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`IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
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`FINJAN, INC.,
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`Plaintiff,
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`v.
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`TRUSTWAVE HOLDINGS, INC.,
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`Defendant.
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`C.A. No.18C-04-006-WCC-CCLD
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` TRIAL BY JURY DEMANDED
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`COMPLAINT
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`Plaintiff Finjan, Inc. (“Finjan”), by and through its undersigned counsel,
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`asserts its claims against Trustwave Holdings, Inc. as follows.
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`NATURE OF THE ACTION
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`1.
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`This is a complaint for breach of contract.
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`PARTIES
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`2.
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`Finjan is a Delaware corporation with a principal place of business at
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`2000 University Avenue, Suite 600, Palo Alto, California, 94303.
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`3.
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`On information and belief, Defendant Trustwave Holdings, Inc.
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`(“Trustwave”) is a Delaware corporation with a principal place of business in 70
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`W. Madison St., Suite 600, Chicago, IL 60602. On information and belief,
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`Trustwave makes, uses, sells, and/or offers to sell in the United States, or imports
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`into the United States, including in this judicial district, cybersecurity products or
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`processes that practice the inventions claimed in Finjan’s patents.
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`EFiled: Apr 05 2018 12:03PM EDT
`Transaction ID 61878611
`Case No. N18C-04-006 WCC CCLD
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`Case 3:17-cv-05659-WHA Document 554 Filed 06/25/19 Page 2 of 14
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`FINJAN’S INNOVATIONS
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`4.
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`Finjan was founded in 1997 as a wholly-owned subsidiary of Finjan
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`Software Ltd., an Israeli corporation. In 1998, Finjan moved its headquarters to
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`San Jose, California. Finjan was a pioneer in developing proactive security
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`technologies capable of detecting previously unknown and emerging online
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`security threats, recognized today under the umbrella term “malware.” These
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`technologies protect networks and endpoints by identifying suspicious patterns and
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`behaviors of content delivered over the Internet. Finjan has been awarded, and
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`continues to prosecute, numerous patents covering innovations in the United States
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`and around the world resulting directly from Finjan’s more than decades-long
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`research and development efforts, supported by a dozen inventors and over $65
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`million in R&D investments.
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`5.
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`Finjan built and sold software, including application program
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`interfaces (APIs) and appliances for network security, using these patented
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`technologies. These products and related customers continue to be supported by
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`Finjan’s licensing partners. At its height, Finjan employed nearly 150 employees
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`around the world building and selling security products and operating the
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`Malicious Code Research Center, through which it frequently published research
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`regarding network security and current threats on the Internet. Finjan’s pioneering
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`approach to online security drew equity investments from two major software and
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`Case 3:17-cv-05659-WHA Document 554 Filed 06/25/19 Page 3 of 14
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`technology companies, the first in 2005 followed by the second in 2006. Finjan
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`generated millions of dollars in product sales and related services and support
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`revenues through 2009, when it spun off certain hardware and technology assets in
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`a merger. Pursuant to this merger, Finjan was bound to a non-compete and
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`confidentiality agreement, under which it could not make or sell a competing
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`product or disclose the existence of the non-compete clause. Finjan became a
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`publicly traded company in June 2013, capitalized with $30 million. After
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`Finjan’s obligations under the non-compete and confidentiality agreement expired
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`in March 2015, Finjan re-entered the development and production sector of secure
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`mobile products for the consumer market.
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`TRUSTWAVE LICENSES FINJAN’S PATENTS
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`6.
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`Finjan and Trustwave entered into an Amended and Restated Patent
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`License Agreement (the “Agreement”), which is a binding contract supported by
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`offer, acceptance and mutual consideration. Among other things, under Section
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`2.1.1 of the Agreement, Finjan granted “to Licensee a limited, non-exclusive
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`(without the right to assign except as provided in Sections 2.4 or 6.9 below), fully
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`paid up, worldwide right and license, to:
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`“(a) make, have made, use, import, sell and offer for sale (directly or
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`indirectly, via one or more tiers of distribution channels) the Licensed
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`Products and Services under the Licensed Patents;”
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`Case 3:17-cv-05659-WHA Document 554 Filed 06/25/19 Page 4 of 14
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`7.
