Case 3:17-cv-05659-WHA Document 230 Filed 11/12/18 Page 1 of 21
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`IRELL & MANELLA LLP
`Jonathan S. Kagan (SBN 166039)
`jkagan@irell.com
`Joshua P. Glucoft (SBN 301249)
`jglucoft@irell.com
`Casey Curran (SBN 305210)
`ccurran@irell.com
`Sharon Song (SBN 313535)
`ssong@irell.com
`1800 Avenue of the Stars, Suite 900
`Los Angeles, California 90067-4276
`Telephone: (310) 277-1010
`Facsimile: (310) 203-7199
`Rebecca L. Carson (SBN 254105)
`rcarson@irell.com
`Kevin Wang (SBN 318024)
`kwang@irell.com
`840 Newport Center Drive, Suite 400
`Newport Beach, California 92660-6324
`Telephone: (949) 760-0991
`Facsimile: (949) 760-5200
`Attorneys for Defendant
`JUNIPER NETWORKS, INC.
`
`FINJAN, INC.,
`Plaintiff,
`
`vs.
`
`JUNIPER NETWORKS, INC.,
`Defendant.
`
`UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF CALIFORNIA
`SAN FRANCISCO DIVISION
`)
`Case No. 3:17-cv-05659-WHA
`)
`DEFENDANT JUNIPER NETWORKS,
`)
`INC.’S NOTICE OF MOTION AND
`)
`MOTION TO EXCLUDE THE
`)
`TESTIMONY OF MR. KEVIN M. ARST;
`)
`MEMORANDUM OF POINTS &
`)
`AUTHORITIES IN SUPPORT THEREOF
`)
`)
`Date: Nov. 29, 2018
`)
`Time: 8:00 AM
`)
`Courtroom: Courtroom 12, 19th Floor
`)
`Before: Hon. William Alsup
`
`10607865
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`JUNIPER’S MOTION TO EXCLUDE THE TESTIMONY OF MR.
`KEVIN M. ARST
`Case No. 3:17-cv-05659-WHA
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`A Registered Limited Liability
`Law Partnership Including
`Professional Corporations
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`Professional Corporations
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`Case 3:17-cv-05659-WHA Document 230 Filed 11/12/18 Page 2 of 21
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`NOTICE OF MOTION AND MOTION
`TO ALL PARTIES AND THEIR COUNSEL OF RECORD:
`PLEASE TAKE NOTICE THAT pursuant to Federal Rule of Civil Procedure 5.2(d), Civil
`Local Rules 7-11 and 79-5, and the Court’s Scheduling Order governing this motion (Dkt. No. 215),
`Defendant Juniper Networks, Inc. (“Juniper”) respectfully moves the Court for an Order excluding
`the testimony of Mr. Kevin M. Arst as inadmissible under Federal Rule of Evidence Rule 702.
`This motion is based upon this Notice of Motion; the accompanying Memorandum of Points
`and Authorities; the Declaration of Alex Icasiano submitted herewith; such other evidence and
`arguments as the Court may consider; and all other matters of which the Court may take judicial
`notice.
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`JUNIPER’S MOTION TO EXCLUDE THE TESTIMONY OF
`MR. KEVIN M. ARST
`Case No. 3:17-cv-05659-WHA
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`Case 3:17-cv-05659-WHA Document 230 Filed 11/12/18 Page 3 of 21
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`TABLE OF CONTENTS
`
`Page
`INTRODUCTION ............................................................................................................... 1
`LEGAL STANDARDS ....................................................................................................... 2
`OVERVIEW OF MR. ARST’S DAMAGES OPINION .................................................... 3
`ARGUMENT ...................................................................................................................... 5
`A.
`Mr. Arst’s Damages Theory Defies Basic Economic Principles. ........................... 5
`B.
`Mr. Arst’s Opinion Is Unreliable And Unsupported. .............................................. 8
`C.
`Mr. Arst Should Not Be Allowed To Taint The Jury By Presenting
`Testimony That Grossly Overstates Information On Accused Units
`And Revenues. ...................................................................................................... 12
`Mr. Arst Should Not Be Given Leave To Amend ................................................. 15
`
`D.
`
`
`
`I.
`II.
`III.
`IV.
