Case 3:17-cv-05659-WHA Document 245 Filed 11/23/18 Page 1 of 10
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`
`
`PAUL ANDRE (State Bar No. 196585)
`pandre@kramerlevin.com
`LISA KOBIALKA (State Bar No. 191404)
`lkobialka@kramerlevin.com
`JAMES HANNAH (State Bar No. 237978)
`jhannah@kramerlevin.com
`KRISTOPHER KASTENS (State Bar No. 254797)
`kkastens@kramerlevin.com
`KRAMER LEVIN NAFTALIS & FRANKEL LLP
`990 Marsh Road
`Menlo Park, CA 94025
`Telephone: (650) 752-1700
`Facsimile: (650) 752-1800
`
`Attorneys for Plaintiff
`FINJAN, INC.
`
`
`IN THE UNITED STATES DISTRICT COURT
`
`FOR THE NORTHERN DISTRICT OF CALIFORNIA
`
`SAN FRANCISCO DIVISION
`
`FINJAN, INC., a Delaware Corporation,
`
`
`
`
`
`
`Plaintiff,
`
`v.
`
`
`JUNIPER NETWORKS, INC., a Delaware
`Corporation,
`
`
`Defendant.
`
`
`
`Case No.: 3:17-cv-05659-WHA
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`
`PLAINTIFF FINJAN, INC.’S REPLY BRIEF
`IN SUPPORT OF ITS MOTION TO
`EXCLUDE OPINIONS OF DAMAGES
`EXPERT DR. KEITH UGONE
`
`November 29, 2018
`Date:
`8:00 a.m.
`Time:
`Courtroom: 12 - 19th Floor
`Judge: William Alsup
`
`
`
`
`
`
`REDACTED VERSION OF DOCUMENT SOUGHT TO BE SEALED
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`FINJAN’S REPLY TO ITS MOTION TO EXCLUDE
`OPINIONS OF DR. KEITH R. UGONE
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`Case 3:17-cv-05659-WHA Document 245 Filed 11/23/18 Page 2 of 10
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`I.
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`INTRODUCTION
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`The Court should grant Finjan’s Motion to Exclude Opinions of Juniper’s Damages Expert Dr.
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`Ugone (“Motion”) regarding damages because his opinions are based on unreliable information, and he
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`failed to assume infringement. In his November 7, 2018 rebuttal expert report, Dr. Ugone performed
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`no economic analysis of the license agreements he relies on, ignored other relevant license agreements,
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`and did not address the similarities and differences between prior patent licenses and the hypothetical
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`negotiation, which he is required to do under Federal Circuit precedent. Second, Dr. Ugone’s rebuttal
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`damages opinion is not tied Finjan’s infringement assertions, but rather Juniper’s version of the case
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`which improperly excludes revenues of accused SRX products. Third, Dr. Ugone provided no basis
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`for using “profits” as a constraint of a reasonable royalty. Fourth, Dr. Ugone performed no
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`independent economic analysis of non-infringing alternatives that will be useful to the jury. For at least
`these multiple reasons, the Court should exclude Dr. Ugone’s opinions1.
`II.
`ARGUMENT
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`A.
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`The Court Should Exclude Dr. Ugone’s Opinions Regarding Comparable License
`Agreements
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`1.
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`Dr. Ugone Failed to Conduct An Analysis of the Economic Comparability of
`Juniper’s License Agreements.
`Juniper cannot (and, in fact, does not) dispute that Dr. Ugone failed to provide any economic
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`analysis in his expert report of how Juniper license agreements are comparable to the hypothetical
`negotiation. Ugone Report2, at ¶¶115-22. Instead, Juniper’s opposition admits that Dr. Ugone’s only
`basis for relying on four specific Juniper license agreements (
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`
`) is the opinions of Juniper’s technical expert, Dr. Rubin, regarding their
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`purportedly “similar” technology. Declaration of Kristopher Kastens (“Kastens Decl.”) filed herewith,
`Ex. 1 (Ugone Tr.) at 148:25-150:16. Notwithstanding the lack of merit to Dr. Rubin’s technical
`opinions, Dr. Ugone did not provide any economic analysis of those licenses. Ugone Report, at ¶¶115-
`
`
`1 Juniper incorrectly alleges that Finjan exceeded the Court’s limitation on the maximum number of
`pages to attach to its Daubert motion. Opp. at 1, n.1. Excluding exhibit cover slipsheets and pages of
`expert reports, Finjan attached 48 pages of exhibits to its Daubert motion. Dkt. Nos. 229, 231.
