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`EXHIBIT 2
`EXHIBIT 2
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`UNITED STATES DISTRICT COURT
`NORTHERN DISTRICT OF CALIFORNIA
`
`Case No.
`5:17‐cv‐04467‐BLF
`
`EXPERT REPORT OF
`DeForest McDuff, Ph.D.
`
`FINJAN, LLC,
`
`Plaintiff,
`
`vs.
`
`SONICWALL, INC., a Delaware
`Corporation,
`
`Defendant.
`
`_________________________
`DeForest McDuff, Ph.D.
`September 4, 2020
`
`HIGHLY CONFIDENTIAL - ATTORNEYS' EYES ONLY
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`
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`HIGHLY CONFIDENTIAL
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`My curriculum vitae contains more details on my education, experience, and expert
`5.
`testimony and is provided as Attachment A‐1.
`b. Scope of work
`
`For this report, I was asked to evaluate potential economic damages resulting from the
`6.
`alleged infringement of U.S. Patent Nos. 6,154,844 (“the ‘844 Patent”); 6,804,780 (“the ‘780
`Patent”); 6,965,968 (“the ‘968 Patent”); 7,058,822 (“the ‘822 Patent”); 7,613,926 (“the ‘926
`Patent”); 7,647,633 (“the ‘633 Patent”); 7,975,305 “the ‘305 Patent”); 8,141,154 (“the ‘154
`Patent”); 8,225,408 (“the ‘408 Patent”); 8,677,494 (“the ’494 Patent”), (collectively the “Patents‐
`at‐Issue”) by SonicWall, Inc. This report is a statement of my opinions and the bases and reasons
`for those opinions.1 In forming the opinions expressed in this report, I have relied upon my
`education, experience, and materials considered or relied upon, provided as Attachment A‐2.
`
`In connection with my work on this matter, Insight Economics has been retained by
`7.
`Kramer Levin Naftalis and Frankel LLP on behalf of Finjan, Inc. (now Finjan LLC). Insight Economics
`is being compensated at a rate of $700 per hour for my work and at lower rates for time spent
`by others on my team. The compensation of Insight Economics does not depend on the substance
`of my testimony or the outcome of this matter.
`c. Summary of opinions
`
`As explained in detail throughout this report, I have reviewed numerous materials
`8.
`including the testimony of Finjan and SonicWall employees, interviews with Finjan and technical
`experts, documents produced in this case, and public research materials. The following provides
`some summary points on the conclusions I have drawn from my analysis:
`
`a. Hypothetical negotiations. The hypothetical negotiations in this case would have
`been between Finjan as the licensor and SonicWall as the licensee on the eve of first
`infringement for each Asserted Patent. As a practical matter, and is common in
`industry licensing and Finjan licensing, the parties may have negotiated a single
`license to all of the Patents‐at‐Issue at the earliest hypothetical negotiation. Under
`both scenarios, the royalty amount resulting from the hypothetical negotiation would
`
`1
`
`This report reflects only my current opinions, which are subject to change based upon additional
`information, analysis, and/or opinions or other experts.
`
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`be the same and changes to the hypothetical negotiation dates do not materially
`affect my conclusions. See Section 4.b below.
`b. Royalty structure. The reasonable royalty calculated in this report is based on the
`value of the past and projected infringement because, when negotiating a license to
`the patents and consistent with Finjan’s license agreements, the parties would have
`desired to resolve the license with an amount that reasonably compensates Finjan for
`the full period of alleged and expected infringement. Given that some of the Patents‐
`at‐Issue do not expire until after the trial date currently scheduled, I have projected
`accused revenues based on constant annual amounts through the expiration of the
`last Patent‐in‐Suit. My analysis provides breakdowns of the reasonable royalty based
`on (a) the value of infringement that has already occurred during each year, (b) the
`present value of projected infringement at the time of this report, and (c) the present
`value of royalties at the start of the damages period for the first Patent‐at‐Issue. See
`Sections 4.e and 4.f below.