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`Under the Agreement, in the event Trustwave was acquired, certain
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`royalties would be due on certain products. Specifically, Section 2.5 of the
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`Agreement states:
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`“Acquiring Parties. In the event of an Acquisition of
`Licensee, all the provisions of this Agreement applicable
`to Licensee (except as related to Section 3), shall be
`deemed to apply to the Acquirer, and its respective
`Affiliates that are licensed hereunder, and the royalties
`that apply under Section 3 to Permitted Transferees shall
`apply (from the effective date of such Acquisition) to all
`Licensed Products and Services sold and licensed by the
`Acquirer and its Affiliates licensed hereunder that are not
`attributable to the Existing Business.”
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`Section 3.2.1 of the Agreement, which provides the applicable royalty, states:
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`“in respect of Permitted Transferees, and OEMs which
`are Excluded Persons and not Threshold Value OEMs
`exceeding the Net Sales Threshold, the then-prevailing
`royalty rate to be determined and agreed in good faith by
`Licensor and Licensee and reviewed annually if
`requested by Licensor based on then current royalty rates
`in the enterprise software market for customers of
`equivalent size for similar products, and, in the absence
`of such agreed prevailing rate provided such absence of
`agreement is not due to a lack of good faith on Licensor’s
`part,
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`Pursuant to Sections 2.5 and 3.2.1 of the Agreement, a
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` royalty would be due on
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`“any products and services other than the Licensed Products and Services and
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`Integrated Licensed Products and Services as actually offered and distributed by
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`the Licensee and their Affiliates at the time of the Transfer (“Existing Business.”).”
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`Case 3:17-cv-05659-WHA Document 554 Filed 06/25/19 Page 5 of 14
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`Further, under Section 3.3 of the Agreement, interest at the rate of “
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`per
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`annum” would also be due on such royalties.
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`SINGTEL ACQUIRES TRUSTWAVE, TRIGGERING ROYALTY
`CLAUSES IN THE AGREEMENT
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`8.
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`Singtel publicly announced its offer to acquire Trustwave no later than
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`April 7, 2015. Trustwave announced on August 31, 2015, that Singtel had
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`completed its acquisition of Trustwave, including the Trustwave products and
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`services that are the subject of the Agreement that is at issue in this dispute. On
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`information and belief, Singtel now wholly owns Trustwave.
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`9.
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`In 2015, Trustwave informed Finjan that Singtel was in the process of
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`acquiring Trustwave. By mid-2015, Finjan began negotiations with Trustwave
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`regarding the royalties due under the Agreement. Finjan explained that pursuant to
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`Sections 1.13, 2.4 and 2.5, a
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` royalty would be owed on products not
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`attributable to “Existing Business,” as defined by the Agreement. Finjan also
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`explained that Section 1.4 and Exhibit B of the Agreement imposed a
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` royalty
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`on relevant sales.
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`10.
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`In a July 22, 2015 email, Trustwave informed Finjan that it agreed
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`that section 2.5 applied to the acquisition of Trustwave by Singtel.
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`11. By the fall of 2015, the parties were nearing an agreement regarding
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`additional royalties, when Trustwave suddenly, and without explanation, stopped
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`responding to Finjan’s emails, and thus refused to deal with Finjan.
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`Case 3:17-cv-05659-WHA Document 554 Filed 06/25/19 Page 6 of 14
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`12. After Trustwave withdrew from negotiations, on November 16, 2015,
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`Finjan notified Trustwave that it was in breach of the Agreement. On December
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`30, 2015, Finjan reiterated to Trustwave that it was in breach of the Agreement,
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`stating that “Trustwave/SingTel is in breach of the license to the Finjan patents and
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`is on notice for lack of compliance.”
