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`IRELL & MANELLA LLP
`Jonathan S. Kagan (SBN 166039)
`kagan@irell.com
`Alan Heinrich (SBN 212782)
`aheinrich@irell.com
`Joshua Glucoft (SBN 301249)
`glucoft@irell.com
`Casey Curran (SBN 305210)
`ccuran@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 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.
`
`UNITED STATES DISTRICT COURT
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`NORTHERN DISTRICT OF CALIFORNIA
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`Plaintiff,
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`vs.
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`JUNIPER NETWORKS, INC., a Delaware
`Corporation,
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`Defendant.
`
`SAN FRANCISCO DIVISION
`FINJAN, INC., a Delaware Corporation,
`
`Case No. 3:17-cv-05659-WHA
`DEFENDANT JUNIPER NETWORKS,
`INC.’S REPLY IN SUPPORT OF
`JUNIPER NETWORK’S MOTION TO
`EXCLUDE THE TESTIMONY OF
`MR. KEVIN M. ARST
`
`Date: November 29, 2018
`Time: 8:00 a.m.
`Courtroom: Courtroom 12, 19th Floor
`Before: Hon. William Alsup
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`10611869
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`JUNIPER'S REPLY ISO MOT TO EXCLUDE MR ARST
`(Case No 3:17-cv-05659-WHA)
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`REDACTED VERSION OF DOCUMENT SOUGHT TO BE SEALED
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`

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`Case 3:17-cv-05659-WHA Document 247 Filed 11/23/18 Page 2 of 12
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`TABLE OF CONTENTS
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`Page
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`I.
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`
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`II.
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`FINJAN CANNOT DEFEND MR. ARST’S OPINION UNDER THE
`CORRECT DAMAGES BASE .......................................................................................... 2
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`FINJAN’S PUFFERY ABOUT THE VALUE OF CLAIM 10 IS
`UNSUPPORTED ................................................................................................................ 4
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`III. MR. ARST’S DEPARTURE FROM FINJAN’S OWN LICENSING
`POLICY IS UNSUPPORTED ............................................................................................ 4
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`IV. MR. ARST FAILS TO APPLY A RELIABLE METHODOLOGY .................................. 5
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`V.
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`MR. ARST’S COST SAVINGS ANALYSIS IS UNRELIABLE ...................................... 7
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`VI. MR. ARST SHOULD NOT BE GIVEN LEAVE TO DO A NEW
`ANALYSIS ......................................................................................................................... 8
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`JUNIPER'S REPLY ISO MOT TO EXCLUDE MR ARST
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`Case 3:17-cv-05659-WHA Document 247 Filed 11/23/18 Page 3 of 12
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`TABLE OF AUTHORITIES
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`Page(s)
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`Cases
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`
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`Enplas Display Device Corp., v. Seoul Semiconductor Co., Ltd.,
`2018 WL 6033533 (Fed. Cir. Nov. 19, 2018) ..............................................................................4
`
`Finjan, Inc. v. Secure Computing Corp.,
`626 F.3d 1197 (Fed. Cir. 2010) ....................................................................................................3
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`Metaswitch Networks Ltd. v. Genband US LLC,
`2016 WL 874737 (E.D. Tex. Mar. 5, 2016) .................................................................................5
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`Microsoft Corporation v. Corel Corp.,
`2017 WL 6492468 (N.D. Cal. Dec. 19, 2017) .........................................................................6, 7
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`Monolithic Power Sys., Inc. v. O2 Micro Int’l Ltd.,
`476 F. Supp. 2d 1143 (N.D. Cal. 2007), clarified on denial of reconsideration,
`2007 WL 1108615 (N.D. Cal. Apr. 11, 2007) .............................................................................7
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`Nazomi Comm., Inc. v. Nokia Corp.,
`739 F.3d 1339 (Fed. Cir. 2014) ....................................................................................................3
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`Network Prot. Scis., LLC v. Fortinet, Inc.,
`2013 WL 5402089 (N.D. Cal. Sept. 26, 2013) .............................................................................8
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`Tights, Inc. v. Kayser-Roth Corp.,