`c. Reasonable royalty. I use three approaches to calculate a reasonable royalty. The
`first approach considers the infringing sales and associated revenues using Finjan’s
`historical royalty rates of 8 and 16 percent, applied to a royalty base that is
`apportioned based on discussion and consideration of the technical expert opinions.
`See Sections 4.e, 4.f, 4.g, and throughout this report.
`Second, I consider an alternative royalty structure based on the per‐unit royalty
`according to the number of units sold by SonicWall and comparable SonicWall licenses
`relating to the claimed subject matter. In the second royalty structure, the royalty is
`a fee that SonicWall would owe Finjan as reasonable compensation for each unit
`SonicWall sells that incorporates the infringing technology, converted to a single
`payment amount as described above. See Section 4.h.i.
`Third, I consider an alternative royalty structure based on the per‐scan royalty
`according to the number of times SonicWall has used the infringing technology (each
`time a “scan” occurs) and a price per scan based on a comparable Finjan negotiation
`and agreement. In the third royalty structure, the royalty is a fee that SonicWall would
`owe Finjan as a reasonable compensation for each scan, converted to a single
`payment amount as described above. See Section 4.h.ii.
`While I have calculated royalties for each patent individually, the parties would have
`practically and reasonably agreed to a license to all Patents‐at‐Issue at the
`hypothetical negotiations. Given that some of the infringing products, specific
`accused functionality, infringement dates, and expiration dates may overlap, the
`royalties for each patent are not entirely additive. The primary reasonable royalty
`
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`amounts for the alleged infringement for all of the Patents‐at‐Issue in this case, taking
`into consideration and removing any overlap in royalties, is determined based on
`SonicWall worldwide sales (for which infringement of the Patents‐in‐Suit occurs in the
`United States), where the value of royalties on past sales is not discounted and
`projected sales are discounted to present value at the time of this report. These
`amounts are approximately $160 million (see Attachment B‐2) based on the
`apportioned royalty base methodology (or $119 million based on all past and
`projected sales discounted to the start of damages) (see Attachment B‐1); $30.8
`million based on a per‐unit royalty (or $22.9 million based on all past and projected
`sales discounted to the start of damages) (see Attachment I‐1); and $114 million based
`on a per‐scan royalty (or $90.8 million based on all past and projected sales
`discounted to the start of damages) (see Attachment J‐1). Additional damages
`scenarios and amounts based on individual patents, territories, time periods, and
`products are provided in the attachments of this report.
`The most reasonable royalty is approximately $160 million (see Attachment B‐2)
`based on the apportioned royalty base methodology. This figure is the most
`reasonable amount, because, among other reasons discussed below, it is based on (1)
`revenues that SonicWall generated using the infringing technology, (2) Finjan’s
`licensing rates of 8% and 16%, and (3) the apportionment percentages for each
`apportionment group and Patent‐at‐Issue. The per‐scan royalty of $114 million
`provides a supportive and confirmatory measure of damages, since the per‐scan
`royalty is based upon the use of the infringing technologies via scans. In contrast, the
`per‐unit royalty results in a lower dollar figure than the other two methods, which is
`based on a more conservative per‐unit royalty of $9.50 for Capture ATP functionality
`applied to infringing units according to an apportioned per‐unit royalty structure for
`SonicWall’s Accused Products (and also conservative compared to the 12.375% in the
`same agreement).
`
`
`
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`and its solutions portfolio.12 SonicWall continued its product sales and operations from before
`Dell’s acquisition through the period it was part of Dell (2012‐2016) and then after the spinoff
`from Dell subsequent to 2016.13
`13.
`Under Dell’s ownership, according to Francisco Partners, the SonicWall product portfolio
`was under‐invested in, and sandboxing was one of the areas where SonicWall was behind but
`catching up.14 In 2015, Gartner noted that SonicWall did not have sandboxing technology.15 At
`the time SonicWall was launching Capture ATP (“Advanced Threat Protection”), most of
`SonicWall’s competitors had a sandboxing technology.16
`14.