`2 Dr. Ugone’s Report is attached as Exhibit 1 to Finjan’s Motion to Exclude. Dkt. No. 229-6.
`1
`FINJAN’S REPLY TO ITS MOTION TO EXCLUDE
`OPINIONS OF DR. KEITH R. UGONE
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`Case 3:17-cv-05659-WHA Document 245 Filed 11/23/18 Page 3 of 10
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`22.
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`Damages experts are required to analyze the “economic” aspect of patent licenses, which Dr.
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`Ugone ignored, and which Dr. Rubin also did not do. See Wordtech Sys., Inc. v. Integrated Network
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`Solutions, Inc., 609 F.3d 1308, 1320 (Fed. Cir. 2010) (comparisons of past licenses should account for
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`“technological and economic differences”) (citation omitted); Ugone Report, at ¶¶115-22. Dr. Ugone
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`admitted at deposition that he did not review any negotiation documents or have any information about
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`how the license fees were calculated. Kastens Decl., Ex. 1 (Ugone Tr.) at 150:12-16. He also admitted
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`that he did not consider the number of patents at issue in the license agreements, the expiration dates of
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`the licensed patents, and whether any of the licensees were similar in negotiating position to Finjan.
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`Id. at 153:15-154:8, 155:7-156:8. Importantly, three of the licenses he relies on are settlement
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`agreements, and the fourth is a software license, which Dr. Ugone admitted was different from a naked
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`patent license. Ugone Report, at ¶¶ 115-22; Kastens Decl., Ex. 1 (Ugone Tr.) at 156:21-162:6.
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`Although his conclusion was that the three licenses he chose to rely on are “value indicators” and a
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`“reasonableness check” on his damages amount, Dr. Ugone fails to explain and account for any
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`differences that exist between those license agreements and the circumstances of the hypothetical
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`negotiation. Id.; Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292, 1317 (Fed. Cir. 2011) (“there
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`must be a basis in fact to associate the royalty rates used in the prior licenses to the particular
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`hypothetical negotiation at issue in the case”). Therefore, Finjan requests the Court exclude Dr.
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`Ugone’s opinions regarding Juniper’s licenses.
`
`2.
`
`Dr. Ugone Failed to Analyze All of Finjan’s Patent License Agreements
`Regarding the ‘494 Patent.
`Dr. Ugone improperly cherry-picked three of Finjan’s patent license agreements (
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`, F5
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`and Sophos) as “informative” of the hypothetical negotiation based on an insufficient analysis of which
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`licensees were Juniper’s “competitors” and had an “effective” royalty rate. Ugone Report, ¶ 82;
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`Kastens Decl., Ex. 1 (Ugone Tr.) at 146:13-24; 170:20-173:4. Dr. Ugone did not consider any of
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`Finjan’s patent license agreements with other Juniper competitors, and ignored Finjan’s 18 other patent
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`license agreements that specifically concern the ‘494 Patent at issue. Kastens Decl., Ex. 1 (Ugone Tr.)
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`Case 3:17-cv-05659-WHA Document 245 Filed 11/23/18 Page 4 of 10
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`at 146:19-24; Ugone Report at 62 n.209. He relied on Juniper’s 2017 10-K filing with the SEC to
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`identify Juniper’s competitors. Kastens Decl., Ex. 1 (Ugone Tr.) at 171:10-173:4. However, Juniper’s
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`2017 10-K does not provide an exhaustive list of Juniper’s competitors for the accused products, only
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`stating “there are a number of other competitors in the security network infrastructure space,
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`including….” Id., Ex. 2 (2017 Juniper 10-K) at 12. Dr. Ugone admitted at deposition that he did not
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`review any industry or market reports to confirm his list of Juniper’s competitors was accurate. Id.,
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`Ex. 1 (Ugone Tr.) at 172:20-173:4. Thus, Dr. Ugone’s selection process and decision to point to only
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`these agreements as “informative” is arbitrary.