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`13. On June 22, 2016 of 2016, Finjan requested an audit pursuant to
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`Section 3.4 of the Agreement for an accounting of the royalties resulting from
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`Singtel’s acquisition of Trustwave. Section 3.4 of the Agreement states:
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`Licensee further agrees to permit its books and records,
`and to require any of its Affiliates licensed hereunder or
`OEMs, as the case may be, to permit such of their books
`and records necessary to determine the royalties paid
`hereunder, to be examined by an auditor or independent
`accounting firm mutually selected by Licensor and
`Licensee from time-to-time during regular business
`hours, but not more than once a year.”
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`Finjan proposed Connor Consulting to perform the audit, as Connor Consulting
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`came highly recommended, specialized in performing royalty audits, and would
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`cost less than other auditors. But Trustwave rejected Finjan’s proposed and instead
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`suggested either KPMG or Ernst & Young to perform the audit. Finjan looked into
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`having Ernst & Young perform the audit, but discovered that it had an engagement
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`with Singtel and thus could not perform the audit due to a conflict. Finjan then
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`retained KPMG, the other auditor suggested by Trustwave, to perform the audit.
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`Pursuant to the Agreement, Finjan initially paid for the audit. Under Section 3.4,
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`Case 3:17-cv-05659-WHA Document 554 Filed 06/25/19 Page 7 of 14
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`those audit fees could be shifted to Trustwave if the audit revealed an
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`underpayment of a certain amount.
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`14. KPMG attempted to perform its audit, but was denied various
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`information by Trustwave, in violation of Section 3.4 of the Agreement. Among
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`other things, Trustwave refused to provide sales and technical information on
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`products that Trustwave did not believe were within the scope of the Agreement,
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`unilaterally dictating the terms of KPMG’s audit, and violating the Agreement.
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`15. Based on Trustwave’s definition of what products were within the
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`scope of the agreement, KPMG concluded that an additional $160,524.91 was due
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`under the Agreement. However, based on KPMG’s own analysis of what products
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`were within the scope of the agreement, KPMG determined that an additional
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`$1,526,445.95 was due under the Agreement. Due to the amount by which
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`Trustwave was in underpayment, it was also required to pay for the audit, in the
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`amount of $50,654.67. On October 1, 2017, Finjan requested payment of those
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`fees and the cost of the audit, and asked that Trustwave advise whether it would
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`pay by October 18, 2017. Trustwave declined to pay.
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`16. On March 6, 2018, Finjan again reached out to Trustwave to request
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`payment of the fees and the cost of the audit. Over one week later, Trustwave’s
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`counsel responded on March 14 to request a CEO-to-CEO conversation to resolve
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`this dispute. Finjan promptly agreed to that request, and on March 16 provided
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`Case 3:17-cv-05659-WHA Document 554 Filed 06/25/19 Page 8 of 14
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`Trustwave’s counsel with the direct contact information of Finjan’s CEO. To date,
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`Trustwave has not reached out to Finjan or its CEO, despite its request.
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`JURISDICTION AND VENUE
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`17. The Court has subject matter jurisdiction and personal jurisdiction
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`over Trustwave at least by virtue of Section 6.4.1 of the Agreement, which states
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`that “[t]he parties hereto hereby irrevocably submit to the exclusive jurisdiction of
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`any federal or state court located within the State of Delaware over any dispute
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`arising out of or relating to this Agreement and each party hereby irrevocably
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`agrees that all claims in respect of such dispute or any suit, action proceeding
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`related thereto may be heard and determined in such courts.” This dispute arises of
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`and relates to the Agreement by virtue of Trustwave’s breach of various
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`provisions, described above and detailed further below.
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`18. The Court also has personal jurisdiction over Trustwave because
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`Plaintiff’s claims against each of them arises out of or relate to each of their
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`purposeful contacts with Delaware, and the exercise of personal jurisdiction over
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`each Trustwave in this particular case would comport with principles of fair play
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`and substantial justice.