`
`
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`JUNIPER’S MOTION TO EXCLUDE THE TESTIMONY OF
`MR. KEVIN M. ARST
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`A Registered Limited Liability
`Law Partnership Including
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`IRELL & MANELLA LLP
`A Registered Limited Liability
`Law Partnership Including
`Professional Corporations
`
`TABLE OF AUTHORITIES
`
`Page(s)
`
`Cases
`
`
`
`Apple Inc. v. Motorola, Inc.,
`757 F.3d 1286 (Fed. Cir. 2014), overruled on other grounds by Williamson v.
`Citrix Online, LLC, 792 F.3d 1339 (Fed. Cir. 2015) ..................................................................10
`
`Apple, Inc. v. Motorola, Inc.,
`2012 WL 1959560 (N.D. Ill. 2012) (Posner, J. sitting by designation) .....................................12
`
`Area 55, Inc. v. Amazon.com, Inc,
`2012 WL 12846975 (S.D. Cal. July 24, 2012) .............................................................................8
`
`Bloom v. J.P. Morgan Chase & Co.,
`No. C 09-03418 WHA, 2010 WL 4939951 (N.D. Cal. Nov. 30, 2010) ......................................2
`
`Carnegie Mellon Univ. v. Marvell Tech. Grp., Ltd.,
`807 F.3d 1283 (Fed. Cir. 2015) ................................................................................................2, 8
`
`Central Soya Co. v. Geo A Hormel Co.,
`723 F.2d 1573 (Fed. Cir. 1983) ..................................................................................................12
`
`Daubert v. Merrell Dow Pharm., Inc.,
`509 U.S. 579 (1993) .................................................................................................................2, 7
`
`Finjan, Inc. v. Blue Coat Sys., Inc.,
`2015 WL 4272870 (N.D. Cal. July 24, 2015) ........................................................................6, 15
`
`Finjan, Inc. v. Sophos, Inc.,
`2016 WL 4268659 (N.D. Cal. Aug. 15, 2016) .......................................................................6, 15
`
`Gen. Elec. Co. v. Joiner,
`522 U.S. 136 (1997) ...............................................................................................................2, 11
`
`General Electric Co. v. Joiner,
`118 S.Ct. 512 (1997) ..................................................................................................................10
`
`Golden Blount, Inc. v. Robert H. Peterson Co.,
`438 F.3d 1354 (Fed. Cir. 2006) ..................................................................................................14
`
`Homeland Housewares, LLC v. Whirlpool Corp.,
`865 F.3d 1372 (Fed. Cir. 2017) ..................................................................................................14
`
`Integra Lifesciences I, Ltd. v. Merck KgaA,
`2000 WL 35717873 (S.D. Cal. Jan. 27, 2000) .............................................................................8
`
`LaserDynamics, Inc. v. Quanta Comput., Inc.,
`694 F.3d 51 (Fed. Cir. 2012) .....................................................................................................13
`
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`JUNIPER’S MOTION TO EXCLUDE THE TESTIMONY OF
`MR. KEVIN M. ARST
`Case No. 3:17-cv-05659-WHA
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`Page(s)
`
`Mobil Oil Corp. v. Amoco Chem. Corp.,
`915 F. Supp. 1333 (D. Del. 1994) ................................................................................................5
`
`Monolithic Power Systems, Inc. v. O2 Micro Int’l, Ltd.,
`476 F. Supp. 2d 1143 (N.D. Cal. 2007) .............................................................................7, 9, 12
`
`Network Protection Sci., LLC v. Fortinent, Inc.,
`2013 WL 5402089 (N.D. Cal. Sept. 26, 2013) ...........................................................................15
`
`Oiness v. Walgreen Co.,
`88 F.3d 1025 (Fed. Cir. 1996) ....................................................................................................12
`
`Oracle Am., Inc. v. Google, Inc.,
`2012 WL 877125 (N.D. Cal. Mar. 15, 2012) ...............................................................................6
`
`Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc.,
`711 F.3d 1348 (Fed. Cir. 2013) ..................................................................................................13
`
`Prism Techs. LLC v. Sprint Spectrum L.P.,
