Case 4:18-cv-07229-YGR Document 109-3 Filed 09/24/20 Page 1 of 30
`Case 4:18-cv-07229—YGR Document 109-3 Filed 09/24/20 Page 1 of 30
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`EXHIBIT A
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`EXHIBIT A
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`REDACTED VERSION OF
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`Case 4:18-cv-07229-YGR Document 109-3 Filed 09/24/20 Page 2 of 30
`HIGHLY CONFIDENTIAL – ATTORNEYS’ EYES ONLY
`
`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
`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.
`
`QUALYS, INC., a Delaware Corporation,
`
`
`Defendant.
`
`Case No.: 4:18-cv-07229-YGR
`
`
`HIGHLY CONFIDENTIAL-
`ATTORNEYS’ EYES ONLY
`
`PLAINTIFF FINJAN, INC.’S
`DISCLOSURE OF DAMAGES
`CONTENTIONS PURSUANT TO
`PATENT LOCAL RULE 3-8
`
`
`
`
`
`FINJAN’S DISCLOSURE OF DAMAGES CONTENTIONS
`PURSUANT TO PATENT LOCAL RULE 3-8
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`Case 4:18-cv-07229-YGR Document 109-3 Filed 09/24/20 Page 3 of 30
`HIGHLY CONFIDENTIAL – ATTORNEYS’ EYES ONLY
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`Pursuant to Patent Local Rule 3-8 of the United States District Court for the Northern District
`of California, Plaintiff Finjan, Inc. (“Finjan”) makes the following Disclosure of Damages Contentions
`(“Disclosure”) to Qualys, Inc., (“Qualys” or “Defendant”).
`Finjan makes this Disclosure based upon information presently known and reasonably available
`to it as of this date, as Finjan’s investigations are ongoing and discovery is ongoing. See Twilio Inc. v.
`Telesign Corp., Case No. 16-cv-06925-LHK, 2017 WL 5525929, at *3-4 (N.D. Cal. Nov. 17, 2017)
`(noting that damages contentions occur early in the discovery period, and while a computation may not
`yet be possible, plaintiffs must make a good faith disclosure and identify with specificity what more is
`needed to make a computation). Accordingly, Finjan reserves the right to amend, modify, supplement,
`or narrow any portion of this Disclosure, including, but not limited to, the identification of each
`category of damages Finjan seeks for the asserted infringement, Finjan’s damages approaches and
`underlying factual support, and Finjan’s computation of damages. Finjan refers to and incorporates by
`reference herein its Initial Disclosures Pursuant to Fed. R. Civ. P. 26(a)(1), responses to
`interrogatories, and requests for productions, any forthcoming supplements thereto, and responses and
`supplements to any forthcoming requests for admission, which provide information regarding Finjan’s
`allegations of damages, and any supplements to such disclosures and discovery. Finjan notes that
`much of the information necessary to provide an accurate estimation has not yet been produced. See,
`e.g., Qualys’ Response to Interrogatories Nos. 2, 3, 5, 6 and 11. Finjan further incorporates by
`reference herein its non-binding good faith damages estimate and explanation set forth in the Joint
`Case Management Statement. Finjan further incorporates by reference herein its Initial Disclosure of
`Asserted Claims and Infringement Contentions and Accompanying Document Production Pursuant to
`Patent L.R. 3-1 and 3-2, and any supplements thereto, which identify the infringed claims, the
`instrumentalities accused of infringement, the bases and manner of the alleged infringement, dates
`related to the start of infringement, the basis for Qualys’ willful infringement and the start and end of
`the damages period, and documents concerning practice of the invention, marking and relevant
`agreements.