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`19. This Court also has personal jurisdiction over each Trustwave because
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`it has engaged in systematic and continuous contacts with this State and this
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`district by, inter alia, regularly conducting and soliciting business in this State and
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`this district, and deriving substantial revenue from products and/or services
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`provided to persons in this State and this district. For example and without
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`limitation, as noted above, Trustwave is a Delaware corporation. As another
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`example without limitations, Trustwave offers for sale and on information and
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`belief has sold its products and services to residents on this State.
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`20. Venue is proper in this Court at least by virtue of Section 6.4.1 of the
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`Agreement, which, in addition to stating that “[t]he parties hereto hereby
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`irrevocably submit to the exclusive jurisdiction of any federal or state court located
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`within the State of Delaware over any dispute arising out of or relating to this
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`Agreement,” further states that “[t]he parties hereby irrevocably waive, to the
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`fullest extent permitted by applicable law, any objection which they may now or
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`hereafter have to the laying of venue of any such dispute brought in such court or
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`any defense of inconvenient forum for the maintenance of such dispute.”
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`21. Venue is further proper in this State because Trustwave is
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`incorporated here, and a substantial part of the events or omissions giving rise to
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`the claims alleged herein occurred in this district, and because Trustwave is subject
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`to this Court’s personal jurisdiction with respect to the claims alleged herein.
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`FIRST CAUSE OF ACTION
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`(Breach of Contract – Failure to Pay Royalties)
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`22. Finjan incorporates paragraphs 1 through 21 herein by reference.
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`Case 3:17-cv-05659-WHA Document 554 Filed 06/25/19 Page 10 of 14
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`23. Finjan and Trustwave entered into the Agreement, a valid,
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`enforceable, and binding contract supported by offer, acceptance, and mutual
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`consideration. Trustwave was acquired by Singtel no later than August 31, 2015.
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`24. The Agreement provides that, in the event of an acquisition of
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`Trustwave, at least a
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` royalty on “any products and services other than the
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`Licensed Products and Services and Integrated Licensed Products and Services as
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`actually offered and distributed by the Licensee and their Affiliates at the time of
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`the Transfer (‘Existing Business.’)” are due. Accordingly, additional royalties are
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`due under the Agreement.
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`25. Further, Finjan commenced an audit pursuant to Section 3.4 of the
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`Agreement. The independent auditor, KPMG, concluded that at least
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`$1,526,445.95 in additional royalties were owed by Trustwave to Finjan, based on
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`the available information. Despite Finjan’s repeated requests, Trustwave refuses to
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`pay that amount.
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`26. Accordingly, Trustwave has breached the Agreement by failing to pay
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`the royalties.
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`27. Finjan has fully performed its obligations under the Agreement to the
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`extent those obligations were not excused by Trustwave’s breaches thereof.
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`28. As a direct and proximate result of Trustwave’s breach of the
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`Agreement, Finjan has suffered damages, in the amount of at least $1,526,445.95
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`Case 3:17-cv-05659-WHA Document 554 Filed 06/25/19 Page 11 of 14
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`for the period of January 1, 2014 through December 31, 2016, based on the
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`information made available to Finjan.
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`SECOND CAUSE OF ACTION
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`(Breach of Contract – Noncompliance with Audit)
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`29. Finjan incorporates paragraphs 1 through 21 herein by reference.
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`30. Finjan and Trustwave entered into the Agreement, a valid,
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`enforceable, and binding contract supported by offer, acceptance, and mutual
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`consideration.
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`31. The Agreement allows for audits of Trustwave to determine whether
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`additional royalties are due. In the event of such an audit, Trustwave is required to
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`permits its books and records to be examined by an auditor. Trustwave refused to
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`provide certain information on products that it contends are not within the scope of
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`the Agreement. But the Agreement does not allow Trustwave to limit what books
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`or records are examined by the auditor. Accordingly, Trustwave interfered with
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`the requested audit, preventing it to be performed in accordance with Section 3.4 of
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`the Agreement. Trustwave has violated Section 3.4 of the Agreement, and has thus
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`breached the Agreement.