`442 F. Supp. 159 (M.D.N.C. 1977) ..............................................................................................5
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`JUNIPER'S REPLY ISO MOT TO EXCLUDE MR ARST
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`Case 3:17-cv-05659-WHA Document 247 Filed 11/23/18 Page 4 of 12
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`Mr. Arst’s proposed $60-$70 million “reasonable royalty” on accused revenues of less than
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`$1.8 million is economically nonsensical. Rather than attempt to defend Mr. Arst’s absurd math,
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`Finjan’s Opposition seeks to inflate the amount of accused revenues to
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` by expanding
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`the scope of its infringement claim to encompass SRX devices alone. But while Finjan accused
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`“Sky ATP alone,” it only accused SRX devices “used in combination with Sky ATP.” Dkt. 98
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`(Finjan’s MSJ) at 1-2. For good reason. Despite Finjan’s misleading argument in its Opposition,
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`Finjan’s own technical expert admitted that SRX devices alone
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` even under Finjan’s infringement theory—something Juniper could have
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`easily demonstrated during summary judgment had Finjan accused the SRX alone of infringement.
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`Finjan does not dispute that the revenues from the “Accused Products” as Finjan itself
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`defined them—“Sky ATP alone” and SRX devices “used in combination with Sky ATP,” id—
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`were less than $1.8 million. Nor does Finjan challenge the fact that only
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` SRX devices could
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`have been used with Sky ATP during the damages period. Given these facts, Mr. Arst’s opinion
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`clearly flunks the requirements of Daubert for at least the following reasons:
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`
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`It would have been economically irrational for Juniper to pay a royalty of $60-$70 million
`dollars on accused revenues of $1.8 million.
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` Mr. Arst’s proposed royalty, which amounts to an effective royalty of almost 4,000%, is
`orders of magnitude more than the rates at which Finjan itself begins negotiations (8% for
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`hardware, 16% for software) under its own licensing policy.
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` Mr. Arst did not apply a proper “cost savings” analysis, which requires consideration of
`the defendant’s next best alternative. Even Finjan’s own technical expert did not consider
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`the alternative Mr. Arst used (“sandboxing” every file) to be commercially viable.
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` Mr. Arst does not account at all for Juniper’s alternative of waiting 14 months until the
`’494 Patent expired before releasing Sky ATP. No economically rational actor would have
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`done otherwise if the alternative would have been to incur an additional $60-$70 million in
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`costs (or pay the identical amount to Finjan) to generate $1.8 million in revenue.
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` Mr. Arst’s calculation of Juniper’s alleged “cost savings” by multiplying Juniper’s
`Amazon Web Services (“AWS”) costs by 359-419 is arbitrary and unreliable.
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`10611869
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`JUNIPER'S REPLY ISO MOT TO EXCLUDE MR ARST
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`Case 3:17-cv-05659-WHA Document 247 Filed 11/23/18 Page 5 of 12
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`Finjan cannot rescue Mr. Arst’s damages theory by changing the scope of its infringement
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`claim. Mr. Arst’s damages opinion is unsupported by the facts, and should be excluded.
`I.
`FINJAN CANNOT DEFEND MR. ARST’S OPINION UNDER THE CORRECT
`DAMAGES BASE
`
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`In its Opposition, Finjan fails to acknowledge that it expressly defined “Accused Products”
`as “(1) Juniper’s SRX Gateways used in combination with Sky ATP, and (2) Sky ATP alone
`(‘Accused Products’).” Dkt. 98 (Finjan’s MSJ) at 1-2. These Accused Products generated less than
`$1.8 million in revenues during the damages period. Finjan does not even attempt to defend
`Mr. Arst’s $60-$70 million damages opinion in light of the actual damages base at issue.