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`FINJAN’S DISCLOSURE OF DAMAGES CONTENTIONS
`PURSUANT TO PATENT LOCAL RULE 3-8
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`Case 4:18-cv-07229-YGR Document 109-3 Filed 09/24/20 Page 4 of 30
`HIGHLY CONFIDENTIAL – ATTORNEYS’ EYES ONLY
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`Finjan reserves the right to supplement this Disclosure as necessary and as appropriate in
`accordance with the Federal Rules of Civil Procedure and this Court’s Local Rules in light of future
`document productions, interrogatory responses, admissions, disclosures, contentions, fact witness
`testimony, expert discovery, any other discovery, future rulings from the Court, any amendments to the
`pleadings, any additional items of evidence, and/or for any other reason authorized by statute, rule, or
`applicable case law. Finjan further reserves the right to rely upon the opinions of one or more experts
`in support of its damages contentions in accordance with the Court’s scheduling order. To the
`maximum degree allowed by the Federal Rules of Civil Procedure and the Court’s Local Rules, Finjan
`reserves its right to supplement, amend, modify and/or narrow this Disclosure, as appropriate, as the
`extent of infringement and/or damages becomes more fully known, the Court makes any relevant
`rulings, and the case develops over the course of discovery.
`I.
`PATENT L.R. 3-8: DISCLOSURE OF DAMAGES CONTENTIONS.
`A.
`Patent Local Rule 3-8(a)
`Finjan provides the following contentions pursuant to Patent Local Rule 3-8(a):
`
`1.
`
`Identification of Categories of Damages Sought for the Asserted
`Infringement.
`Finjan seeks all damages to which it is entitled under U.S. patent laws, arising from Qualys’s
`
`infringement including 35 U.S.C. § 284. Qualys obtains significant value and benefit from its
`infringement through the use, making, offering for sale and sales of the Accused Instrumentalities.
`Thus, Finjan seeks damages in an amount adequate to compensate for Qualys’s infringement, which
`includes, but is not limited to, no less than a reasonable royalty for the manufacture, use, offer for sale,
`sale, and/or importation of the invention.
`
`Finjan also seeks interest and costs fixed by the Court, as well as an accounting of all of
`Qualys’s infringing sales and revenues. Finjan also seeks an award of attorneys’ fees, expenses, and
`costs associated with the present action under 35 U.S.C. § 285 as well as enhanced damages under 35
`U.S.C. § 284. Such fees, costs, and expenses of damages cannot be computed at the present time and
`
`2
`FINJAN’S DISCLOSURE OF DAMAGES CONTENTIONS
`PURSUANT TO PATENT LOCAL RULE 3-8
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`Case 4:18-cv-07229-YGR Document 109-3 Filed 09/24/20 Page 5 of 30
`HIGHLY CONFIDENTIAL – ATTORNEYS’ EYES ONLY
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`depend on a variety of factors, such as the length and intensity of the litigation, the positions that
`Qualys takes, and the amount of damages awarded to Finjan.
`
`2.
`
`Finjan’s Presentations Related to Recovery, Factual Support, and
`Computation of Damages.
`Finjan seeks damages in an amount no less than a reasonable royalty for Qualys’s infringing
`use of the patents asserted against Qualys in this action. A reasonable royalty is the expected outcome
`of a licensing negotiation between the infringer and the patent owner, had the two parties negotiated a
`license for the infringer’s right to practice the patent prior to the first act of infringement. The
`negotiation is hypothesized to take place on the eve of first infringement and both parties are assumed
`to believe that the patent is valid and would be infringed. Thus, Finjan’s contentions herein assume
`that the patents that Finjan asserts against Qualys in this action are valid and infringed, specifically,
`U.S. Patent No. 6,154,844 (“the ‘844 Patent”), U.S. Patent No. 6,965,968 (“the ‘968 Patent”), U.S.
`Patent No. 7,418,731 (“the ‘731 Patent”), U.S. Patent No. 7,975,305 (“the ‘305 Patent”), U.S. Patent
`No. 8,141,154 (“the ‘154 Patent”), U.S. Patent No. 8,225,408 (“the ‘408 Patent”); and U.S. Patent No.
`8,677,494 (“the ‘494 Patent”) (collectively, the “Patents-in-Suit” or “Asserted Patents”).
`The hypothetical negotiation framework is embodied in the landmark case Georgia-Pacific
`Corp. v. United States Plywood Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970). The hypothetical
`negotiation reflects the relevant expectations and market factors that would have affected a real world
`licensing negotiation at the time of first infringement, such as, for example, the expectations of the
`negotiating parties regarding the technical advantages provided by the Patents-In-Suit; the extent to
`which Qualys uses the invention and the value of the invention to Qualys and its use of the invention;
`future sales of, and profits from, the infringing products (and any related or bundled products, products
`offered with the Accused Instrumentalities, including customer support offerings, known as convoyed,
`collateral or derivative sales); and the cost-savings that would be realized by Qualys through its
`infringement of the Patents-in-Suit, as well as the costs avoided due to its infringement.