`849 F.3d 1360 (Fed. Cir. 2017) ....................................................................................................8
`
`Riles v. Shell Exploration & Prod. Co.,
`298 F.3d 1302 (Fed. Cir. 2002) ....................................................................................................5
`
`In re Roundup Prod. Liab. Litig.,
`2018 WL 3368534 (N.D. Cal. July 10, 2018) ............................................................................10
`
`Sport Dimension, Inc. v. Coleman Co.,
`820 F.3d 1316 (Fed. Cir. 2016) ....................................................................................................2
`
`Telcordia Techs., Inc. v. Lucent Techs., Inc.,
`2007 WL 7076662 (D. Del. Apr. 27, 2007) ...............................................................................14
`
`Viasat, Inc. v. Space Sys./Loral, Inc.,
`2014 WL 3896073 (S.D. Cal. Aug. 8, 2014) ...............................................................................8
`
`XpertUniverse, Inc. v. Cisco Sys., Inc.,
`2013 WL 936449 (D. Del. Mar. 11, 2013) ...............................................................................7, 8
`
`Other Authorities
`
`Fed. R. Evid. 702 ................................................................................................................1, 2, 10, 15
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`JUNIPER’S MOTION TO EXCLUDE THE TESTIMONY OF
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`IRELL & MANELLA LLP
`A Registered Limited Liability
`Law Partnership Including
`Professional Corporations
`
`MEMORANDUM OF POINTS AND AUTHORITIES
`Defendant Juniper Networks, Inc. (“Juniper”) moves the Court for an order excluding the
`testimony of Mr. Kevin M. Arst, Plaintiff Finjan, Inc.’s (“Finjan”) damages expert.
`I.
`INTRODUCTION
`Finjan alleges that “(1) Juniper’s SRX Gateways used in combination with Sky ATP, and
`(2) Sky ATP alone (‘Accused Products’)” infringe Claim 10 of the ’494 Patent. Dkt. No. 98 (Finjan’s
`MSJ) at 1-2. Juniper’s total revenues for the Accused Products during the damages period are under
`$1.8 million. However, for Juniper’s alleged infringement of Claim 10, Finjan’s damages expert,
`Kevin M. Arst, proposes a “reasonably royalty” of between $60-$70 million—amounting to a
`royalty rate of nearly 4,000.00%. Mr. Arst does not contend that Juniper’s Sky ATP service or the
`SRX devices used with Sky ATP drive demand for other sales, and also admits that each of those
`products “has a substantial number of features that contribute to consumer demand.” The staggering
`disconnect between Juniper’s accused revenues and Mr. Arst’s proposed “reasonable royalty”
`exposes the unreliability of Mr. Arst’s damages opinion. Mr. Arst’s opinion is inadmissible under
`Rule 702 of the Federal Rules of Evidence for multiple reasons:
`• Mr. Arst purports to apply a “costing savings” approach, claiming that Juniper “saved”
`$60-$70 million by using the claimed invention, and would have paid this amount to
`Finjan as a reasonable royalty. But the notion that Juniper would have agreed to pay
`Finjan $60-$70 million on sales of $1.8 million defies basic laws of economics.
`• Mr. Arst’s proposed lump sum—which equates to a royalty rate close to 4,000.00%—is
`refuted by Finjan’s own fact witnesses, who uniformly testified that Finjan takes the same
`approach in every licensing negotiation: it starts with an 8% royalty rate on gross sales of
`hardware products, and a 16% royalty rate on gross sales of software products for a
`portfolio license, and then negotiates down from those rates based on licensee-specific
`factors. Ex. 6 (Hartstein Dep.) at 43:3-5; Ex. 2 (Garland Dep.) at 116:15-19.
`• Mr. Arst’s cost savings theory—which blindly relies on the unsupported and unreliable
`conclusions of Finjan’s technical expert, Dr. Cole—rests on misinterpretations of the
`underlying data and unreasonable assumptions, which leads to a drastic overstatement of
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`Case 3:17-cv-05659-WHA Document 230 Filed 11/12/18 Page 7 of 21
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`the benefits of Claim 10 of the ’494 Patent to the Accused Products.
`• Mr. Arst inflates the accused units and revenues by including in his analysis SRX devices
`that were never enabled for use in combination with Sky ATP, and SRX devices that are
`not even compatible for use with Sky ATP.
