Case 4:18-cv-07229-YGR Document 55 Filed 03/20/20 Page 1 of 10
`
`EDWARD G. POPLAWSKI (SBN 113590)
`epoplawski@wsgr.com
`OLIVIA M. KIM (SBN 228382)
`okim@wsgr.com
`WILSON SONSINI GOODRICH &
`ROSATI, P.C.
`633 West Fifth Street, Suite 1550
`Los Angeles, CA 90071
`Telephone: (323) 210-2900
`Facsimile: (866) 974-7329
`
`RYAN R. SMITH (SBN 229323)
`rsmith@wsgr.com
`CHRISTOPHER D. MAYS (SBN 266510)
`cmays@wsgr.com
`WILSON SONSINI GOODRICH &
`ROSATI, P.C.
`650 Page Mill Road
`Palo Alto, CA 94304-1050
`Telephone: (650) 493-9300
`Facsimile: (650) 493-6811
`
`Attorneys for Defendant
`QUALYS INC.
`
`IN THE UNITED STATES DISTRICT COURT
`
`FOR THE NORTHERN DISTRICT OF CALIFORNIA
`
`OAKLAND DIVISION
`
`CASE NO.: 4:18-cv-07229-YGR
`
`DEFENDANT QUALYS INC.’S
`REPLY IN SUPPORT OF ITS
`MOTION FOR LEAVE TO AMEND
`ANSWER AND AFFIRMATIVE
`DEFENSES
`
`Date: N/A1
`Time: N/A
`Place: Courtroom 1, 4th Floor
`Before: Hon. Yvonne Gonzalez Rogers
`
`)))))))))))))
`
`FINJAN, INC.,
`
`Plaintiff,
`
`v.
`
`QUALYS INC.,
`
`Defendant.
`
`HIGHLY CONFIDENTIAL – ATTORNEYS’ EYES ONLY
`REDACTED VERSION OF DOCUMENTS SOUGHT TO BE SEALED
`
`1 Subject to the Court’s March 12, 2020 Order (D.I. 48) suspending in-person appearances.
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`CASE NO. 4:18-cv-07229-YGR
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`I.
`
`INTRODUCTION
`Finjan’s Opposition (“Opp.”) ignores material facts and fails to overcome the strong
`presumption to grant amendments “with extreme liberality.” Waldrip v. Hall, 548 F.3d 729, 732
`(9th Cir. 2008). Nor does Finjan satisfy this Court’s prior precedent granting leave to amend
`unless “there is strong evidence” of undue delay, bad faith, dilatory motive, undue prejudice, or
`futility. Buchanan v. Tata Consultancy Servs., Ltd., No. 15-CV-01696-YGR, 2017 WL
`6611653, at *4 (N.D. Cal. Dec. 27, 2017). Finjan does not even argue that either bad faith or
`dilatory motive exists. Instead, it argues only delay, prejudice, and futility, but each of these
`arguments are factually and legally flawed.
`II.
`ARGUMENT
`A.
`Qualys’ Preclusion Defense Is Not Futile, Untimely, or Prejudicial
`1.
`Finjan Has Not Shown Undue Delay
`
`Qualys did not unduly delay in seeking to assert preclusion as an affirmative defense.
`See Opp. at 6. Qualys was not a party to the reexamination proceedings or the subsequent
`Federal Circuit appeal. And Finjan did not apprise Qualys regarding the status of those
`proceedings. To the contrary, Finjan took steps to conceal the pendency of the reexamination.
`Specifically, on March 4, 2019, the Court requested a “chart that I can look at that gives me all of
`this information in terms of the other cases, where it’s pending, which have constructions, which
`are terminated. That’s one chart.” D.I. 24, CMC Tr. at 11:18-23. Finjan then submitted a chart,
`which purported to identify all proceedings involving the patents-in-suit. See D.I. 30-1.
`However, Finjan omitted the ’305 reexamination and the ongoing Federal Circuit appeal from its
`chart. Finjan should not now benefit from its omission.
`Although Qualys learned of the Federal Circuit opinion shortly after its issuance in
`September 2019, at that junction Finjan could still seek an en banc rehearing or Supreme Court
`review. The last deadline for doing so elapsed in December 2019, less than three months before
`Qualys filed this Motion. And more importantly, the issuance of the Reexamination Certificate
`in January 2020 (only a month before this Motion) is the legal act by which the Patent Office
`formally canceled the Reexamination Claims. See 35 U.S.C. § 307 (“In a reexamination
`
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`Case 4:18-cv-07229-YGR Document 55 Filed 03/20/20 Page 3 of 10
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`proceeding under this chapter, when the time for appeal has expired or any appeal proceeding
`has terminated, the Director will issue and publish a certificate canceling any claim of the
`patent finally determined to be unpatentable…).2 Before that certificate, the Reexamination
`Claims had not yet been finally canceled.