`Beyond the Georgia Pacific factors, which are often primarily used to determine a royalty rate,
`determining an overall reasonable royalty also involves an assessment of the benefits and costs to each
`
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`FINJAN’S DISCLOSURE OF DAMAGES CONTENTIONS
`PURSUANT TO PATENT LOCAL RULE 3-8
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`Case 4:18-cv-07229-YGR Document 109-3 Filed 09/24/20 Page 6 of 30
`HIGHLY CONFIDENTIAL – ATTORNEYS’ EYES ONLY
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`of the relevant parties as a result of the license envisioned in the hypothetical negotiation. For
`example, an infringer has a number of different options to consider, which include building and
`implementing a new system, using a substitute, alternative or design-around, if available, stopping its
`infringement, or obtaining a license to the Asserted Patents. Finjan may present testimony that at the
`time of the hypothetical negotiation, it would have been economically rational and efficient for the
`parties to seek a license that would cover past and current infringing use, as well as future infringement
`of the invention described by the Patents-in-Suit, in lieu of using a substitute, alternative, or building
`and implementing a new system. A license for the life of the Asserted Patents would reduce the risk of
`a change in future license terms to either party for the Accused Products. Furthermore, the parties
`would be able to avoid future transactions costs associated with renegotiation of the license, which is
`something an infringer would consider at the time of the hypothetical negotiation. A license for the life
`of the Asserted Patents also allows the licensee freedom to operate without disruption of its business.
`Under the hypothetical negotiation framework, the negotiation is assumed to take place on or
`around the eve of first infringement, which takes place on the latter of the date that either the patent
`was issued or the date in which the defendant made used, sold, or offered for sale a device that
`allegedly infringed the patent at issue. These dates differ across the Patents-in-Suit.
`Based on information presently known to Finjan, which may be modified upon receipt of
`relevant discovery from Qualys and further discovery in general, as well as with expert disclosures, the
`date of first infringement and the start of claimed damages, and the end of claimed damages, for each
`of the Patents-in-Suit, is as on or about the following dates:
`
`
`Patent
`‘494 Patent
`‘844 Patent
`‘154 Patent
`‘731 Patent
`‘968 Patent
`‘305 Patent
`‘408 Patent
`
`End of Damages
`Start of Damages
`First Infringement
`November 12, 2015 November 12, 2015, 1/29/17
`November 12, 2015 November 12, 2015, 1/29/17
`November 12, 2015 November 12, 2015, 12/12/25
`November 29, 2018 November 29, 2018 4/27/19
`November 12, 2015 November 12, 2015, 9/5/23
`November 12, 2015 November 12, 2015, 8/18/20
`November 29, 2018 November 29, 2018 5/27/21
`
`4
`FINJAN’S DISCLOSURE OF DAMAGES CONTENTIONS
`PURSUANT TO PATENT LOCAL RULE 3-8
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`Case 4:18-cv-07229-YGR Document 109-3 Filed 09/24/20 Page 7 of 30
`HIGHLY CONFIDENTIAL – ATTORNEYS’ EYES ONLY
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`Information in support of these dates and demonstrating the application, issuance and
`expiration date of each asserted patent, includes the date Qualys received notice of each Patent-in-Suit,
`and the date that Qualys began incorporating infringing technology into the Accused Instrumentalities.
