Case 3:17-cv-05659-WHA Document 292 Filed 12/04/18 Page 1 of 5
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`I R E L L & M A N E L L A L L P
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`A REGISTERED LIMITED LIABILITY LAW PARTNERSHIP
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`INCLUDING PROFESSIONAL CORPORATIONS
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`R C a r s o n @ i r e l l . c o m
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`December 4, 2018
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`
`Hon. William Alsup
`U.S. District Court, Northern District of California
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`Re:
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`Finjan, Inc. v. Juniper Networks, Inc., Case No. 3:17-cv-05659-WHA
`
`
`Dear Judge Alsup:
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`Juniper Networks writes to renew its request that the Court preclude Finjan’s damages
`expert, Mr. Arst, from providing any testimony at the upcoming trial. In its Daubert motion,
`Juniper moved to exclude Mr. Arst’s testimony “in its entirety” (Juniper’s Daubert Motion Dkt.
`230 at 8), and the Court granted Juniper’s motion. Order at 6 (“Juniper’s motion to exclude Expert
`Arst’s testimony is therefore GRANTED.”). The Court agreed with Juniper that Finjan swung for
`the fences—advancing a damages figure of $60-$70 million on a $1.8 million royalty base—but
`that Finjan, and Mr. Arst, struck out. Despite the Court’s Daubert ruling, Finjan still intends to call
`Mr. Arst to testify at trial. At today’s pretrial conference, Finjan identified certain sections of Mr.
`Arst’s report that are allegedly untouched by the Court’s Daubert ruling. As set forth below, there
`is no proper basis for Mr. Arst to testify on those sections of his report.1 Juniper addresses each of
`those sections in turn, grouping them as appropriate.
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`Mr. Arst Should Not Be Permitted To Testify On Section 6 Of His Report
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`Finjan stated that it intended to offer Mr. Arst to testify based on various subsections in
`Section 6 of his report (specifically, sections 6.1, 6.1.1, 6.1.2, 6.1.3, 6.2, 6.3, 6.3.1 and 6.4). Yet
`those portions of Mr. Arst’s report merely provide factual background based on numerous
`hearsay sources. Indeed, Mr. Arst explains:
`
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`1 During argument on the parties’ motions in limine, counsel for Finjan also contended that
`Mr. Arst did not have an adequate opportunity to consider spreadsheets that reflect the customer
`names which would allow Finjan to identify the particular SRX devices where a Sky ATP license
`had been enabled. Finjan’s complaints are simply pretext as Mr. Arst testified at deposition that
`having such information would not have impacted his analysis. Ex. 1 (Arst Depo) at 56:19-57:8
`(“Q. You did endeavor to determine how many Sky ATP licenses had been enabled? A. Yes.
`Again, my understanding is that's not tracked by Juniper and that information is not available. Q.
`What is that understanding based upon? A. If memory serves, there were some interrogatory
`responses that related to the absence of information about this subject matter. Q. If that
`information were available to you, would it have impacted your analysis? MS. CAIRE:·
`Objection; form THE WITNESS: I don't think so in a material way for the reasons that we've
`talked about today.”) (emphasis added).
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`Case 3:17-cv-05659-WHA Document 292 Filed 12/04/18 Page 2 of 5
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`I R E L L & M A N E L L A L L P
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`A REGISTERED LIMITED LIABILITY L AW PARTNERSHIP
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`INCLUDING PROFESSIONAL CORPORATIONS
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`“In order to provide context for the current dispute, I have provided background
`information on the relevant parties, the ’494 Patent, and Juniper’s alleged use of
`the inventions claimed by the ’494 Patent in the sections below.”
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`Arst Report (Dkt. 228-7) at p. 3. Mr. Arst has no personal knowledge of any of these subjects, and
`if he were allowed to testify on them anyway, he would be a mere conduit for hearsay. For
`example, Finjan would have Mr. Arst regurgitate statements Finjan made in its 10-K filings to
`suggest that:
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`“Finjan invested heavily in the research and development of its technologies and
`in protecting its innovations by securing patents covering them.14 Following the
`development of its technologies, FSL, together with its subsidiaries, provided
`secure web gateway solutions – including software and hardware – to the
`enterprise and endpoint markets both directly and through technology partners
`and/or original equipment manufacturers ("OEMs").15 In 2002, Finjan Software,
`Inc. (“FSI”), a Delaware corporation, was formed to acquire and hold all of the
`capital stock of Finjan.16 Thereafter, FSI focused its efforts on research &
`development and sales & marketing activities in an effort to bolster its position in
`the security industry and enhance its platform of web / network inspection
`technologies.
`
`Arst Report at pp. 4-5 (citing Finjan Holdings, Inc. Form 10-K for the fiscal year ending December
`31, 2017). Finjan would also apparently have Mr. Arst regurgitate statements in third party industry
`reports published by IDC reports to push its narrative that it was apparently a “leading innovator”:
`
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`“Finjan Software, the inventor of proactive content behavior inspection, protects
`organizations using its Next Generation of Vital Security Appliance Series of
`products that provide day-zero defense against new, previously unknown attacks
`by leveraging its proprietary application-level behavior blocking technology.