`2.
`Finjan Has Not Shown Futility
`
`Finjan’s futility argument fares no better.3 Here, Qualys’ preclusion defense is based on
`the Patent Office’s cancellation of the ’305 Reexamination Claims. The Federal Circuit has
`explained that preclusion applies if the differences between the claims canceled during
`Reexamination (here, ’305 claims 1, 2, 5, and 13, or the “Reexamination Claims”) and the claims
`being asserted for infringement “do not materially alter the question of invalidity.” Soverain
`Software LLC v. Victoria’s Secret Direct Brand Mgmt., LLC, 778 F.3d 1311, 1319 (Fed. Cir.
`2015); see also Ohio Willow Wood Co. v. Alps South, LLC, 735 F.3d 1333, 1342 (Fed. Cir. 2013)
`(preclusion applies where the claims invalidated in the Patent Office use “slightly different
`language to describe substantially the same invention”). In other words, it is not required for
`Finjan to assert the same claims or claims with identical terms, as Finjan argues. See Opp. at 4.
`The Federal Circuit expressly rejected this argument. See Soverain Software, 778 F.3d at 1319
`(“Complete identity of claims is not required to satisfy the identity-of-issues requirement for
`claim preclusion.”).
`Finjan fails to cite a single case from the Federal Circuit and ignores the authority that
`Qualys cited in its Motion. Instead, Finjan cites non-binding authority from the District of
`Delaware and general Ninth Circuit cases reciting the overall standard for preclusion. But it is
`Federal Circuit law that applies to “issues of issue preclusion that implicate substantive patent
`law issues.” Soverain, 778 F.3d at 1319-1320. In Soverain, for example, the Federal Circuit
`applied its own standards to determine that “[t]he invalidity of the asserted claims . . . is
`
`2 Unless stated otherwise, all emphasis in quotes is added.
`3 Finjan did not raise futility during the parties’ meet and confer efforts.
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`established by issue preclusion.” Id. at 1320. Qualys’ proposed Second Amended Answer
`adequately pleads preclusion under Soverain by alleging that the asserted claims of the ’305
`Patent do not materially alter the question of invalidity. This is sufficient to overcome Finjan’s
`futility arguments. In any event, Finjan’s argument that the Reexamination Claims differ in
`scope with the asserted ’305 claim is a factual argument properly the subject of fact and expert
`discovery and not a basis for finding futility.
`Finjan also argues that certain of the ’305 Patent’s claims were found valid in a separate
`Patent Office proceeding before the Patent Trials and Appeals Board (“PTAB”) in 2017. As a
`preliminary matter, Finjan’s reliance on materials outside the pleadings is inappropriate. See
`Nordyke v. King, 644 F. 3d 776, 799 (9th Cir. 2011) (“In evaluating whether the district court
`should have granted the [Plaintiffs’] motion for leave to amend, therefore, we look only to facts
`pled in the Proposed Second Amended Complaint.”). Moreover, as with the Reexamination
`proceedings, Qualys was not a party to the PTAB’s proceedings. Accordingly, the Court should
`not consider the PTAB’s 2017 opinion at the pleadings stage.
`And even if the Court were to consider the PTAB materials submitted by Finjan, they do
`not establish futility. Indeed, other than noting the existence of this other proceeding, Finjan
`says nothing about how that proceeding bears any relevance to Qualys’ proposed preclusion
`defense. For example, Finjan does not identify the claims, the legal issues, or the invalidity
`theories involved there. That the Patent Office rejected some other invalidity argument in a
`totally different proceeding says nothing about the preclusive effect of the Reexamination
`proceedings at issue here. It is also worth noting that this other proceeding concluded in January
`2019, months before the Federal Circuit affirmed the invalidity of the Reexamination Claims and
`a year before the Patent Office canceled those claims through the Reexamination Certificate.
`Those proceedings, therefore, have no bearing on Qualys’ preclusion defense.
`In support of its futility argument, Finjan criticizes Qualys for “discuss[ing] only one
`claim as supposedly immaterially different from an invalidated claim…”. Opp. at 5. But even if
`only one asserted claim of the ’305 patent were precluded by patent exhaustion, that would
`constitute a non-futile affirmative defense. Finjan cites no authority to the contrary.
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`3.
`
`Finjan Has Not Shown Prejudice
`
`Finjan finally argues that it would be prejudiced in discovery by Qualys’ preclusion
`defense. But Finjan fails to explain the nature of this prejudice, nor does it explain how
`permitting Qualys’ amendment would materially increase Finjan’s burden of discovery. Opp. at
`7. For example, Finjan does not identify any particular claim of the ’305 patent that it would
`have asserted had it known of the preclusion defense. In any event, discovery does not close for
`many months, no depositions have been taken, and there is no claim construction order.