`Documents that Finjan may rely upon or refer to for its damages include without limitation: FINJAN-
`QUALYS 044370-044393; FINJAN-QUALYS 044020-044025; FINJAN-QUALYS 043993-044005;
`FINJAN-QUALYS 044006-044019; FINJAN-QUALYS 043955-043969; FINJAN-QUALYS 044026-
`044040; FINJAN-QUALYS 044118-044132; FINJAN-QUALYS 044071-044086; FINJAN-QUALYS
`044133-044148; FINJAN-QUALYS 044149-044167; FINJAN-QUALYS 043935-043954; FINJAN-
`QUALYS 044168-044187; FINJAN-QUALYS 043970-043992; FINJAN-QUALYS 044041-044070;
`FINJAN-QUALYS 044087-044117; FINJAN-QUALYS 044195-044214; FINJAN-QUALYS 044215-
`044232; FINJAN-QUALYS 044233-044247; FINJAN-QUALYS 044248-044289; FINJAN-QUALYS
`044290-044321; FINJAN-QUALYS 044322-044369; FINJAN-QUALYS 044394-044409; FINJAN-
`QUALYS 016756-016765; FINJAN-QUALYS 016766-016794; FINJAN-QUALYS 018526-018539;
`FINJAN-QUALYS 020093-020118; FINJAN-QUALYS 020119-020128; FINJAN-QUALYS 020129;
`FINJAN-QUALYS 005348-005366; FINJAN-QUALYS 064155-064230; FINJAN-QUALYS 052056-
`052128; FINJAN-QUALYS 051725-051797; FINJAN-QUALYS 055309-055383; FINJAN-QUALYS
`051043-051117; FINJAN-QUALYS 227313-227387, QUALYS00000984.
`Finjan will assess quantitative royalty indicators in the context of a hypothetical negotiation
`using one or more of the quantitative analysis based on three commonly-accepted valuation
`methodologies: (1) cost approach, (2) market approach, and (3) income approach.
`The cost approach is based on the premise that rational and willing negotiators for patent rights
`would appropriately consider the alleged infringer’s cost savings attributable to the alleged
`infringement and costs avoided as a result of the infringement. Finjan may introduce the cost to design
`an alternative, substitute or design-around, which could include the cost associated as a result of the
`loss of technical efficiencies offered by the Patents-in-Suit or the development costs and additional
`expenses associated for maintenance, depending on the location the development occurs.
`
`5
`FINJAN’S DISCLOSURE OF DAMAGES CONTENTIONS
`PURSUANT TO PATENT LOCAL RULE 3-8
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`Case 4:18-cv-07229-YGR Document 109-3 Filed 09/24/20 Page 8 of 30
`HIGHLY CONFIDENTIAL – ATTORNEYS’ EYES ONLY
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`The cost to design an alternative, substitute or design-around may be demonstrated by
`considering the cost to Qualys or a proxy of that cost to build the accused functionality attributed to the
`patented technology from scratch without the benefit of the use of Finjan’s patented technology to the
`extent it is possible to do so. Such cost savings associated with the use of the infringing functionality
`demonstrate that if Qualys were to choose not enter into a license with Finjan, it would be forced to
`take on the often most costly expense by use of a proxy to build the infringing functionality from
`scratch. Finjan may consider, for example, Qualys’s internal documents regarding the costs associated
`with the products using the Accused Instrumentalities, as well as the lines of source code associated
`with the infringement, when determining the cost savings. Other cost savings would be the cost of
`implementing a substitute, alternative or design-around that would not provide the same speed and
`efficacy as the infringing instrumentalities. Additional cost-savings could be in the form of savings
`that Qualys receives from use of the patented technology, including but not limited to, increased
`efficiencies and reduction in expenses/use of resources based on things such as not having analyze files
`more than once, being able to retrieve stored information regarding files efficiently, reduced server and
`computer processing, memory requirements, and other efficiencies and savings that may be determined
`through discovery.
`The market approach, which looks to the assets, including the licensed patent rights, may be
`assessed by reference to other marketplace transactions. The licensing histories, efforts, and practices
`are relevant to the market approach, as well as the information that Qualys provides to the marketplace
`regarding its Accused Instrumentalities and products and services using such instrumentalities. This
`would include, for example, Finjan’s licensing practices and the circumstances under which Finjan
`entered into license agreements, and how it relates to other licenses and the circumstances between
`Finjan and Qualys in a hypothetical negotiation.1
`
`
`1 To the extent Qualys identifies any comparable licenses or agreements, Finjan reserves the right to
`update its contentions and have its expert address the similarities/differences for any such alleged
`comparable licenses or agreements.