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`To calculate an “effective” rate in the three licenses he cherry-picked, he simply took the final
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`lump sum license fee and retroactively derived an “effective” rate using rates that were proposed
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`during negotiations, although such proposed or “effective” rates were based on the middle of Finjan’s
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`negotiations and there was never any royalty rate, much less an effective royalty rate, agreed to in the
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`final agreements. Ugone Report at ¶ 66; Kastens Decl., Ex. 1 (Ugone Tr.) at 166:15-167:1, 168:3-25.
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`Additionally, for the Sophos license, Dr. Ugone, without explanation, ignores the 8-16% rate that was
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`presented to the jury during the trial, and
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` Ugone Report, ¶ 66, Mot., Ex. 2 (Arst Rpt.) at 10; id., Ex. 6 (Sophos Trial Tr.)
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`
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`at 825:2-9, 843:14-18.
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`Furthermore, Dr. Ugone did not account for what similarities and differences exist between
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`those licensing negotiations as compared to Finjan and Juniper the time of the hypothetical negotiation.
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`Notably, Dr. Ugone did not analyze to what extent the F5 and Sophos licenses are relevant given they
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`were executed more than a year after the hypothetical negotiation date. See e.g. Odetics, Inc. v.
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`Storage Tech. Corp., 185 F.3d 1259, 1276–77 (Fed. Cir. 1999) (agreeing with the district court that, for
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`two licenses entered into after the date of first infringement, “the age of the license agreements, in the
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`context of the changing technology and ‘financial landscape’ at issue, made those agreements
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`irrelevant for the hypothetical negotiation analysis.”). While Juniper opposition brief now argues that
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`the technological comparability of those agreements alone makes them comparable regardless of their
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`3
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`Case 3:17-cv-05659-WHA Document 245 Filed 11/23/18 Page 5 of 10
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`dates, Dr. Ugone concluded the opposite in his report where he expressly distinguished the licensed
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`Sophos and F5 products from the accused Juniper products. Ugone Report at ¶¶ 72, 80, 82(a). Thus,
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`Dr. Ugone had no basis for his opinions regarding these three licenses and Juniper’s belated attempts
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`to change Dr. Ugone’s opinion in its opposition should be disregarded.
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`Dr. Ugone also failed to address the “early resolution” and “acquisition provisions” of license
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`agreements that he acknowledged were important to Finjan’s licensing negotiations. Ugone Report, ¶¶
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`65, 72, 76-80. Specifically, in each of the three licensees he failed to account for the following facts:
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`(1) F5 obtained a license agreement three weeks after a litigation was filed; (2) no litigation was filed
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`against
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`; and (3) there was a litigation against Sophos which
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`
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`went to trial through a jury verdict and successful post-trial motions, unlike the hypothetical
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`negotiation where there was no litigation filed. Kastens Decl., Ex. 3 (
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` license) at 4-5. His
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`failure to compare these circumstances with the hypothetical negotiation in this case made his opinions
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`unreliable.
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`B.
`Dr. Ugone Failed To Assume Infringement In Calculating His Royalty Base
`Dr. Ugone also failed to assume infringement—a well-settled legal assumption that damages
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`experts are required to do. Instead, he improperly relied on Juniper’s technical expert to exclude the
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`following accused SRX device models from his royalty base: (1) certain SRX device models that
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`allegedly cannot interact with Sky ATP, and (2) SRX devices where the user did not activate a license
`to use Sky ATP3. His entire basis is Juniper’s non-infringement arguments. However, contrary to
`Juniper’s baseless assertions, Finjan has not changed its infringement contentions for Claim 10 of the
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`‘494 Patent, nor did Finjan’s counsel “direct” its expert to testify to a new theory at his deposition.
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`The accused products for this claim have remained the same since the beginning of the case: (1) Sky
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`ATP alone and (2) SRX devices in combination with Sky ATP. Therefore, Dr. Ugone’s exclusion of
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`3 Juniper mischaracterizes Finjan’s damages expert, Mr. Arst, to improperly suggest that Finjan’s
`corporate executive somehow “request[ed]” him to include non-accused revenues in an errata. Opp. at
`6. Rather, Mr. Arst testified that his errata was done in order to include revenues for all the accused
`products that Dr. Cole identified, which he inadvertently omitted from his original calculation. Opp.,
`Ex. 6 at 58:5-61:15. The errata did not change his opinion.