`Qualys’ proposed preclusion defense is not futile, untimely, or prejudicial, and
`amendment allowing it should therefore be granted in the interests of justice.
`B.
`Qualys’ Exhaustion/Implied License Defenses Are Not Futile, Untimely, or
`Prejudicial
`1.
`Finjan Has Not Shown Futility
`
`As to exhaustion, Finjan does not dispute that [1] it previously authorized Trend Micro to
`sell its software to customers and [2] that it now accuses licensed Trend Micro software residing
`in Qualys’ products of infringement. This alone shows Qualys’ defense is not futile.
`
`Instead, Finjan principally argues that the Trend Micro Agreement did not
` But Finjan’s argument misapplies the law.
`Patent exhaustion focuses only on the nature of Finjan’s authorization to Trend Micro. See
`Quanta Computer, Inc. v. LG Elecs., Inc., 553 U.S. 617, 625 (2008) (“the initial authorized sale
`of a patented item terminates all patent rights to that item.”); Impression Prods. v. Lexmark Int’l,
`Inc., 137 S. Ct. 1523 at 1535 (2017) (“So long as a licensee complies with the license when
`selling an item, the patentee has, in effect, authorized the sale. That licensee’s sale is treated, for
`purposes of patent exhaustion, as if the patentee made the sale itself. The result: The sale
`exhausts the patentee’s rights in that item.”). Because Finjan
`
`, Finjan’s patent rights with respect to any Trend
`Micro software in Qualys’ products are exhausted. It is immaterial whether
`
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`Finjan attempts to distinguish Quanta by
`
`
` Opp. at 9. This is a misstatement. In
`Quanta, the patent owner (LGE) argued that patent exhaustion did not apply vis-à-vis its
`licensee’s (Intel) customer (Quanta) because the license at issue “specifically disclaimed any
`license to third parties to practice the patents by combining licensed products with other
`components.” 553 U.S. at 637. The Supreme Court rejected this argument and held that it is
`irrelevant
`
`LGE points out that the License Agreement specifically disclaimed any license to
`third parties to practice the patents by combining licensed products with other
`components. Brief for Petitioners 8. But the question whether third parties
`received implied licenses is irrelevant because Quanta asserts its right to practice
`the patents based not on implied license but on exhaustion. And exhaustion turns
`only on Intel’s own license to sell products practicing the LGE Patents.
`
`Quanta, 553 U.S. at 637 (2008); see also id. (“The License Agreement authorized Intel to sell
`products that practiced the LGE Patents. No conditions limited Intel’s authority to sell products
`substantially embodying the patents. Because Intel was authorized to sell its products to Quanta,
`the doctrine of patent exhaustion prevents LGE from further asserting its patent rights with
`respect to the patents substantially embodied by those products.”).
`Finjan also ignores the similar result reached in TransCore, LP v. Elec. Transaction
`Consultants Corp., 563 F.3d 1271, 1276-1277 (Fed. Cir. 2009). There, the Federal Circuit
`examined a covenant not to sue. The TransCore covenant stated that “[TransCore] agrees and
`covenants not to bring any demand, claim, lawsuit, or action against Mark IV for future
`infringement....” Id. The Federal Circuit held that because the covenant permitted the licensee
`to sell its products to third party customers, patent exhaustion applied:
`This term, without apparent restriction or limitation, thus authorizes all acts that
`would otherwise be infringements: making, using, offering for sale, selling, or
`importing. TransCore did not, as it could have, limit this authorization to, for
`example, “making” or “using.” And indeed, at oral argument, TransCore conceded
`that the TransCore—Mark IV settlement agreement does not include a restriction
`on sales.
`
`TransCore, 563 F.3d at 1276; see also id. at 1277 (“As a result, the district court correctly found
`that Mark IV’s sales to ISTHA were authorized and that TransCore’s patent rights are
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`Case 4:18-cv-07229-YGR Document 55 Filed 03/20/20 Page 7 of 10
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`exhausted.”). As in the Quanta case, the Federal Circuit reiterated that “The only issue relevant
`to patent exhaustion is whether Mark IV’s sales were authorized, not whether TransCore and
`Mark IV intended, expressly or impliedly, for the covenant to extend to Mark IV’s customers.”
`Id.
`
`
` “irrelevant and could not impact the outcome.” Id.
