cir. 22 2009), is misplaced. NPS contends that Lucent stands for the proposition that using the entire 23 market value of a multi-component product is permissible “as long as the proportion of the 24 product represented by the infringing feature is taken into account” (Dkt. No. 261 at 5). Yet, in 25 LaserDynamics the Federal Circuit used the Lucent fact pattern as an example of the high bar set 26 by the entire market value rule: 27 28 [In Lucent], the patent at issue involved a helpful and convenient “date picker” feature that was being used within the grand scheme of Microsoft’s Outlook email software. We held that because the patented feature was “but a tiny feature of one part of a much 12 1 2 3 4 5 larger software program,” a royalty could not be properly calculated based on the value of the entire Outlook program because “there was no evidence that anybody anywhere at any time ever bought Outlook . . . because it had [the patented] date picker.” LaserDynamics, 694 F.3d at 68–69 (emphasis in original). Here, NPS contends that because the accused products are the smallest salable unit, Mr. 6 Jarosz “permissibly used the market value for the entirety of each Fortinet product that infringes 7 . . . taking into account the proportion of the product represented by the allegedly infringing 8 technology.” Applying LaserDynamics to the summary judgment record, this order disagrees. drives demand for products running the FortiOS operating system.” “Indirectly” is not good 11 For the Northern District of California Mr. Jarosz concluded in his report that the “patent in suit either directly or indirectly 10 United States District Court 9 enough. And, Mr. Jarosz also admitted that “product attributes enabled by the patented 12 technology are not the only drivers of demand for the accused products.” Mr. Jarosz further 13 admitted that the accused Fortinet products contain numerous, valuable unpatented features, and 14 that not all customers use the accused products in an infringing manner — i.e., for some users, 15 the accused features are not even significant (Jarosz Rpt. at 24–25, 62, 75–76). Accepting these 16 admissions as true, it cannot be the case that the accused features drive demand for the accused 17 products within the meaning of LaserDynamics. Put differently, NPS has not shown (and a jury 18 could not reasonably find on this record) that the patented components drive demand for any 19 accused products. Using the accused products as a royalty base therefore raises the same specter 20 of error and jury prejudice as in LaserDynamics and runs afoul of the entire market value rule. 21 Under a straightforward application of LaserDynamics, Mr. Jarosz’s analysis cannot be 22 presented to the jury. 23 This leaves the follow-on question of whether NPS should be permitted an opportunity to 24 have a second bite at the apple. Over the course of many years and more than a dozen patent 25 trials, the undersigned judge has concluded that giving a second bite simply encourages 26 overreaching on the first bite (by both sides). A second bite may be appropriate where the expert 27 report can be salvaged with minimal disruption to an orderly trial, but where the report is not 28 even close, there is a positive need to deny a second bite in order to encourage candor in the first 13 1 place. To this must be added the fact that the trial date is only four days away and the parties 2 and the Court have built their calendars around that date. To start over with a new royalty 3 analysis would impose prejudice on the defense as well and disrupt the Court’s calendar, which 4 is burdened with other trials set far into the future. Possibly, plaintiff can cobble together a 5 royalty case based on other disclosed witnesses and evidence. Possibly not. If not, it is a 6 problem clearly of plaintiff’s own overreaching and it will not be allowed a second bite at the 7 apple. 8 CONCLUSION 9 Fortinet’s motion for summary judgment is DENIED. Fortinet’s motion to strike the expert report and exclude the testimony of Dr. Keromytis is DENIED. Fortinet’s motion to strike 11 For the Northern District of California United States District Court 10 the expert report and exclude the testimony of Mr. Jarosz is GRANTED. Fortinet’s related 12 requests for evidentiary hearings on the motions to strike are DENIED. 13 14 IT IS SO ORDERED. 15 16 Dated: September 26, 2013. WILLIAM ALSUP UNITED STATES DISTRICT JUDGE 17 18 19 20 21 22 23 24 25 26 27 28 14
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