`Francisco Partners examined the market of UTM (“Unified Threat Management”)
`purchasers using IDC (“International Data Corporation”) market reports, and concluded that the
`market for SonicWall products is reasonably large, and that analysts believed that market was
`projected to grow at a healthy rate.17 SonicWall was valued at $750 to $850 million,18 and
`Francisco Partners purchased SonicWall for approximately $690 million dollars.19 In the press
`release announcing SonicWall’s spinoff from Dell, SonicWall highlighted its cloud‐based Capture
`Advanced Threat Protection Service as having “revolutionized advanced threat detection and
`sandboxing with a multi‐engine approach to stopping unknown and zero‐day attacks, and with
`automated remediation.”20 In another document, SonicWall identifies the importance of its
`
`Dell, Inc., Form‐10‐K, 2017, at 5.
`Business Wire, “Francisco Partners and Elliott Management to Acquire the Dell Software Group,”
`6/20/2016,
`https://web.archive.org/web/20160623135836/http://www.sonicwall.com/acquisitions/snwl.aspx.
`Since before Dell’s acquisition, through the period it was part of Dell (2012‐2016), and after the spinoff from
`Dell subsequent to 2016, SonicWall operated with the same officers and employees, including SonicWall’s
`Sr. VP and CTO, John Gmuender, SonicWall’s VP of Platform Architecture, Dmitry Ayrapetov, Director of
`Product Marketing, John Gordineer, and distinguished engineer Senthil Cheetancheri. See John Gmuender,
`Dep. Tr., 7/9/2020, at 8:14‐24; Dmitriy Ayrapetov, Dep. Tr., 7/29/2020, at 6:4‐7:11, 19:23‐25; John
`Gordineer, Dep. Tr., 7/14/2020, at 6:2‐9, 7:7‐8:6, 22:15‐23; Senthil Cheetancheri, Dep. Tr., 7/7/2020, at 8:2‐
`9:5.
`Evan Daar, Dep. Tr., 7/30/2020, at 31:3‐44:4 and Exhibit 4.
`SonicWall‐Finjan_00051472 at 481.
`Evan Daar, Dep. Tr., 7/30/2020, at 110:10‐112:4, Ex. 19 at 5, 13; Ayrapetov Dep. Tr., 7/29/2020, at
`122:17–123:8.
`Evan Daar, Dep. Tr., 7/30/2020, at 48:5‐49:7.
`Evan Daar, Dep. Tr., 7/30/2020, at 20:11‐23:14.
`Evan Daar, Dep. Tr., 7/30/2020, at 23:16‐25:7.
`Evan Daar, Dep. Tr., 7/30/2020, Exhibit 15.
`
`12
`
`
`13
`
`14
`15
`16
`
`17
`18
`19
`20
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`v. Discount factors
`
`114. Discount factors are applied to the apportioned royalty base by year to express the value
`of economic damages in present value, either as of the date of this report or at the start of the
`damages period. In general, discount factors are applied to projected and unknown sales to
`account for the uncertainty of sales in the future and the time value of money for the parties
`involved in a negotiation. In this case, an economically reasonable assessment of the reasonable
`royalty is calculated by treating the past sales without discounting and applying a discount factor
`to projected sales to discount the value to the present day. This royalty structure is economically
`reasonable and appropriate because: (a) it reflects the past infringement that has already
`occurred with certainty and an exact value based on sales data, (b) it reflects that SonicWall has
`earned revenue and profits through ongoing infringement over time via Finjan’s technology
`without compensating Finjan, (c) any compensation that will be paid has not yet been paid as of
`this report date and would only be occurring after this report, (d) expected infringement that
`may be paid up with a license through the expiration of the patents recognizes the uncertainty
`of negotiating a license in advance of sales that have not yet occurred, (e) it puts less contribution
`in the royalty amount for sales further into the future, (f) it is based on the parties reasonably
`forecasting projected sales as of this report, (g) it is consistent with the structure of Finjan’s
`licensing and policies, which evaluate infringement to date and projected expected infringement
`at the time at which a payment occurs (here, using the date of this report or ultimately the date
`of trial and jury award),311 and (h) it provides the perspective and value as of the date of this
`
`
`Finjan’s technology at‐issue is encompassed in the portfolio of Patents‐at‐Issue and the Patents‐at‐Issue in
`this case are highly related to Finjan’s other patents. Interview with Phil Hartstein and Julie Mar‐Spinola,
`Finjan, 8/21/2020. Interview with Dr. Eric Cole, Dr. Nedad Medvidovic, and Dr. Michael Mitzenmacher,
`9/1/2020. Further, Finjan typically licenses its entire portfolio in many situations. See for example, Philip
`Hartstein, Dep. Tr., 2/7/2020, at 138:5‐139:1‐9; Philip Hartstein, Dep. Tr., 9/26/2016, (Blue Coat II) at 130:9‐
`18; and Philip Hartstein Dep. Tr.,11/12/2015, (Sophos), at 77:4‐13.