`
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`FINJAN’S DISCLOSURE OF DAMAGES CONTENTIONS
`PURSUANT TO PATENT LOCAL RULE 3-8
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`Case 4:18-cv-07229-YGR Document 109-3 Filed 09/24/20 Page 9 of 30
`HIGHLY CONFIDENTIAL – ATTORNEYS’ EYES ONLY
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`The income approach is done in reference to the financial returns that can be generated through
`use of the subject asset—i.e., the profit that can be attributable to a patent. Under this approach, Finjan
`may present evidence (1) of Qualys’s financials during the damages period, (2) that certain of the
`Accused Instrumentalities are not sold, licensed or even charged for, as part of a bundle or on a
`standalone basis, but rather are used to benefit Qualys’s product and service offerings and provide
`updates and protection, (3) the Accused Instrumentalities in various products are sold alone or bundled
`together with other accused and non-accused security products, (4) that the Accused Instrumentalities
`have a number of features that contribute to consumer demand, both alone and as a part of a system in
`combination with one or more of each other and/or other Qualys products and services; (4) increased
`ability for Qualys to offer, obtain value and benefits from, and monetize additional sales in the form of
`convoyed, collateral and derivative sales and customer support and other services that would not be
`possible without the use, marketing of, and selling of the Accused Instrumentalities .
`Finjan will evaluate damages by reference to technical and economic advantages that the
`Patents-In-Suit provide to Qualys that has added significant value to Qualys’s business. For example,
`Finjan will establish that the Patents-In-Suit provide significant technical benefits, such as by
`increasing the speed and efficiency of Qualys’s accused systems. More specifically, the Patents-In-
`Suit allow for the reuse and subsequent analysis of downloadable security profile data, the proactive
`blocking of security threats, and ultimately, an overall reduction in the operating costs for systems such
`as Qualys’s Accused Instrumentalities. See, e.g., Finjan, Inc. v. Blue Coat Systems, LLC, No. 15-cv-
`03295-BLF, Dkt. No. 509 (N.D. Cal. Jan. 9, 2018), Trial Tr. at 396:19–397:2; 413:2–414:6.
`Furthermore, the analysis performed by the Accused Instrumentalities increase the effectiveness and
`viability of Qualys’s entire ecosystem of products and services by providing analysis that is shared
`throughout Qualys’s products and which is necessary in the current threat landscape (e.g. the ability to
`catch zero-day and advanced threats). Finjan may present testimony and other evidence related to the
`expected cost savings and avoided costs that would be realized by Qualys through its infringement of
`the Patents-in-Suit versus, for example, the costs that would be expected to be incurred by Qualys to
`develop or versions of the Accused Instrumentalities for its product and service offerings without
`
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`FINJAN’S DISCLOSURE OF DAMAGES CONTENTIONS
`PURSUANT TO PATENT LOCAL RULE 3-8
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`Case 4:18-cv-07229-YGR Document 109-3 Filed 09/24/20 Page 10 of 30
`HIGHLY CONFIDENTIAL – ATTORNEYS’ EYES ONLY
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`infringing the Patents-in-Suit. As an example, damages can be based on the difference between what
`it would cost Qualys to raise capital to develop and build a substitute, design-around or alternative
`either from scratch or modify its existing systems, i.e., products and service offerings, and the benefit
`Qualys derived in revenues, market share, and profitability from using the infringing technologies and
`not having to raise replacement capital.
`Qualys’s cost savings or value added to their business as a result of their infringement may be
`expressed in a variety of forms, such as on a per-user, per-scan, percentage rate of return, and/or lump-
`sum basis. Finjan may rely on the following documents, without limitation, which demonstrate per-
`scan valuation: FINJAN-QUALYS 056295-056302; FINJAN-QUALYS 275981-275986; FINJAN-
`QUALYS 275987-275992; FINJAN-QUALYS 275993-96; FINJAN-QUALYS 275997-275998;
`FINJAN-QUALYS 275999-276004; FINJAN-QUALYS 276005-276011; FINJAN-QUALYS 276012-
`276018; FINJAN-QUALYS 276019-276024; FINJAN-QUALYS 276025-276030; FINJAN-QUALYS
`276031-276036; FINJAN-QUALYS 275342-275376 at 207:5-220:19; FINJAN-QUALYS 223712 at
`72:25 – 73:15; FINJAN-QUALYS 076624-076693 at 363:5 – 364:5; FINJAN-QUALYS 226419-
`226509 at 88:4 – 89:15; FINJAN-QUALYS 227860-227895 at 68:7 – 69:11.