`As highlighted by each of the above-stated reasons, Mr. Arst has failed to perform “the key
`inquiry” for a reasonable royalty analysis—determining “what it would have been worth to
`[Juniper], as it saw things at the time, to obtain the authority to use the patented technology,
`considering the benefits it would expect to receive from using the technology and the alternatives it
`might have pursued.” See Carnegie Mellon Univ. v. Marvell Tech. Grp., Ltd., 807 F.3d 1283, 1304
`(Fed. Cir. 2015). Mr. Arst’s opinion that a license to Claim 10 of the ’494 Patent “would have been
`worth” $60 million or more to Juniper so it could sell accused products that generated less than $1.8
`million in revenues is economically unsound on its face. Here, “there is simply too great an
`analytical gap between the data and the opinion proffered” and the Court should preclude Finjan
`from presenting Mr. Arst’s flawed analyses. See Gen. Elec. Co. v. Joiner, 522 U.S. 136, 146 (1997).
`II.
`LEGAL STANDARDS
`An expert witness may only provide opinion testimony “if (a) the expert’s scientific,
`technical, or other specialized knowledge will help the trier of fact to understand the evidence or to
`determine a fact issue; (b) the testimony is based on sufficient facts or data; (c) the testimony is the
`product of reliable principles and methods; and (d) the expert has reliably applied the principles and
`methods to the facts of the case.” Fed. R. Evid. 702. “It is the trial court’s responsibility to ensure
`‘that an expert’s testimony both rests on a reliable foundation and is relevant to the task at hand.’”
`Bloom v. J.P. Morgan Chase & Co., No. C 09-03418 WHA, 2010 WL 4939951, at *1 (N.D. Cal.
`Nov. 30, 2010) (quoting Daubert v. Merrell Dow Pharm., Inc., 509 U.S. 579, 597 (1993)). “In
`making this determination, the judge must make ‘a preliminary assessment of whether the reasoning
`or methodology underlying the testimony is . . . valid’ and ‘whether that reasoning or methodology
`properly can be applied to the facts in issue.’” Id. (quoting Daubert, 509 U.S. at 592–93); see also
`Sport Dimension, Inc. v. Coleman Co., 820 F.3d 1316, 1323 (Fed. Cir. 2016).
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`III. OVERVIEW OF MR. ARST’S DAMAGES OPINION
`As Finjan stated in its Motion for Summary Judgment, Finjan’s allegations of infringement
`for Claim 10 are limited to “(1) Juniper’s SRX Gateways used in combination with Sky ATP and
`(2) Sky ATP alone.” Dkt. No. 98 at 1-2. Juniper’s Sky ATP is a cloud-based malware protection
`service that is offered as an add-on to certain SRX devices. Some SRX models do not work with
`Sky ATP. Ex. 3 (Sky ATP Supported Platforms Guide) at 2 (showing that only some SRX models
`support Sky ATP). If a user has a Sky ATP-compatible SRX, that user can use Sky ATP with the
`SRX if and only if it activates a Sky ATP license from Juniper, which requires the user to register
`the SRX and create an account. Ex. 4 (Sky ATP Admin Guide) at 15. Absent this license registration,
`an SRX cannot work “in combination with Sky ATP.” Juniper offers free licenses to Sky ATP, as
`well as paid basic and premium licenses. Dkt. No. 96-3 (Tenorio Decl.) ¶ 3. Each Sky ATP license
`can be configured with only one corresponding, compatible SRX unit. Icasiano Decl. ¶ 3.
`Between September 2015, when Juniper announced the release of Sky ATP, and January
`2017, when the ’494 Patent expired, Juniper sold
` premium Sky ATP licenses to SRX customers
`located in the Americas, and
` customers registered for free Sky ATP licenses. Ex. 5 (Ugone Rpt.)
`at p. 40 Table 4; Icasiano Decl. ¶ 4. Thus, only
` SRX devices were “used in combination with
`Sky ATP” in the Americas during the damages period. Id. During the same period, Juniper received
` in revenue for premium Sky ATP licenses and
` in total revenue for all
`
`“SRX Gateways” that could have been “used in combination with Sky ATP.” Ex. 5 (Ugone Rpt.) at
`p. 42, Table 5. Mr. Arst ignores these facts, and instead uses in his analysis the sales of all SRX
`devices—regardless of whether they were ever enabled to be used in combination with Sky ATP,
`and including SRX models that are not even compatible for use with Sky ATP. See Ex. 1 (Errata to
`Arst Rpt.) at Suppl. Exs. 1.4 & 1.5.