`If the finder of fact determines that further apportionment of Finjan’s portfolio value that was licensed in
`other agreements is warranted, a reasonable approximation could be implemented based on at least 90%
`of that value to the Asserted Patents within Finjan’s other patents (based on the distributional information
`and evidence cited by those courts or the percentages above that have been implemented in other cases),
`since Finjan’s 10 Asserted Patents represent more than 20% of its total U.S. patent portfolio that has been
`licensed in any agreements (the highest number of U.S. patents indicated is 31 = 29 patents + 2 patent
`applications). Yet, to reiterate, the reasonable royalty amount is already apportioned herein to the specific
`patents in this case based on the apportioned royalty base that has been determined specifically infringe
`these patents as opposed to other patents in Finjan’s patent portfolio.
`Interview with Phil Hartstein and Julie Mar‐Spinola, Finjan, 8/21/2020.
`
`311
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`report to provide Finjan with fair and reasonable compensation for the ongoing acts of
`infringement that occur over time throughout the damages period and into the future. As
`discussed, an alternative calculation for the finder of fact that results in a lesser royalty amount
`applies a discount factor to the royalty base in each year to express the value of damages in
`present value at the start of the damages period (June 10, 2014).312
`115. A reasonable discount rate for the analysis in the hypothetical negotiation in this case is
`the average weighted average cost of capital (WACC) for “Computers / Peripherals” (an industry
`that includes Dell, and thus also included SonicWall as part of Dell from 2012 through 2016) and
`“Software (System and Application)” (an industry that includes Finjan).313 See Attachment K‐3.
`The average of the two WACC values in the relevant years for discounting is used to account for
`the costs of capital and economic circumstances of both parties in the negotiation. The industry
`average is preferable and used rather than the individual companies’ WACC values, because
`industry averages are more stable over time and are not subject to the individual idiosyncrasies
`of a particular company in a particular year; though, these industries’ WACC values are
`specifically applicable to Finjan, Dell, and SonicWall because they share economic attributes of
`companies used to make up the calculation, including size, revenues, type of product, and
`economics of the businesses that make up the broader set of companies. As a further
`consideration, Dell and Finjan are specifically identified and included within the industry
`
`312
`
`313
`
`
`A royalty amount discounted back to the damages period provides a more conservative measure of
`damages because infringement for past sales (as of the date of this report) are treated as unknown and
`uncertain, though as of present day they are known and certain. Thus, the amount of the reasonable royalty
`that best measures past infringement has no discounting and would be negotiated as the royalty structure
`at the hypothetical negotiation in advance of those sales. This is consistent with Finjan’s licenses, whereby
`an entity often makes a one‐time payment for past infringement through the date of the payment and
`discounted royalties for expected infringement going forward. Discounting to the start of the damages
`period treats the entire stream of past known sales as uncertain and unknown, and thus provides a more
`conservative measure of damages. A third potential option would be to discount all the way back to the
`hypothetical negotiation dates, but such an approach would undercompensate Finjan for the infringement
`that has repeatedly occurred over many years and would be inconsistent with Finjan’s licensing agreements
`and policies, which determine the amount to be paid after a period of infringement has occurred.