`4
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`Case 3:17-cv-05659-WHA Document 245 Filed 11/23/18 Page 6 of 10
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`accused products from his damages calculation based on alleged non-infringement makes his opinions
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`legally erroneous and unreliable.
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`First, Juniper’s argument
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` is a
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`red herring. As the parties agree, Finjan’s infringement contention from the outset of the litigation has
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`been this combination of SRX models with Sky ATP. Opp., Ex. 1 (Cole Tr.) at 96:21-97:5. At issue is
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`Claim 10 of the ‘494 Patent which is a system claim that can have multiple components with different
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`code that is part of the same system and still infringe. That is the case here where all SRX models
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`have code to interact with Sky ATP, and thus, that combination infringes.
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`In an effort to avoid Dr. Ugone from being excluded, two weeks after the service of his expert
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`report, Juniper is now attempting to change the facts with its submission of the conclusory declaration
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`from Juniper’s Security Business Director, Mr. Nagarajan, who states
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`. Opp., Nagarajan Decl. at ¶ 5. Not only is the
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`first instance where Juniper has made this specific assertion in the case, Dr. Ugone did not rely on Mr.
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`Nagarajan’s declaration that was submitted two weeks after his November 7, 2018 report. Thus, the
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`statements of Mr. Nagarajan could not and did not support his opinions. Mr. Nagarajan’s declaration
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`is specifically contradicted by Juniper’s principal software engineer, Mr. Manthena, who
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`
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`Decl., Ex.4 (Manthena Tr). at 11:7-12:12. Mr. Manthena testified at deposition
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`. Kastens
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`. Opp., Ex. 1 (Cole
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`Tr.) at 76:25-78:1, 78:23-79:6, 80:18-81:16, 91:15-92:5. When Juniper produced the code to Finjan
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`for the accused products, it never informed Finjan that the source code was only for certain SRX
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`models and not others. Kastens Decl., ¶ 6. Also, Juniper’s own publicly available Sky ATP API
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`Overview document states that Sky ATP’s open API can be installed to “propagate third-party
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`intelligence to all SRX devices in the network.” Id., Ex. 5 (Sky API Guide) at 7. Importantly, Mr.
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`Nagarajan does not cite to any development or engineering documents that support his conclusory
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`Case 3:17-cv-05659-WHA Document 245 Filed 11/23/18 Page 7 of 10
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`statements. Rather, the single document that Mr. Nagarjan cites only indicates that different models of
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`SRX have support for Sky ATP, as opposed to showing how certain models do not allegedly have
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`support for Sky ATP. Opp., Ex. 4 at JNPR-FNJN_29006_00162263.
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`Furthermore, Finjan did not have the opportunity to depose either Dr. Ugone or Mr. Nagarajan
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`regarding these dubious new statements that were never disclosed during discovery. See Therasense,
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`Inc. v. Becton, Dickinson & Co., No. 04-cv-2123 WHA, 2008 WL 2037732, at *4 (N.D. Cal. May 12,
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`2008) (expert’s testimony on direct examination to be limited ‘to the four corners of their report,’ with
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`trial roughly two weeks away); Asetek Danmark A/S v. CMI USA, Inc., No. 13-cv-00457-JST, 2014
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`WL 6997670, at *2 (N.D. Cal. Dec. 9, 2014) (granting motion to preclude testimony outside of expert
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`report finding that deposition testimony does not cure “ambush” of a late-disclosed opinion on eve of
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`trial). Accordingly, the Court should exclude Dr. Ugone’s opinions excluding certain SRX devices.
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`Dr. Ugone also improperly excludes SRX devices where the user did not activate the Sky ATP
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`license available to them. Ugone Report at 17 n.29; Kastens Decl., Ex. 1 (Ugone Tr.) at 55:15-56:10.