`When Sky ATP receives a file from a compatible, enabled SRX unit, it hashes the file and
`determines if the system has previously analyzed the file. This takes approximately one second. If
`the hash returns no results, then the file proceeds through Sky ATP’s malware analysis pipeline,
`which includes an antivirus engine (~5 seconds), static analysis (~30 seconds), and dynamic analysis
`(sometimes called “sandboxing”) (~6-7 minutes). Ex. 4 (Sky ATP Admin Guide) at 9-10. When the
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`JUNIPER’S MOTION TO EXCLUDE THE TESTIMONY OF
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`analysis is complete, Sky ATP determines a threat level verdict score (a score from 1 to 10 indicating
`the level of threat the file poses), sends that score to the SRX, and stores the score along with the
`complete analysis results in DynamoDB or Simple Storage Service (“S3”), storage solutions
`provided by Amazon Web Services (“AWS”). Id. at 9-11. If the file has been analyzed before and
`the hash returns a result, then Sky ATP simply sends the corresponding threat level verdict score to
`the SRX. Id. Juniper uses the AWS cloud server to perform the hash lookup, antivirus scanning,
`static analysis, and to store the analysis results. Icasiano Decl. ¶ 5. It rents physical servers from
`iWeb to perform the dynamic analysis. Icasiano Decl. ¶ 6.
`Relying on Finjan’s technical expert, Dr. Cole, Mr. Arst asserts that Juniper would be unable
`to store any analysis results without infringing Claim 10, and its best non-infringing alternative
`would have been to re-process files each time they are received. Ex. 1 (Arst Rpt.) at 31. That is, Sky
`ATP would no longer determine whether it had seen a particular file before (the hash lookup) or
`store the analysis results in DynamoDB or S3, so every file would proceed through the entire
`analysis pipeline. In this hypothetical, Mr. Arst asserts, every file received from an SRX would be
`subject to dynamic analysis, which takes Sky ATP 6-7 additional minutes to complete.
`Mr. Arst makes two fundamental errors. First, he assumes that all costs from Juniper’s AWS
`invoices are attributable to Sky ATP’s dynamic analysis. This is wrong;
`
`
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` Id. ¶ 6. Thus, Juniper’s AWS
`costs would not increase if Sky ATP had to perform dynamic analysis on every file received from
`an SRX, and Mr. Arst and Dr. Cole failed to offer any analysis or evidence that Juniper would face
`increased processing costs from
`—the service that actually performs dynamic analysis.
`Mr. Arst purports to calculate the (non-existent) dynamic analysis-related AWS costs
`Juniper allegedly saved by using the claimed invention based on the total worldwide sales of all
`SRX devices—the vast majority of which are not accused of infringement, as they are neither used,
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`nor even compatible, with Sky ATP—to determine a “U.S. Apportionment Factor.” Ex. 1 (Arst Rpt.)
`at 31 n.100, Errata Ex. 1.1, Errata Ex. 1.2. He then applies that factor to Juniper’s total AWS costs—
`none of which were for dynamic analysis—to derive so-called “U.S. apportioned Sky ATP AWS
`costs” totaling
` over the damages period. Id. at Errata Ex. 1.1, Errata Ex. 1.2
`Mr. Arst next multiplies that number by a “Cost Savings Factor” of 359 and 419, derived
`largely from Dr. Cole as follows: According to Dr. Cole, if Juniper were unable to store analysis
`results, it would have spent an average of 6-7 minutes dynamically analyzing (sandboxing) the files
`every time they are received instead of being able to look up previously-analyzed files using a
`hash—which only takes a second. Without explanation or analysis, and even though there is no
`evidence that Amazon charges by processing time much less by second, Mr. Arst and Dr. Cole
`speculate that “the number of servers that would be required to process a file for sandboxing would
`be 360-420 times greater (6-7 minutes * 60 seconds) than what is required to serve the file from the
`database of results (1 second).” Ex. 1 (Arst Rpt.) at 31. From this, Mr. Arst concludes that his
` in U.S. apportioned Sky ATP AWS costs would have been between 359 and 419 times
`higher (360 seconds minus one second and 420 minus one second) without the use of Claim 10,
`resulting in a purported $60-$70 million in additional AWS costs Juniper saved. Id.
`Finally, after walking through the Georgia-Pacific factors, Mr. Arst concludes that Juniper
`would have agreed to pay Finjan 100% of this alleged cost saving as a reasonable royalty.