`
`:::
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`As a leading innovator in the proactive content security space, Finjan is
`committed to providing its customers with the most advanced technology solutions
`to ensure day-zero security. Currently, Finjan has eight technology patents with
`various others pending. Finjan's Malicious Code Research Center (MCRC)
`specializes in the discovery and analysis of new vulnerabilities that could be
`exploited for Internet and email attacks. Using this expertise, MCRC researchers
`contribute to the development of Finjan's next-generation products to keep Finjan
`customers protected from the next, yet-to-be-discovered attacks, as well as work
`with the world's leading software vendors to patch their security holes.”
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`Arst Report at p. 5 (citing IDC_FINJAN-JN 008896) (italics in report). Finjan also wants Mr. Arst
`to present hearsay characterizations of the testimony of Finjan’s CEO, Mr. Hartstein. For example,
`it appears Finjan seeks to have Mr. Arst repeat that Finjan’s “rates are 8 percent for hardware, 16
`percent for software, or $8 per user.” Arst Report at 14 (citing testimony of Philip Hartstein). This
`is entirely inappropriate as Mr. Arst does not even offer an expert opinion on a reasonably royalty
`based on a per user rate.
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`Case 3:17-cv-05659-WHA Document 292 Filed 12/04/18 Page 3 of 5
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`I R E L L & M A N E L L A L L P
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`A REGISTERED LIMITED LIABILITY L AW PARTNERSHIP
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`INCLUDING PROFESSIONAL CORPORATIONS
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`While Federal Rule of Evidence 703 provides that an expert can sometimes disclose
`otherwise inadmissible facts and data on which the expert relied “in forming an opinion,” provided
`“their probative value in helping the jury evaluate the opinion substantially outweighs their
`prejudicial effect,” Finjan would be offering Mr. Arst as a conduit of pure hearsay without tying
`the hearsay to an actual opinion. Indeed, Mr. Arst has no damages opinion in light of the Court’s
`Daubert ruling. It would be entirely inappropriate, and well outside the scope of Rule 703, to allow
`Mr. Arst to serve as a mouthpiece for wide-ranging hearsay untethered to any actual expert
`opinion.
`
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`Mr. Arst’s discussion in Section 6.3.1. regarding Juniper products and the allegedly
`infringing features is similarly untethered to an admissible opinion. In the Court’s Daubert
`ruling, the Court explained:
`
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`“Finjan further contends that the revenue base does not capture the benefits
`Juniper gained from the alleged infringement. That is, according to Finjan, it does
`not fully reflect the advantages Juniper gained from moving into the security
`business with its investment in the Sky ATP technology, such as having the most
`up-to-date threat intelligence. While this might be true, Expert Arst simply asserts
`this notion in his report and does not attempt to quantify these benefits to
`Juniper outside the cost-savings context. Nor does Expert Arst attempt to show
`that the offer of free Sky ATP licenses drove any SRX unit sales.”
`
`Order at 5. (emphasis added). As such, Mr. Arst should be precluded from testifying on Section 6
`of his report.
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`Mr. Arst Should Not Be Permitted To Testify On Sections 7, 7.1, and 7.2 Of His Report
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`Mr. Arst should not be permitted to testify on Sections 7, 7.1, and 7.2 because those
`sections simply regurgitate legal standards and factual elements. Under Section 7, Mr. Arst
`provides an overview of the legal standards for calculating damages in a patent case under
`Section 7. The Court will instruct the jury on these legal standards. It would be inappropriate for
`Mr. Arst do so—particularly given that Mr. Arst does not have an admissible damages opinion,
`and hence he himself will not be able to apply these legal standards to the facts of this case.
`Section 7.1 relates to the date of the hypothetical negotiation. Mr. Arst opines that “I have
`assumed that the hypothetical negotiation in this matter would have occurred in the period
`leading up to October 2015…” Arst Report at 29. An assumption is not evidence and
`masquerading it as an expert opinion is inappropriate. Section 7.2 is similarly directed to
`information appropriately suited for jury instructions, such as that “[r]easonable royalties are
`frequently calculated by multiplying a reasonable royalty rate times a royalty base of alleged
`infringing commercial activity” and “[r]easonable royalties can also be expressed on a lump-sum
`basis.” Id. Again, Mr. Arst will not be able to actually apply these principles at trial.
`
`Mr. Arst Should Not Be Permitted To Testify On Sections 7.3 and 7.3.3.