`A price for a hypothetical license may appropriately be based on consideration of the “costs
`and availability of non-infringing alternatives” and the potential infringer’s “cost savings.” Prism
`Tech. LLC v. Sprint Spectrum L.P., Nos. 2016-1456, 2016-1457 (Fed. Cir. March 6, 2017); see also
`Aqua Shield v. Inter Pool Cover Team, 774 F.3d 766, 771–72 (Fed. Cir. 2014); see also Hanson v.
`Alpine Valley Ski Area, Inc., 718 F.2d 1075, 1080–81 (Fed. Cir. 1983) (“Reliance upon estimated cost
`savings from use of the infringing product is a well-settled method of determining a reasonable
`royalty.”); Powell v. Home Depot, U.S.A., Inc., 663 F.3d 1221, 1240–41 (Fed. Cir. 2011); Slimfold
`Mfg. Co. v. Kinkead Indus., Inc., 932 F.2d 1453, 1458–59 (Fed. Cir. 1991).
`Finjan will also provide background, testimony, and other evidence showing that when
`approaching a licensing negotiation to the Patents-in-Suit, Finjan has used a royalty rate of 8 percent
`on hardware and a royalty rate of 16 percent on software in the past on total revenues (i.e., gross
`revenues), which are not apportioned. As a general matter, Finjan has considered a price per user, after
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`FINJAN’S DISCLOSURE OF DAMAGES CONTENTIONS
`PURSUANT TO PATENT LOCAL RULE 3-8
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`Case 4:18-cv-07229-YGR Document 109-3 Filed 09/24/20 Page 11 of 30
`HIGHLY CONFIDENTIAL – ATTORNEYS’ EYES ONLY
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`looking at the relevance to the particular company and its products involved in the negotiations to the
`extent applicable, as well as price per scan. One of the considerations the parties would have
`considered during a hypothetical negotiation includes the consideration of the extent of use, value and
`benefits received from that use, and expected sales or returns over the life of the patents. Information
`the parties would consider is forecast information, expected returns, growth rates, market share and
`expansion opportunities, including cross-selling and upselling.
`Finjan’s prior licenses, settlements and judgments regarding the Patents-in-Suit, licensing
`practices and negotiations, confirming application of a royalty rate between 8-16% for the Patents-in-
`Suit on total revenues. While relying on settlement agreements in determining the appropriate royalty
`for subsequent acts of infringement may be “questionable,” settlement agreements, in some appropriate
`circumstances, may inform on a reasonable royalty. Georgia-Pacific Corp. v. United States Plywood
`Corp., 318 F. Supp. 1116, 1120 (S.D.N.Y. 1970); Prism Techs. LLC v. Sprint Spectrum L.P, 849 F.3d
`1360, 1369 (Fed. Cir. 2017) (“a settlement involving the patented technology can be probative of the
`technology’s value if that value was at issue in the earlier case.”). A point of consideration with
`settlement agreements is the timing of when the settlement was entered, such as Finjan offers discounts
`for early resolution and the further along a case is in a litigation, the more expenses and risk that is
`involved for both parties. Consideration of the events subsequent to the date of the hypothetical
`negotiation (e.g., consideration of settlement agreements subsequent to the date of the hypothetical
`negotiation) may also be taken into consideration.
`Many of Finjan’s license agreements, whether entered into via negotiated transactions (i.e.
`licensing transactions) or through a settlement or court ordered judgment (i.e. litigation action) or
`otherwise, are structured on a fully paid up basis. For such licenses, Finjan generally agrees to a lump
`sum license fee to be paid upon entering into the license or in accordance with a mutually agreed
`installment schedule, with many agreements including purchase price protections and exclusion
`provisions. For the license agreements where Finjan had to litigate and do so for a period of time with
`a party before the party became a licensee, Finjan’s lump sum license fee is higher than for those
`instances where Finjan negotiated a license where there was no litigation. For instance, some of
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`Finjan’s license agreements, provide for future royalty payments in the event the licensee achieves
`certain milestones specified in the applicable license agreement. Finjan’s license agreements largely
`contemplate recovery of fees for sales made prior to the effective date of the license, as well as for
`future sales through a defined termination date, in an amount related to the royalties Finjan would have
`received had a license been in effect at the time of such sales.