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`In doing so, Dr. Ugone improperly assumed non-infringement of certain accused devices. Specifically,
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`Dr. Ugone improperly excluded: (a)
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`. Ugone Report at
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`41 n.121; Kastens Decl., Ex. 1 (Ugone Tr.) at 74:22-75:18, 81:7-82:10, 226:4-227:13. Finjan has
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`accused all SRX devices that have the capability of interacting with Sky ATP, whether or not a user
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`activates the code or license at the time of purchase. There is infringement if the code exists on the
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`SRX device that is capable of communicating with Sky ATP regardless of activation because, as Mr.
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`4 Dr. Ugone testified at his deposition that
`, he did not take the total SRX revenues. Rather, he calculated a per-unit SRX revenue and
`then multiplied that per-unit revenue by the number of SRX units based on
` Kastens Decl., Ex. 1 (Ugone Tr.) at
`226:4-227:13. Dr. Ugone did not provide this explanation of why he chose to use a per-unit revenue in
`his report. Ugone Report, 42 n.124; id., Ex. 5 at 2(d).
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`. Kastens Decl., Ex. 1 (Ugone Tr.) at 71:9-25.
`Mr. Icasanio is the subject of Finjan’s motion in limine No. 1 for being untimely disclosed.
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`Case 3:17-cv-05659-WHA Document 245 Filed 11/23/18 Page 8 of 10
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`Manthena, testified,
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` Kastens Decl., Ex. 4 (Manthena Tr). at 11:7-12:12; see also Finjan, Inc. v.
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`Secure Computing Corp., 626 F.3d 1197, 1205 (Fed. Cir. 2010). Juniper attempts to confuse the issue
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`by arguing that there are
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`. As discussed above, this is
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`irrelevant and a red herring. In addition, Juniper’s cited cases are inapposite. See Telemac Cellular
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`Corp. v. Topp Telecom, Inc., 247 F.3d 1316, 1330 (Fed. Cir. 2001) (requiring modification); Nazomi
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`Communications, Inc. v. Nokia Corp., 739 F.3d 1339, 1345-46 (Fed. Cir. 2014) (requiring installation
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`of additional software not present on accused products); Telecordia Techs., Inc. v. Lucent Techs., Inc.,
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`No. 04-875 GMS, 2007 WL 7076662, at *3 (D. Del. Apr. 27, 2007) (separate product required to
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`infringe). Thus, the Court should exclude Dr. Ugone’s opinions that removed “inactivated” SRX.
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`C.
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`Dr. Ugone Does Not Have Any Basis To Opine That Juniper’s Profits Would Be a
`“Constraint” on The Amount of a Reasonable Royalty
`Dr. Ugone used the profits of the accused products as a “constraint’ on the amount of a
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`
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`reasonable royalty that he calculated, making his opinion of damages improperly limited by the
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`amount of Juniper’s profits. Ugone Report, ¶ 14(d) (“Juniper, as a prudent licensee and business,
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`would not be willing to pay a royalty greater than its total profits earned on sales of the products
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`allegedly practicing the asserted patent”); Kastens Decl., Ex. 1 (Ugone Tr.) at 122:14-25 (“I used the
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`term ‘constraint’”); Douglas Dynamics, LLC v. Buyers Prods. Co., 717 F.3d 1336, 1346 (Fed. Cir.
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`2013) (holding district court “clearly erred by ensuring the ongoing royalty rate it awarded would leave
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`some room for profit” when “[t]his court has held that an infringer’s net profit margin is not the ceiling
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`by which a reasonable royalty is capped”) (internal citations and quotation omitted). Whether called a
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`“cap” or “constraint,” Dr. Ugone applied the same erroneous methodology of limiting the reasonable
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`royalty by Juniper’s profits. Id. Dr. Ugone testified at deposition that the amount of Juniper’s
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`“reasonable” profit should be calculated based on opportunity costs, but admitted he did not do that for
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`the accused products. Ugone Report at 46 n.130; Kastens Decl., Ex. 1 (Ugone Tr.) at 125:2-128:25.
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`Accordingly, the Court should exclude Dr. Ugone’s opinions regarding profits.
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`7
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`Case 3:17-cv-05659-WHA Document 245 Filed 11/23/18 Page 9 of 10
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`D.