`IV. ARGUMENT
`A. Mr. Arst’s Damages Theory Defies Basic Economic Principles.
`Mr. Arst’s damages theory must be excluded because it is economically nonsensical.
`Mr. Arst postulates that Juniper would have been willing to pay a “reasonable royalty” of $60-$70
`million to obtain a 14-month license to sell products that generated less than
`
`. A proper reasonable royalty analysis “requires sound economic and factual
`predicates.” Riles v. Shell Expl. & Prod. Co., 298 F.3d 1302, 1311 (Fed. Cir. 2002). Mr. Arst’s
`damages theory lacks both and flunks the “reality test.” Mobil Oil Corp. v. Amoco Chem. Corp.,
`915 F. Supp. 1333, 1365 (D. Del. 1994) (“The hypothetically negotiated royalty must be
`reasonable—it must pass a reality test.”).
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`JUNIPER’S MOTION TO EXCLUDE THE TESTIMONY OF
`MR. KEVIN M. ARST
`Case No. 3:17-cv-05659-WHA
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`While there may be some instances where a licensee may be willing to pay a royalty that
`exceeds its revenues—e.g., where the technology at issue will drive sales of other products or where
`customers would be willing to pay a higher price—Mr. Arst has provided no explanation for why
`Juniper would agree to take a
` million loss on Sky ATP. Indeed, Mr. Arst did not even bother
`to analyze whether the release of Sky ATP had any meaningful impact on SRX sales, much less on
`any other Juniper products or services. Ex. 7 (Arst Dep.) at 72:13-20; 73:19-74:2. Mr. Arst also
`failed to provide any evidence that Juniper’s customers would be willing to pay extra to cover the
`increased costs. Id. at 83:2-20. To the contrary, the fact that
`
`
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`1 And there is even less demand for the
`
`’494 patented technology allegedly incorporated into
`: Mr. Arst admits, as he must, that the Accused Products have “a substantial number of features
`that contribute to consumer demand.” Ex. 1 (Arst Rpt.) at 44-45.
`Further, Mr. Arst fails to provide a satisfactory explanation as to why Finjan would insist on
`a royalty rate that is orders of magnitude higher than its “standard” rates. Finjan witnesses have
`emphasized time and again in its past litigations and in this case that Finjan’s standard starting
`position is an 8% royalty rate on infringing hardware and a 16% royalty rate on infringing software.
`See, e.g., Ex. 8 (Blue Coat Trial Tr.) at 256:5-12 (Finjan’s CEO Philip Hartstein: “Q. Does Finjan
`have a starting approach when it reaches out to a potential licensee? A. We do. Our rates are – and
`these will sound familiar to you – these are 8% for hardware, 16% for software . . . .”); Ex. 9 (Sophos
`Trial Tr.) at 825:4-6 (Finjan’s Damages Expert: “I think that the evidence establishes that Finjan
`has an established licensing rate: 8 percent of total revenues on hardware; 16 percent of total
`revenues on software.”); Ex. 6 (Hartstein Dep.) at 42:25-43:5 (“So in our licensing negotiations, we
`use 8 and 16 percent as a starting point for defining the value of that license.”); id.at 83:11-15
`
`
`1 While Juniper recognizes that “[t]he infringer’s revenue from the infringement does not
`cap the amount of a reasonable royalty,” this does not mean that a damages expert can simply
`ignore the revenues altogether. See Oracle Am., Inc. v. Google, Inc., 2012 WL 877125, at *4 (N.D.
`Cal. Mar. 15, 2012).
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`JUNIPER’S MOTION TO EXCLUDE THE TESTIMONY OF
`MR. KEVIN M. ARST
`Case No. 3:17-cv-05659-WHA
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`REDACTED VERSION OF DOCUMENT SOUGHT TO BE SEALED
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`Case 3:17-cv-05659-WHA Document 230 Filed 11/12/18 Page 12 of 21
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`(“Q.·What is the highest royalty rate that Finjan has ever proposed to a potential licensee? A. I
`would suspect it would not exceed 16 percent.”). If Finjan were to propose its standard 8%/16%
`starting rates here, its damages demand would be reduced from $60-$70 million to
`
`Further, a downward departure from Finjan’s “standard rates” is justified here, where there is only
`one patent-at-issue, and that patent was set to expire a mere 14 months after the hypothetical
`negotiation.