`See spreadsheet “WACC tables, indname,” tab “US.” Downloaded from
`http://people.stern.nyu.edu/adamodar/New_Home_Page/datafile/wacc.htm, accessed 8/27/2020.
`
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`calculations, and thus provide a directly applicable measure of an appropriate WACC for
`discounting (see notes and sources in Attachment K‐3 for further detail and analysis).314
`116. Two separate sets of calculations are presented in Section 4.f.vi and 4.h, to give the finder
`of fact flexibility in determining the appropriate amount of compensation for the value of alleged
`infringement:
`
`a. Discounting projected sales to the date of this report. One set of calculations
`presented in each section applies no discounting to sales that have already occurred
`(as of this report or the date of trial, if updated) and applies a discount factor for sales
`that will be occurring after the date of this report (or trial, if updated at some future
`point in time). This provides the most economically reasonable amount to
`compensate Finjan for the reasons discussed above.315
`The discount factor in each year is based on a discount rate of 8.79%, the average
`WACC value from 2020. See Attachment K‐3. The discount factor in fiscal years 2020
`and 2021 is 1.00, since the midpoints of both of those fiscal periods are before the
`writing of this report. The discount factors for fiscal years 2022 through 2026 are
`calculated using the midpoint approach, based on the number of years from the date
`of this report to the midpoint of the future period. See Attachments D‐8 through
`D‐13, I‐3, I‐4, and I‐5, and J‐3 and J‐4.316
`b. Discounting past and projected sales to the start of the damages period. The other
`set of calculations presented in each section applies a discount factor to the royalty
`base in each year to express the value of damages in present value at the start of the
`damages period (June 10, 2014). While this approach is not the best economic
`indicator of a fair and reasonable compensation to Finjan, it provides an alternative
`calculation for the finder of fact as an indicator of the economic value of damages at
`the time of the hypothetical negotiation, because the calculation is based on the
`present value of all royalties as projected at the start of the damages period. Further,
`the extent of infringement would be unknown when the parties were agreeing to a
`one‐time royalty at the time of the hypothetical negotiation to compensate for the
`
`Economically speaking, discounting using a WACC allows for parties to take into account the time value of
`money, opportunity cost, and risk associated with future cash flows. In the circumstance of a hypothetical
`negotiation, it is economically appropriate to consider the discount rates of both relevant parties, as
`licensor or licensee, though a single discount rate for one of the entities may be used as well.
`In the case of a damages award at trial or any date after the date of this report, I reserve the right to update
`calculations to include all sales data that has been reported by SonicWall at that date, and to adjust the
`discount date to be the relevant date.
`See in particular the Discounting Tables below the main calculation tables.
`
`314
`
`315
`
`316
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`value of all projected infringement. In this case, because there are several different
`hypothetical negotiation dates from 2010 through 2014 depending on each of the
`Patents‐at‐Issue, it is economically reasonable to use the start of all damages date of
`June 10, 2014 as the discounting date because: (1) the parties would likely agree to a
`license for all patents, which would indicate one date on which a payment would be
`made to reasonably compensate Finjan, (2) the nature of a one‐time royalty indicates
`that it is reasonable to use one date for discounting, and (3) the start of damages is
`the date at which revenues begin to be accused of infringing.
`The discount factor over time is based on a discount rate of 8.26%, the relevant WACC
`value from 2014. See Attachment K‐3. The discount factor in each year is calculated
`using the midpoint approach, based on the number of years between the start of
`damages period and the midpoint of the future period. See Attachments D‐2 through
`D‐7, I‐3, I‐4 and I‐5, and J‐3 and J‐4.317
`vi. Apportioned royalty base
`
`117. The apportioned royalty base is calculated by applying the product group apportionment
`factors discussed in Section 4.f.iv and the relevant damages period by patent discussed in Section
`4.f.iii to the past accused sales described in Section 4.f.i and the projected accused sales
`described in Section 4.f.ii. In addition, the appropriate discount factors from Section 4.f.v. are
`applied to the royalty base in each year. Throughout the entire damages period, given the
`infringement of all of the Patents‐at‐Issue and discounting projected revenues to the date of the
`report, the U.S. apportioned royalty base is $885 million, the apportioned royalty base outside
`of the U.S. is $519 million, and the global apportioned royalty base is $1.4 billion. See
`Attachments D‐11 through D‐13. Detailed summaries of the apportioned royalty base are
`included in the following attachments:
`a. Attachments D‐2 through D‐4 summarize the apportioned royalty base by patent,
`apportionment group, and revenue type for each year, discounting to the start of the
`damages period. Attachment D‐2 contains the U.S. royalty base, Attachment D‐3
`contains the royalty base outside of the U.S., and Attachment D‐4 contains the global
`royalty base.