`Instead, throughout its Opposition, Finjan attempts to sneak into its infringement claim a
`new, third category of products—SRX devices alone.1 See, e.g., Opp. at 3 (“accused SRX
`products”), id. at 11 (“accused SRX gateways”). Based on this new infringement theory, Finjan
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`claims that the damages base is actually around
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` Opp. at 1. This is Finjan’s only
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`response to Juniper’s argument that Mr. Arst’s opinion should be excluded because it defies basic
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`economics. Opp. § III.A. Finjan’s new infringement theory fails for at least two reasons.
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`First, Finjan’s new theory is untimely. While Finjan accused “Sky ATP alone” of
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`infringing Claim 10, Finjan never accused SRX devices alone. Dkt. 98 (Finjan MSJ) at 1-2. Finjan
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`cannot change course now, after expert discovery and on the eve of trial.
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`Second, Finjan has no colorable infringement claim against SRX devices alone. The only
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`argument Finjan advances is its contention that
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` Opp. at 12-14, n.14. This is misleading, if not completely false.
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` as Finjan’s own technical expert admitted.
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`1 Contrary to Finjan’s suggestion, the Court explicitly limited its summary judgment
`holding to “SRX Gateways used in combination with Sky ATP” and held that the issue of “the
`extent of damages” would be decided at trial. See Dkt. 189 at 3, 21 (emphasis added).
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`Case 3:17-cv-05659-WHA Document 247 Filed 11/23/18 Page 6 of 12
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`aA&WwNO
`OoOoNYDW
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`12.201 215-21?
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`Finjan’s reliance on Finjan, Inc. v. Secure Computing Corp., 626 F.3d 1197 (Fed. Cir.
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`2010), is unavailing. Opp. at 12. In that case, the court found that a system claim was infringed by
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`a product that was shipped with all necessary software for implementing the accused system. Id.
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`at 1205 (“the useris only activating meansthat are already present in the underlying software’’). In
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`contrast, SRX devices are not shipped with the necessary software. That software is part of Sky
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`ATP, which a useronly gains access to after registering for, and activating, a Sky ATP license.
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`The Federal Circuit distinguished Secure Computing on this very basis in Nazomi Comm., Inc. v.
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`Nokia Corp., 739 F.3d 1339 (Fed. Cir. 2014), where it held defendants’ products did not infringe
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`10
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`because they required the installation of additional software to perform the patented system—
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`unlike in Secure Computing, where “the infringing software capable of practicing the claim
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`limitations wason the accused devices.” Jd. at 1346.
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`Further, Finjan’s new “SRX devices alone” infringement theory is untethered to Mr. Arst’s
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`cost savings theory, which is based on the additional costs that would allegedly be incurred if Sky
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`ATP performed sandboxing for all incoming files. Even under Mr. Arst’s deeply flawed theory,
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`Juniper would enjoy no cost savings with respect to SRX devices that were never used in
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`combination with Sky ATP, because no additional sandboxing would be required for these
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`devices. In other words, the alleged cost savings of $60-$70 million would only apply to the $1.8
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`million in revenues, regardless of which damagesbaseis considered.
`Finjan does not dispute that, during the damages period, SRX customers only activated[il
`paid and|| free licenses to Sky ATP, so there were a maximum of|| SRX devices that could
`have been used with Sky ATP. Finjan also does not dispute that the revenues associated with those
`|| SRX devices and associated Sky ATP licenses were less than $1.8 million. Yet Finjan does
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`Case 3:17-cv-05659-WHA Document 247 Filed 11/23/18 Page 7 of 12
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`not attempt to explain why Mr. Arst’s proposed $60-$70 million royalty makes economic sense in
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`light of these facts. The conclusory arguments Finjan musters in defense of Mr. Arst’s opinion are
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`all premised on the faulty assumption that the damages base is
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` But almost all of that
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`amount is attributable to SRX devices alone, which are not Accused Products. And it is settled law
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`that a damages expert may not base damages on revenues from non-accused products. See Enplas
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`Display Device Corp., v. Seoul Semiconductor Co., Ltd., 2018 WL 6033533, at *10 (Fed. Cir.