`Dr. Ugone’s Opinions of Non-Infringing Alternatives Are Unreliable
`Dr. Ugone did not conduct any economic analysis of the costs of purported non-infringing
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`alternatives himself, instead only regurgitating information from a Juniper software engineer (Ms.
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`Yuly Tenorio) and Juniper’s technical expert (Dr. Rubin). Ugone Report at 11-12, 16, ¶¶ 112-113,
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`142-145, 179; Kastens Decl., Ex. 1 (Ugone Tr.) at 182:13-184:8 (testifying he “didn’t add anything to
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`the costs” and is solely relying on Dr. Rubin and Ms. Tenorio for the amount and types of costs);
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`Bazarian Int’l Financial Assocs., LLC v. Desarrollos Aerohotelco, C.A., 315 F.Supp.3d 101, 117
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`(D.D.C. 2018) (excluding expert testimony that only recites facts). However, Dr. Ugone failed to
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`conduct a minimum level of inquiry or investigation as a damages expert to make sure that Ms.
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`Tenorio’s information (also given to Dr. Rubin) was reliable. See Dean v. Thermwood Corp., No. 10-
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`cv-433-CVE, 2012 WL 90442, at *9 (N.D. Okla. Jan. 11, 2012) (excluding expert testimony that
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`blindly accepted client’s version of the facts without analysis). He testified at deposition that he did
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`not have any idea of Ms. Tenorio’s level of experience and whether she had authored any of the code
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`for the accused products such that she would know how long it would take to implement the purported
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`non-infringing alternatives. Kastens Decl., Ex. 1 (Ugone Tr.) at 113:2-114:8; 185:19-187:19.
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`Furthermore, Juniper did not timely disclose information regarding non-infringing alternatives
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`during discovery. Finjan could not have deposed Ms. Tenorio about non-infringing alternatives
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`because she was never identified to Finjan in either Juniper’s initial disclosures or in interrogatory
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`responses as knowledgeable on this topic. See Motion, Ex. 8 at 35 (failing to identify Ms. Tenorio
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`generically stating that knowledgeable individuals of non-infringing alternatives are “within the
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`knowledge or capabilities of Juniper or others in the industry”); id., Ex. 9 at 3 (generically stating that
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`Ms. Tenorio “[m]ay have technical information about accused Juniper products”). Juniper failed to
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`fulfill its affirmative obligation to identify who knew about alleged non-infringing alternatives before
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`expert reports, particularly if Juniper intended to rely upon such information in this case. Juniper
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`cannot create a non-infringing alternative now, relying upon a witness it failed to identify as having
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`such relevant information during discovery. For these reasons, Dr. Ugone’s opinions of non-infringing
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`alternatives should be excluded.
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`8
`FINJAN’S REPLY TO ITS MOTION TO EXCLUDE
`OPINIONS OF DR. KEITH R. UGONE
`
` CASE NO. 3:17-cv-05659-WHA
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`Case 3:17-cv-05659-WHA Document 245 Filed 11/23/18 Page 10 of 10
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`
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`III. CONCLUSION
`For these reasons, Finjan respectfully requests that the Court grant its Motion to Exclude the
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`Opinions of Damages Expert Dr. Keith R. Ugone.
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`Dated: November 23, 2018
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`Respectfully submitted,
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`By: /s/ Kristopher Kastens
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`
`Paul J. Andre (State Bar. No. 196585)
`Lisa Kobialka (State Bar No. 191404)
`James Hannah (State Bar No. 237978)
`Kristopher Kastens (State Bar No. 254797)
`KRAMER LEVIN NAFTALIS
`& FRANKEL LLP
`990 Marsh Road
`Menlo Park, CA 94025
`Telephone: (650) 752-1700
`Facsimile: (650) 752-1800
`pandre@kramerlevin.com
`lkobialka@kramerlevin.com
`jhannah@kramerlevin.com
`kkastens@kramerlevin.com
`
`Attorneys for Plaintiff
`FINJAN, INC.
`
`9
`FINJAN’S REPLY TO ITS MOTION TO EXCLUDE
`OPINIONS OF DR. KEITH R. UGONE
`
` CASE NO. 3:17-cv-05659-WHA
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