`Each of these attachments includes the following structure:
`
`
`See in particular the Discounting Tables below the main calculation tables.
`
`317
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`SonicWall refers to as a “scan” or a “malware scan”) during the infringing period multiplied by a
`price per scan that appropriately values the economic contribution of the infringing technology
`to these scans.
`ii. Royalty per unit
`
`141. Royalty structure. The first alternative structure for a reasonable royalty is based on the
`number of accused units multiplied by an appropriate royalty per unit. This is a reasonable way
`to structure the royalty because it is based on the value of the infringing products per‐unit and
`the extent of use by SonicWall, and further accounts for all of the economic factors of the
`hypothetical negotiation discussed throughout this report.332
`142. Royalty base. To calculate the royalty base for this method, the data that SonicWall
`produced on units sold of each of the accused SKUs during each year of the damages period were
`analyzed.333 The royalty base includes the accused units SonicWall sold during the damages
`period which incorporates the claimed technology of the Patents‐at‐Issue. The table below
`summarizes the royalty base by product group, before accounting for apportionment and the
`patent proration factors in FY 2015 and 2026. The units presented in the table below include the
`full amounts from Fiscal Year 2015 through Fiscal Year 2026 for consistency with
`Attachment I‐5.334 I have calculated the royalty base for U.S. sales, sales outside of the U.S., and
`
`332
`
`333
`334
`
`
`I understand Finjan has also contemplated per‐user or per‐seat licenses, for example in the Sophos
`negotiation contemplating a license valued at $8 per seat. Since many SonicWall Product SKUs contain
`indications for a large number of seats (e.g., 1,000 seats), a royalty based on $8 per seat could be calculated
`for a subset of Product SKUs, and that calculation may indicate a higher reasonable royalty than those
`presented herein. If the finder of fact determines that a per‐seat license is an appropriate alternative
`structure for the hypothetical negotiation between Finjan and SonicWall, I reserve the right to calculate a
`reasonable royalty based on a per‐seat license.
`See: Trial Transcript of Finjan v. Sophos, United States District, Court Northern District of California, Case
`No. C 14‐1197, FINJAN‐SW 158070, at ‐085. “So a starting point for any negotiation is, as you've heard, you
`know, we always start with 8 percent of a royalty rate on gross sales of hardware. We start with 16 percent
`royalty rate on gross sales from software. In a subscription environment, we look for $8 per user or per
`seat. And now in a per scan or per use of the technology, we look for 32 cents per scan.”
`See, e.g., SonicWall‐Finjan_01014645‐46.
`The analysis in this report, including the time period used to determine the royalty base of units is based
`on a finding of all the Patents‐at‐issue being valid and infringed. Should some subset of the Patents‐at‐issue
`be found valid and infringed, I reserve the right to update the analysis accordingly to account for alternate
`damages periods or validity and infringement scenarios.
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`combined global sales in the event all worldwide sales are infringing Finjan’s patents. See
`Attachments I‐3 and I‐5.