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`Nov. 19, 2018) (overturning jury’s damages award where expert testimony supporting it was
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`“based, in part, on non-infringing sales of non-accused [products],” because “acts that do not
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`constitute patent infringement cannot provide a proper basis for recovery of damages”).
`II.
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`FINJAN’S PUFFERY ABOUT THE VALUE OF CLAIM 10 IS UNSUPPORTED
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`Finjan’s effort to turn the benefits Juniper allegedly received from Claim 10 into a “factual
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`dispute” fails together with Finjan’s attempt to inflate the damages base. Opp. at 4. Finjan asserts,
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`without any support, that: (1) “Juniper[] [had an] essential need for the patented technology;” (2)
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`Juniper received “extensive benefits” from Claim 10 “across Juniper’s entire network from its
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`infringement;” and (3) Juniper’s use of Claim 10 was “extensive and pervasive;” “[r]evenues of
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`products that incorporate the infringing technology . . . do not capture the value of the significant
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`benefits Juniper received, including to its entire network, based upon its infringement.” Opp. at 1,
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`4. Each of these statements is contradicted by the fact that a mere
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`arguably compatible SRX devices sold during the damages period were enabled to be used in
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`combination with Sky ATP. Dkt. 229-6 (Ugone Rpt.) at 40 (Table 4) & Ex. 5.
`III. MR. ARST’S DEPARTURE FROM FINJAN’S OWN LICENSING POLICY IS
`UNSUPPORTED
`Finjan provides no coherent explanation for Mr. Arst’s dramatic deviation from Finjan’s
`own licensing policy, with its 8%/16% starting rates. Finjan states that those rates have been
`applied to “total revenue.” Opp. at 6. This does not help Finjan, as Juniper’s “total revenue” for
`the Accused Products is less than $1.8 million. Mr. Arst’s royalty amounts to a nearly 4,000%
`rate. Finjan claims that this is a “manufactured” and “outrageous” number, id., but it is just simple
`math from Mr. Arst’s proposed $70 million royalty on accused sales of less than $1.8 million.
`Finjan’s citation to Tights, Inc. v. Kayser-Roth Corp., 442 F. Supp. 159, 165 (M.D.N.C.
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`Case 3:17-cv-05659-WHA Document 247 Filed 11/23/18 Page 8 of 12
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`1977), provides no support for Mr. Arst’s dramatic departure from Finjan’s own licensing policy.
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`Tights, which was decided over forty years ago by an out-of-district court, found that prior
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`licenses were arrived at by wielding the threat of litigation over an “impecunious patentee.” Id.
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`Here, Finjan has a number of license agreements decided outside the context of litigation. See Dkt.
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`229-6 (Ugone Rpt.) at 58-60.
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`See Dkt. 230-10 (Blue Coat Trial Tr.) at 256:5-12; Dkt.
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`228-10 (Hartstein Dep.) at 42:25-43:5. Mr. Arst’s opinion cannot be squared with that policy.
`IV. MR. ARST FAILS TO APPLY A RELIABLE METHODOLOGY
`Finjan states that Juniper’s Motion does “not challenge Mr. Arst’s methodology.” Not so.
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`As Juniper’s Motion explained, Mr. Arst’s methodology is unreliable. See Mot. at 8-12.
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`A cost savings analysis of the sort Mr. Arst attempted to perform requires consideration of
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`the costs associated with the defendant’s next best alternative. See Metaswitch Networks Ltd. v.
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`Genband US LLC, 2016 WL 874737, at *2 (E.D. Tex. Mar. 5, 2016) (“‘cost approach’ . . .
`compares the cost of using the patented technology with the cost of implementing ‘the next-best
`acceptable non-infringing alternative.’”). But neither Mr. Arst nor Dr. Cole did anything to
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`determine what Juniper’s “next best alternative” was. Dr. Cole admitted he was not given the
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`“direct task” of analyzing Juniper’s non-infringing alternatives. Ex. 1 at 44:19-21, 36:22-37:9.