`
`Section 7.3 simply identifies three valuation methodologies—the cost approach, market
`approach, and income approach. There is no basis for Mr. Arst to testify, generically, regarding
`these three methodologies. Mr. Arst’s cost approach has been excluded by the Court’s Daubert
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`Case 3:17-cv-05659-WHA Document 292 Filed 12/04/18 Page 4 of 5
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`I R E L L & M A N E L L A L L P
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`A REGISTERED LIMITED LIABILITY L AW PARTNERSHIP
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`INCLUDING PROFESSIONAL CORPORATIONS
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`Order. Mr. Arst found the market approach even less probative of a reasonable royalty than his
`excluded cost approach. Arst Report at 34. And Mr. Arst concluded that numerous factors
`“make it difficult to isolate the economic footprint of the ’494 Patent under an Income Approach,
`and I have therefore not employed the Income Approach in this case.” Arst Report. at 44
`(Section 7.3.3. Income Approach). Id. It makes no sense how this testimony could be useful to
`the jury.
`
`Mr. Arst Should Not Be Permitted To Testify On Section 7.5 (Georgia Pacific Factors)
`
`Finjan suggested that it would offer Mr. Arst to testify to the “general framework” for the
`hypothetical negotiation in view of the Georgia-Pacific factors. This is sleight of hand because
`Mr. Arst’s opinion is entirely predicated on his excluded cost-savings approach, including his
`handling of the Georgia-Pacific factors. Mr. Arst first came up with a $60-$70 million
`“baseline” damages amount using his excluded cost-savings approach and only then analyzed
`the Georgia-Pacific factors to determine if any adjustments were needed to be made to this $60-
`70 million baseline. Specifically, Mr. Arst explains:
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`“As previously discussed, I have concluded that the Cost Approach provides the
`best available indicator of the economic footprint of the ’494 Patent for purposes
`of evaluating the hypothetical negotiation in this case. Thus, it is my opinion that
`the hypothetical negotiation in this matter would focus on a quantitative baseline
`range of approximately $55.5 million - $64.7 million. The next step of my
`analysis was to analyze the Georgia-Pacific factors to evaluate the impact, if
`any, each factor would have on this baseline range.”
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`Arst Report at p. 45 (Section 7.5). After Mr. Arst goes through the motions of this Georgia-
`Pacific exercise, he winds up exactly where he started—namely, with his now-excluded $60-70
`million damages amount. See Arst Report at pp. 45-51 (Section 7.5). So Mr. Arst ultimately
`makes no adjustment to his cost-savings analysis based on the Georgia-Pacific factors.
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`Given that Mr. Arst’s cost-savings baseline has been excluded, Mr. Arst’s Georgia-
`Pacific analysis is irrelevant. Allowing Finjan to present such testimony would lead to significant
`jury confusion and prejudice. Mr. Arst no longer has a starting point for his Georgia-Pacific
`analysis. As a result, Mr. Arst’s testimony that certain Georgia-Pacific factors should lead to an
`upper adjustment, or a downward adjustment, or (as his opines for nearly all of the factors) no
`adjustment, would be nonsensical to the jury, because Mr. Arst cannot identify a baseline to
`which such adjustments should be made. Thus, Mr. Arst should be precluded from testifying on
`his Georgia-Pacific analysis in Section 7.5 of his report.
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`Finjan’s Inability to Apportion
`
`As noted above, the portions of Mr. Arst’s report identified by Finjan at the pre-trial
`conference do not contain reliable opinions that would be helpful to the jury. Even if the Court
`were to allow Finjan to present testimony from these sections, however, Finjan still would not be
`able to meet its burden to establish damages. The Federal Circuit has instructed: “When the
`accused technology does not make up the whole of the accused product, apportionment is
`required.” Finjan, Inc. v. Blue Coat Systems, Inc., 879 F.3d 1299, 1309 (Fed. Cir. 2018). In this
`case, there can be no genuine dispute that the accused products incorporate numerous
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`Case 3:17-cv-05659-WHA Document 292 Filed 12/04/18 Page 5 of 5
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`I R E L L & M A N E L L A L L P
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`A REGISTERED LIMITED LIABILITY L AW PARTNERSHIP
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`INCLUDING PROFESSIONAL CORPORATIONS
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`components and the accused technology does not make up the whole of the accused products.
`Indeed, Finjan’s expert Mr. Arst testifies that the substantial number of features of the SRX and
`Sky ATP that contribute to consumer demand, both alone and synergistically in combination
`with one or more of each other and/or other Juniper products and services “make it difficult to
`isolate the economic footprint of the ’494 Patent.” See Section 7.3.3. of the Expert Report of
`Kevin M. Arst. In light of this, it would be inappropriate to allow Finjan to present a damages
`case without apportionment. The problem for Finjan is that Mr. Arst simply does not provide an
`opinion on how to properly apportion the value of the allegedly infringing features of Sky ATP
`and Sky ATP used in combination with the SRX. Moreover, Finjan’s fact witnesses have no
`foundation or basis to supply the needed testimony to address the Federal Circuit’s mandate to
`properly apportion the royalty base. Accordingly, Juniper requests that the Court order Finjan to
`provide a formal offer of proof for its damages claim, including how it intends to present
`evidence related to apportionment.
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`Respectfully submitted,
`
`/s/ Rebecca L. Carson
`Rebecca L. Carson
`IRELL & MANELLA LLP
`Attorneys for Defendant
`Juniper Networks, Inc.
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