`
`Table 9: Royalty Base: Global Accused Units (Before Patent Proration Factors)335
`
`Apportionment Group
`
`Past
`
`Projected
`
`Total
`
`TZ
`CGSS
`NSA/Virtual Appliance
`SUPERMASSIVE
`AGSS
`GAV/IPS
`CAPTURE
`SonicWave Access Point
`TotalSecure Advanced
`Hosted Email
`Email Security Appliances
`and Software
`Capture Client
`WXA
`Total
`
` 844,143
` 888,195
` 109,302
` 2,147
` 69,582
` 117,219
` 20,827
` 37,520
` 1,947
` 35,010
`
` 42,614
`
` 564,874
` 667,481
` 64,347
` 811
` 256,905
` 78,992
` 42,497
` 53,188
` 5,057
` 233,157
`
` 1,409,017
` 1,555,676
` 173,649
` 2,958
` 326,487
` 196,211
` 63,324
` 90,708
` 7,004
` 268,167
`
` 18,206
`
` 60,820
`
` 30,472
` 393
` 2,199,371
`
` 241,850
` 75
` 2,227,441
`
` 272,322
` 468
` 4,426,812
`
`
`143. Royalty rate. In this case, the most applicable royalty rate is at least $9.50 per unit, based
`on the agreements that SonicWall entered into with Lastline and VMRay with economically
`comparable circumstances to the hypothetical negotiation. This is because the VMRay
`agreement indicates a royalty of at least $9.50 per unit based on use of the infringing technology
`for products including the Capture ATP technology,336 and it is the most comparable per‐unit
`royalty to the circumstances of the hypothetical negotiation, as discussed in Section 4.c.ii. See
`
`335
`
`336
`
`
`Units that correspond to dates outside of the damages period for FY 2015 and 2026 are not part of the
`royalty base. Since the proration factors for each patent account for the fact that the damages periods in
`FY 2015 and FY 2026 do not include the entire years, one could equivalently reduce the royalty base by
`removing those units. The table presented here includes the numbers for the full year, since they are
`effectively removed through the patent proration factors and to be consistent with Attachment I‐5.
`VMRay (2017), Software Schedule Number Two to Software License Agreement, 6/1/2017, SonicWall‐
`Finjan 00102038, at ‐039.
`
`Report of DeForest McDuff, Ph.D.
`
`
`
`Page 106 of 120
`
`
`
`Case 5:17-cv-04467-BLF Document 347-4 Filed 01/21/21 Page 13 of 114
`
`HIGHLY CONFIDENTIAL
`
`iii. Royalty per scan
`
`150. Royalty structure. The second alternative structure for a reasonable royalty is based on
`the number of accused scans multiplied by an appropriate royalty per scan. This is a reasonable
`way to structure the royalty because it is based on the value of the infringing technology and the
`extent of use by SonicWall for each infringing scan, and further accounts for all of the economic
`factors of the hypothetical negotiation discussed throughout this report.
`151. Royalty base. In this case, an appropriate royalty base is the total number of malware
`scans by Capture ATP. I understand that such usage information is available for Capture ATP,
`also referred to as sandbox. 341 Sonicsandbox.global.sonicwall.com is the domain used for
`Capture ATP servers.342 The data produced in this case includes the total number of files sent to
`the sandbox (malware scans) and signatures created from analysis of such files.343 As discussed
`above, these signatures are then shared with SonicWall’s products, providing benefits
`throughout the SonicWall ecosystem for SonicWall and its customers. Based on the opinions of
`Finjan’s technical experts, I understand that Capture ATP is used when malware scans occur, such
`that SonicWall’s scans infringe the Patents‐at‐Issue in this case.344 In addition, SonicWall then
`uses the results of those scans to create signatures that it pushes throughout its ecosystem to
`benefit SonicWall and its customers and keep them up‐to‐date on the most relevant results of
`scans submitted to SonicWall.
`152. The table below indicates the royalty base, which is global malware scans per year during
`the damages period for all patents. Based on the discussion in 4.e.i, the most appropriate
`territory for the royalty base is global.
`a. Malware scans (Total). The data on malware scans each year are described herein:
`
`
`Senthil Cheetancheri, Dep. Tr., 7/7/2020, at 14.
`Senthil Cheetancheri, Dep. Tr., 7/7/2020, at 40:16‐21.
`See, e.g.: Dell Presentation,