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`Following Dr. Cole’s deposition on November 14, 2018, the arbitrary nature of Mr. Arst’s
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`cost savings analysis has become all the more apparent. Mr. Arst testified that he understood from
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`Dr. Cole that Juniper’s “next best alternative to infringing Claim 10” would have involved the re-
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`processing of files, which would require “increased sandboxing.” Ex. 2 (Arst Dep.) at 106:14-
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`107:1. But Dr. Cole confirmed that he did not actually assess which of the various alternatives
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`would have been Juniper’s “next best” option. Ex. 1 (Cole Dep.) at 44:19-21. Moreover, while
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`Finjan characterizes increased sandboxing as the “only viable noninfringing alternative presented
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`during fact discovery” (Opp. at 9), Dr. Cole directly contradicted this characterization and Mr.
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`Arst’s understanding. Dr. Cole testified that the alternative of reprocessing files, on which Mr.
`Arst bases his analysis, would not have been a viable option for Juniper:
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`In Microsoft Corporation v. Corel Corp., 2017 WL 6492468 (N.D. Cal. Dec. 19, 2017),
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`the court confronted a similarly flawed cost savings analysis. The plaintiff's damages expert
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`calculated damages “on the basis of the hypothetical negotiation approach,” including
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`\ooo—la7)—WwN_
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`consideration of the defendant’s “design-around cost.” Jd. at *1. Defendant argued that plaintiffs
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`damages expert should be precluded from presenting her design around cost calculations because
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`she “provide[d] no sufficient facts or data to support her position that [the proposed design
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`around] would have been considered by [defendant] in this hypothetical negotiation.” Jd. at *2.
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`The court agreed, finding that plaintiff's damages expert failed to “explain why [the proposed
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`design around] would be an economically rational choice for [defendant] in a hypothetical
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`licensing negotiation.” Jd.
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`Here, if one were to believe Mr. Arst that his proposed alternative—sandboxing every
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`file—would haveresulted in increased costs of $60-$70 million, then on its face this alternative
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`would not have been an “economically rational choice for [Juniper].” See id. Mr. Arst does not
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`explain why Juniper would even consider an alternative that would cost $60-$70 million to
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`generate $1.8 million in revenue. Finjan’s technical expert concedes that this alternative is not
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`commercially viable. The icing on this methodologically flawed cake is that Mr. Arst does not
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`accountat all for Juniper’s alternative of waiting 14 months until the 494 patent expired before
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`releasing Sky ATP.
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`V. MR. ARST’S COST SAVINGS ANALYSIS IS UNRELIABLE
`Even on its own terms, Mr. Arst’s cost savings analysis is beset by numerous errors that
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`render it unreliable and unsupported. Mot. at 8-12. Unable to explain those errors away, Finjan
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`tries to reframe Juniper’s arguments into strawmen. For example, Finjan’s statement that “Juniper
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`uses AWS . . . to perform the alleged infringing database lookups at a small fraction of the cost
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`that would be required to analyze files using a sandboxing process” misses the point. Opp. at 7.
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`Mr. Arst does not contend that Juniper’s database lookup costs would increase; he contends that
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`Juniper’s sandboxing costs would increase. Notably, Finjan does not dispute that Juniper’s AWS
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`invoices do not reflect any of Juniper’s sandboxing costs. Similarly, Finjan fails to address
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`Juniper’s argument that
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` Mot. at 11. Instead, Finjan
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`misstates Juniper’s argument as contending that only
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` Opp. at 11.
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`Finjan also attempts to create discovery disputes to excuse Mr. Arst’s many errors.
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`However, “[Finjan] as the patent holder, bears the burden of proving its damages[; if Juniper]
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`refused to produce information that Mr. Arst required to determine the reasonable royalty [which
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`it did not], then [Finjan] needed to get that information, if necessary through a motion to compel.