`
` In contrast to Finjan’s standard 8%/16% starting points for a
`downward negotiation, Mr. Arst effectively proposes a nearly 4,000.00% royalty rate.
`Courts faced with similar economically unsound opinions have excluded them. For example,
`in Monolithic Power Sys., Inc. v. O2 Micro Int’l, Ltd., 476 F. Supp. 2d 1143 (N.D. Cal. 2007), the
`court granted the defendant’s Daubert motion where plaintiff’s expert offered a reasonable royalty
`analysis seeking $149 million in royalties where total sales of accused products was $77.9 million
`and not all of the products included in the sales base practiced the accused technology. Id. at 1154-
`56. The court found that the plaintiff’s expert failed to “account for the law of supply and demand”
`by assuming that the number of sales made would stay constant despite the higher price that would
`be necessitated by the proposed royalty. Id. at 1155.
`Similarly, in XpertUniverse, Inc. v. Cisco Sys., Inc., 2013 WL 936449, at *3–4 (D. Del.
`Mar. 11, 2013), the plaintiff’s damages expert opined that defendants should pay a lump sum of
`$32.5 million where sales of the accused products amounted to around $937,000. Id. There were
`license agreements in the record with a 3-5% royalty rate. Id. at *3. “Applying a 3–5% royalty rate
`to this base [would have] result[ed]’’ in total damages between “$38,962 and $64,938.” Id.
`However, plaintiff’s damages expert “provide[d] no basis for comparison between these amounts
`[$38,962 - $64,938] and his $32 million amount” and did not “provide any explanation as to how
`the two running royalty agreements are probative of his $32 million lump sum payment.” Id. Further,
`plaintiff’s damages expert did not “provide any expectation of how often the patented technology
`would be used by consumers” and evidence indicated any expected sales would be low. Id. The
`court rejected the plaintiff’s explanation that sales of the accused products would lead to “significant
`convoyed sales,” as there was insufficient evidence to support this theory. Id. The court thus found
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`JUNIPER’S MOTION TO EXCLUDE THE TESTIMONY OF
`MR. KEVIN M. ARST
`Case No. 3:17-cv-05659-WHA
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`REDACTED VERSION OF DOCUMENT SOUGHT TO BE SEALED
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`that the plaintiff’s damages expert’s “conclusion: $32 million in a lump sum royalty on $937,000 in
`sales of accused products simply makes no sense.” Id. As in XpertUniverse, Mr. Arst fails to account
`for Finjan’s own “standard” royalty rate starting points, and fails to provide a basis for his own
`nearly 4,000.00% rate.
`Because Finjan bears the burden of proving damages, Mr. Arst was required to provide some
`justification as to why Juniper would agree to an amount so far in excess of its revenues. Carnegie
`Mellon, 807 F.3d at 1304 (“A key inquiry in the analysis is what it would have been worth to the
`defendant, as it saw things at the time, to obtain the authority to use the patented technology,
`considering the benefits it would expect to receive from using the technology and the alternatives it
`might have pursued.”); see also Viasat, Inc. v. Space Sys./Loral, Inc., 2014 WL 3896073, at *9 (S.D.
`Cal. Aug. 8, 2014) (granting new trial where damages expert “offered no reason why [the accused
`infringer] would have willingly agreed to pay six times more than its anticipated profits on the
`[accused product]”); Area 55, Inc. v. Amazon.com, Inc., 2012 WL 12846975, at *7 (S.D. Cal.
`July 24, 2012) (excluding expert whose opinion was “not based on sound economic principles.”).
`Mr. Arst’s opinion fails as a matter of fundamental economics and should be excluded in its entirety.
`B. Mr. Arst’s Opinion Is Unreliable And Unsupported.
`Mr. Arst’s “cost savings” approach is riddled with unsupported assumptions and errors,
`rendering it unreliable and inadmissible. The cost savings approach compares the costs associated
`with infringement to the costs associated with the next best non-infringing alternative. Prism Techs.
`LLC v. Sprint Spectrum L.P., 849 F.3d 1360, 1376 (Fed. Cir. 2017) (“A price for a hypothetical
`license may appropriately be based on consideration of the ‘costs and availability of non-infringing
`alternatives’ and the potential infringer’s ‘cost savings.’