`Finjan receives other non-monetary consideration as well as additional cash payments upon
`certain qualified transactions that may occur after the grant of the license to a given licensee. No
`negotiation or license is the same as no prospective licensee or licensee is the same as the other. This
`contemplated additional monetary consideration is essential to the ability for the parties to resolve their
`dispute fairly, efficiently, and effectively. Finjan’s patent licenses reflect its licensing practices that
`consider both quantitative and qualitative benefits of the Patents-in-Suit. Depending on the context of
`the negotiations, some licensees provided their revenue information. Also, depending on the Accused
`Instrumentality or service, Finjan has calculated license fees in a manner similar to security industry
`subscription-based licensing practices for cloud-based applications, namely, on a price per user, per
`subscription, or per scan for identifying a base. Further, depending on the context of the negotiations,
`other factors may come into play such as, for example, pre-existing relationships, party-specific
`business and financial considerations, patent or technology cross-licenses, geographic locations,
`product offerings, partnerships, know-how, equity, M&A activities, etc. There are instances in which
`Finjan’s agreements also include other forms of consideration to achieve the desired value of a
`particular license, including excluded entity provisions, payment in the form of equity, cross-patent
`licenses, patent assignments and additional on-going running royalties where a company’s business
`model changes, i.e. it is acquired, acquires a company, sells more of the licensed products etc.
`Additionally, Finjan has entered into a term license for a limited period of time.
`As an example of certain terms and considerations that a licensee and Finjan have entered into
`is with respect to Finjan’s license with F5,
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`In another example, Finjan and Sophos entered into a license agreement after a jury found Finjan’s
`patents, including the ‘844, ‘494, and ‘154 Patents, infringed and valid. The jury in Sophos rendered a
`damages owed amount based on expert testimony that presented ranges of hardware 6 to 8% and
`software up to 16%, which is consistent with the $15 million award.
`The various aspects of and circumstances surrounding each of Finjan’s license agreements are
`informative and represent economic components of the license that address the full or potential value
`Finjan’s licenses. As described above, the circumstances for each license agreement are unique and
`various factors are considered. For example, circumstances that may also impact licensing
`negotiations include whether a complaint was filed, the stage of the litigation, and any substantive
`rulings. In cases where a complaint was filed and Finjan subsequently entered into an agreement with
`the defendant, the parties focused their negotiations based on the patents asserted in the litigation and
`Accused Instrumentalities but entered into a portfolio license.
`As explained above, each negotiation is unique and the timing and circumstances related to
`each prospective licensee and, to the extent litigation is required, litigation are taken into consideration
`in the negotiations. The license agreements between Finjan and
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`Sophos and Blue Coat, occurred after the parties received a jury verdict. In Secure Computing, the
`jury found infringement and awarded damages for the ‘780, ‘822 and ‘194 Patents based on a royalty
`of eight percent for hardware and sixteen percent on software and the award was approximately $9
`million but that increased to $37 million after the judgement was entered. In addition, McAfee, a
`company that Finjan was in litigation with on two patents (not at issue here), acquired Secure
`Computing and McAfee was subsequently acquired by Intel.
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`Consideration and determination of what aspects of these licenses are comparable to the hypothetical
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`negotiation between Finjan and Qualys will be accounted for through expert opinion, including for
`instance the value of the license to a licensee, how the license fee was determined, any discounts
`afforded, purchase price protections and excluded entity provisions, geographic, revenue, growth rates,
`and market considerations for each licensee.
`Finjan’s licensing as it relates to its licenses, settlements, and judgments is informative,
`including its approaches to licensing, and the factors Finjan considers when licensing the Patents-in-
`Suit (i.e., scope of use, how the patented technology is being used, potential future use, and benefits
`derived from the use of the claimed invention). These prior licenses, settlements and judgments affect
`Finjan’s view regarding what constitutes a rea