`
`
`
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` Here, as in those two cases,
`
`
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`Finjan
`
` See D.I. 43-4, Trend Micro Agreement § 3.2 (
`
` But, Finjan went even further by
`
`D.I. 43-4, Trend Micro Agreement, § 3.5(b); see also id. § 1.12
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`
`Finjan also characterizes its Agreement with Trend Micro as
` Opp. at 8. This tortured
`reading of the Trend Micro Agreement is inconsistent with its plain terms, which expressly states
`that
`
`
` D.I. 43-4, Trend Micro Agreement § 3.5(c).
`
` See id. At a minimum,
`Qualys should be permitted to explore in discovery the veracity of Finjan’s interpretation of the
`contract and alleged intent of the parties. 4
`2.
`Finjan Has Not Shown Undue Delay
`
`Stated differently, Finjan expressly authorized
`
`Finjan’s undue delay arguments are not credible. It argues that the agreement with Trend
`Micro was “a matter of public record since July 2018.” Opp. at 9. The falsity of Finjan’s
`statement is borne-out by Finjan’s insistence that that the entirety of the Trend Micro Agreement
`be filed under seal in this action. See Declaration of James Hannah in Support of Qualys Inc.’s
`Administrative Motion to File Documents Under Seal, D.I. No. 46. According to Finjan’s
`declaration, the agreement is “Highly Confidential – Attorneys’ Eyes Only.” Clearly, the Trend
`Micro Agreement was not a matter of public record.
`Finjan also argues that Qualys and Finjan met and conferred regarding production of the
`Trend Micro Agreement in July 2019. Opp. at 9. Finjan omits, however, that—in direct
`violation of the Local Patent Rule 3(f)—Finjan had failed to produce “[a]ll agreements, including
`
`4 Finjan also argues that Qualys has been unable “to provide any documentation of any kind
`of contractual relationship between it and Trend Micro.” Opp. at 8 n.2. But at the pleadings
`stage, plausible factual allegations are deemed true. In ¶ 309 of Qualys’ Proposed Amended
`Answer, Qualys alleges that “[i]n 2011, Qualys and Trend Micro announced a business
`partnership and product integration. As part of this partnership, Trend Micro provided antivirus
`software to Qualys.” As such, Qualys has pled that it is a “Partner” of Trend Micro. Regardless,
`Qualys contends that it has produced sufficient documents to demonstrate that its exhaustion-
`related defenses are not futile.
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`licenses, transferring an interest in any patent-in-suit.” Finjan’s production was due on April 19,
`2019, yet three months later, Qualys still had not received all patent licenses. Finjan never
`sought relief from the Court to extend this deadline. Had Finjan complied with the Local Patent
`Rules and produced the Trend Micro license when it was obligated to do so, Qualys would have
`been in a position to assert the exhaustion and implied license defenses months earlier.
`To that end, Finjan does not argue that Qualys unduly delayed in pursuing patent once it
`received a copy of the Trend Micro license. Qualys believed it was prudent to review the
`agreement in discovery before seeking to add this defense. Otherwise, Qualys would have no
`way of knowing which patents the license pertained to, whether the license had expired or was
`otherwise terminated, and whether Trend Micro was permitted to sell licensed products to its
`partners (like Qualys). Upon confirming that exhaustion and implied license were applicable,
`Qualys promptly began meeting and conferring with Finjan regarding the possibility of a
`stipulation for the proposed amendments.
`3.
`Finjan Has Not Shown Prejudice
`
`Finjan claims prejudice because it “elected its asserted claims and served infringement
`contentions in April 2019, nine months after it publicly announced its license with Trend Micro.”
`Opp. at 9. As explained above, the Trend Micro license was not publicly available and
`apparently remains highly confidential to this day. Finjan was obligated to produce the Trend
`Micro agreement in April 2019, but failed to do so in violation of Local Patent Rule 3(f).
`Additionally, Finjan fails to identify any harm or prejudice it has suffered, particularly
`given its own dilatory conduct. Specifically, Finjan provides no explanation for how it “could
`have taken [the implied licensing and exhaustion defenses] into account in selecting its claims
`and preparing its contentions” since Finjan had not even produced the Trend Micro Agreement to
`Qualys at that time. Opp. at 9. During the parties’ extensive meet and confer, Finjan never
`indicated that it would be prejudiced by Qualys’ proposed amendments. See D.I. 44-11 at 6.
`And, Finjan never requested leave to amend its infringement contentions to address the implied
`license and patent exhaustion.
`III.
`CONCLUSION
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`For the foregoing reasons, Finjan has fallen far short of showing “strong evidence” of
`undue delay, bad faith, dilatory motive, undue prejudice, or futility. Qualys respectfully requests
`that the Court grant its motion to amend.
`DATED: March 20, 2020
`By:
`
`/s/ Christopher D. Mays
`
`CHRISTOPHER D. MAYS
`
`Counsel for Defendant
`QUALYS INC.
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