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`32. Finjan has fully performed its obligations under the Agreement to the
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`extent those obligations were not excused by Trustwave’s breaches thereof.
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`33. As a direct and proximate result of Trustwave’s breach of the
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`Agreement, Finjan has suffered damages, in an amount to be determined at trial.
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`THIRD CAUSE OF ACTION
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`(Breach of Contract – Cost of Audit)
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`34. Finjan incorporates paragraphs 1 through 21 herein by reference.
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`35. Finjan and Trustwave entered into the Agreement, a valid,
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`enforceable, and binding contract supported by offer, acceptance, and mutual
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`consideration.
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`36. Section 3.4 of the Agreement states:
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`“Licensor shall bear the cost of the audit, provided,
`however, that if the audit reveals an underpayment in
`excess of the greater of
`, then Licensee
`shall, within 30 days, reimburse Licensor for the costs of
`such audit.”
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`37. KPMG, the independent auditor mutually agreed upon by the parties
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`to perform an audit pursuant to the Agreement, determined that $1,526,445.95 in
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`additional royalties were owed by Trustwave to Finjan. This amount is in excess
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`of the greater of
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`. Accordingly, pursuant to Section 3.4 of the
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`Agreement, Trustwave is required to bear the cost of the audit, $50,654.67.
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`Trustwave refuses to pay that amount, in violation of the Agreement. Accordingly,
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`Trustwave has breached the Agreement by failing to pay for the audit fees.
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`38. Finjan has fully performed its obligations under the Agreement to the
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`extent those obligations were not excused by Trustwave’s breaches thereof.
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`Case 3:17-cv-05659-WHA Document 554 Filed 06/25/19 Page 13 of 14
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`39. As a direct and proximate result of Trustwave’s breach of the
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`Agreement, Finjan has suffered damages, in the amount of at least $50,654.67 for
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`the cost of the audit.
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`PRAYER FOR RELIEF
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`WHEREFORE, Finjan respectfully requests entry of judgment as follows:
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`A.
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`That Trustwave be ordered to pay to Finjan damages for its breach of
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`the Agreement, in the amount of $1,526,445.95;
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`B.
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`That Trustwave be ordered to pay Finjan pre-judgment and post-
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`judgment interest on the damages caused to it by reason of Trustwaves’ breach of
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`the Agreement, including interest pursuant to Section 3.3 of the Agreement in the
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`amount of
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` per annum;
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`C.
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`That Trustwave be ordered to pay Finjan for the cost of the audit, in
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`the amount of $50,654.67;
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`D.
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`That Trustwave be ordered to pay Finjan pre-judgment and post-
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`judgment interest on the cost of the audit;
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`E.
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`That Finjan be awarded its Attorneys’ fees, including because of
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`Trustwave’s willful breach and its blatant lack of response.
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`DEMAND FOR JURY TRIAL
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`Finjan hereby demands a jury trial on all issues so triable.
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`Case 3:17-cv-05659-WHA Document 554 Filed 06/25/19 Page 14 of 14
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`Dated: April 4, 2018
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`Of Counsel:
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`John L. Cooper
`Winston Liaw
`FARELLA BRAUN + MARTEL LLP
`235 Montgomery Street
`17th Floor
`San Francisco, California 94104
`Telephone: (415) 954-4400
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`
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`YOUNG CONAWAY STARGATT & TAYLOR LLP
`/s/ Karen L. Pascale
`______________________________________
`Karen L. Pascale (#2903)
`Mary F. Dugan (#4704)
`1000 North King Street
`Wilmington, DE 19801
`Telephone: (302) 571-6600
`kpascale@ycst.com
`mdugan@ycst.com
`Attorneys for Plaintiff Finjan, Inc.
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