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`[Finjan] fails to show any effort it took to get all the information necessary for its expert to
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`provide a reasonable royalty calculation that does not rely on unreasonable inferences or
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`speculation.” See Monolithic Power Sys., Inc. v. O2 Micro Int’l Ltd., 476 F. Supp. 2d 1143, 1155
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`(N.D. Cal. 2007), clarified on denial of reconsideration, 2007 WL 1108615 (N.D. Cal. Apr. 11,
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`2007); see also Microsoft Corp., 2017 WL 6492468, at *2 (excluding patentee’s damages expert’s
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`testimony concerning design around costs and rejecting the expert’s argument that she had “no
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`choice but to rely on [irrelevant evidence] because [defendant’s] witnesses could not provide a
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`comparable estimate[;]” finding that if the patentee “believed that [defendant’s] provided
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`insufficient information . . . [defendant] could have conducted discovery on that issue; and if
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`[patentee] believed [defendant’s] responses to those discovery requests were inadequate,
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`[patentee] could have moved to compel”).
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`In addition to being irrelevant, Finjan’s complaints about Juniper’s discovery are wrong:
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` Juniper did not represent that its production would be limited “to servers that host or
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`Case 3:17-cv-05659-WHA Document 247 Filed 11/23/18 Page 11 of 12
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`directly interface with specifically accused features of the deployed or sold products at
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`issue in this litigation,” but instead represented that its search would be so limited. As part
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`of that search, Juniper located and then produced its AWS invoices, which include costs
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`for the accused features of Sky ATP, but also include costs for products and services other
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`than Sky ATP. Dkt. 239-3 (Juniper’s Responses to RFPs 95-97).
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`
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`In response to Finjan’s Interrogatory Number 11, Juniper explicitly informed Finjan that
`sandboxing is
` Ex. 3 (Juniper’s Response to Rog 11). Yet Finjan
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`never asked Juniper to supplement its production nor did it request that Juniper produce its
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` in advance of Mr. Arst’s report.
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` Juniper never stated that the number of free Sky ATP licenses was unknowable, only that
`Juniper does not “maintain historical data” in the ordinary course. See Dkt. 125-8
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`(Nagarajan Decl.) ¶ 6.
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` and produced it
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`on September 7, 2018—in advance of Mr. Arst’s report. Dkt. 228-6 (Icasiano Decl.) ¶ 4.
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`
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` Finjan chose not to request a deposition of any Juniper financial witness before it
`submitted its damages report, and instead chose to make (inaccurate) assumptions about
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`Juniper’s financial documents. Finjan’s strategic choice not to take a deposition does not
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`entitle it to exclude Juniper from presenting the facts.
`VI. MR. ARST SHOULD NOT BE GIVEN LEAVE TO DO A NEW ANALYSIS
`The errors in Mr. Arst’s report are fundamental to his analysis. To comply with Daubert,
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`he would need to put forth an entirely new damages analysis. It would be highly prejudicial to
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`Juniper to allow Mr. Arst to do so, with trial less than three weeks away. Finjan should be held
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`accountable for its “overreaching bite.” See Network Prot. Scis., LLC v. Fortinet, Inc., 2013 WL
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`5402089, at *8 (N.D. Cal. Sept. 26, 2013) (“where the report is not even close, there is a positive
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`need to deny a second bite in order to encourage candor in the first place”). Finjan is a
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`sophisticated party that has litigated many patent infringement cases. It surely knew that Mr.
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`Arst’s report does not come close to complying with the dictates of Daubert and Rule 702.
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`Case 3:17-cv-05659-WHA Document 247 Filed 11/23/18 Page 12 of 12
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`Dated: November 23, 2018
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`IRELL & MANELLA LLP
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`By: /s/ Rebecca L. Carson
`Rebecca L. Carson
`Attorneys for Defendant
`JUNIPER NETWORKS, INC.
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