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Finjan, Inc. v. Blue Coat Systems, Inc.

United States Court of Appeals, Federal Circuit

January 10, 2018

FINJAN, INC., Plaintiff-Appellee
v.
BLUE COAT SYSTEMS, INC., Defendant-Appellant

         Appeal from the United States District Court for the Northern District of California in No. 5:13-cv-03999-BLF, Judge Beth Labson Freeman.

          Paul J. Andre, Kramer Levin Naftalis & Frankel LLP, Menlo Park, CA, argued for plaintiff-appellee. Also represented by James R. Hannah, Lisa Kobialka.

          Mark A. Lemley, Durie Tangri LLP, San Francisco, CA, argued for defendant-appellant. Also represented by Sonali Deeksha Maitra, Sonal Naresh Mehta, Clement Roberts; Olivia M. Kim, Edward Poplawski, Wilson, Sonsini, Goodrich & Rosati, P.C., Los Angeles, CA.

          Before Dyk, Linn, and Hughes, Circuit Judges.

          DYK, CIRCUIT JUDGE.

         A jury found Blue Coat Systems, Inc. ("Blue Coat") liable for infringement of four patents owned by Finjan, Inc. ("Finjan") and awarded approximately $39.5 million in reasonable royalty damages. After trial, the district court concluded that the '844 patent was patent-eligible under 35 U.S.C. § 101 and denied Blue Coat's post-trial motions for judgment as a matter of law ("JMOL") and a new trial. Blue Coat appeals.

         We find no error in the district court's subject matter eligibility determination as to the '844 patent and agree that substantial evidence supports the jury's finding of infringement of the '844 and '731 patents. However, we conclude that Blue Coat was entitled to JMOL of non-infringement for the '968 patent because the accused products do not perform the claimed "policy index" limitation. On appeal, Blue Coat does not challenge the verdict of infringement for the '633 patent.

         With respect to damages, we affirm the award with respect to the '731 and '633 patents. We vacate the damages award for the '968 patent, as there was no infringement. With respect to the '844 patent, we agree with Blue Coat that Finjan failed to apportion damages to the infringing functionality and that the $8-per-user royalty rate was unsupported by substantial evidence.

         We therefore affirm-in-part, reverse-in-part, and remand to the district court for further consideration of the damages issue as to the '844 patent.

         Background

         On August 28, 2013, Finjan brought suit against Blue Coat in the Northern District of California for infringement of patents owned by Finjan and directed to identifying and protecting against malware. Four of those patents are at issue on appeal. Claims 1, 7, 11, 14, and 41 of U.S. Patent No. 6, 154, 844 ("the '844 patent") recite a system and method for providing computer security by attaching a security profile to a downloadable. Claims 1 and 17 of U.S. Patent No. 7, 418, 731 ("the '731 patent") recite a system and method for providing computer security at a network gateway by comparing security profiles associated with requested files to the security policies of requesting users. Claim 1 of U.S. Patent No. 6, 965, 968 ("the '968 patent") recites a "policy-based cache manager" that indicates the allowability of cached files under a plurality of user security policies. Claim 14 of U.S Patent No. 7, 647, 633 ("the '633 patent") relates to a system and method for using "mobile code runtime monitoring" to protect against malicious downloadables.

         After a trial, the jury found that Blue Coat infringed these four patents and awarded Finjan approximately $39.5 million for Blue Coat's infringement: $24 million for the '844 patent, $6 million for the '731 patent, $7.75 million for the '968 patent, and $1, 666, 700 for the '633 patent. After a bench trial, the district court concluded that the '844 patent is directed to patent-eligible subject matter under 35 U.S.C. § 101.

         Thereafter, the district court denied Blue Coat's motions for judgment as a matter of law and a new trial, concluding that Finjan had provided substantial evidence to support each finding of infringement and the damages award. Blue Coat appeals the district court's rulings on subject matter eligibility of the '844 patent; infringement of the '844, '731, and '968 patents; and damages for the '844, '731, '968, and '633 patents. We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(1).

         Discussion

         I. Subject Matter Eligibility of the '844 Patent

         We first address subject matter eligibility with respect to the '844 patent. We review the district court's decision de novo. McRO, Inc. v. Bandai Namco Games Am. Inc., 837 F.3d 1299, 1311 (Fed. Cir. 2016).

         Section 101 provides that a patent may be obtained for "any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof." 35 U.S.C. § 101. The Supreme Court has long recognized, however, that § 101 implicitly excludes "laws of nature, natural phenomena, and abstract ideas" from the realm of patent-eligible subject matter, as monopolization of these "basic tools of scientific and technological work" would stifle the very innovation that the patent system aims to promote. Alice Corp. v. CLS Bank Int'l, 134 S.Ct. 2347, 2354 (2014) (quoting Ass'n for Molecular Pathology v. Myriad Genetics, Inc., 133 S.Ct. 2107, 2116 (2013)); see also Mayo Collaborative Servs. v. Prometheus Labs., Inc., 132 S.Ct. 1289, 1294-97 (2012); Diamond v. Diehr, 450 U.S. 175, 185 (1981).

         The Supreme Court has instructed us to use a two-step framework to "distinguish[] patents that claim laws of nature, natural phenomena, and abstract ideas from those that claim patent-eligible applications of those concepts." Alice, 134 S.Ct. at 2355. At the first step, we determine whether the claims at issue are "directed to" a patent-ineligible concept. Id. If they are, we then "consider the elements of each claim both individually and 'as an ordered combination' to determine whether the additional elements 'transform the nature of the claim' into a patent-eligible application." Id. (quoting Mayo, 132 S.Ct. at 1298). This is the search for an "inventive concept"- something sufficient to ensure that the claim amounts to "significantly more" than the abstract idea itself. Id. (quoting Mayo, 132 S.Ct. at 1294).

         Starting at step one, we must first examine the '844 patent's "claimed advance" to determine whether the claims are directed to an abstract idea. Affinity Labs of Tex., LLC v. DIRECTV, LLC, 838 F.3d 1253, 1257 (Fed. Cir. 2016). In cases involving software innovations, this inquiry often turns on whether the claims focus on "the specific asserted improvement in computer capabilities . . . or, instead, on a process that qualifies as an 'abstract idea' for which computers are invoked merely as a tool." Enfish, LLC v. Microsoft Corp., 822 F.3d 1327, 1335-36 (Fed. Cir. 2016).

         The '844 patent is directed to a method of providing computer security by scanning a downloadable and attaching the results of that scan to the downloadable itself in the form of a "security profile." Claim 1 of the '844 patent, which the district court found representative for § 101 purposes, reads:

1. A method comprising:
receiving by an inspector a Downloadable;
generating by the inspector a first Downloadable security profile that identifies suspicious code in the received Downloadable; and
linking by the inspector the first Downloadable security profile to the Downloadable before a web server makes the Downloadable available to web clients.

'844 patent, col. 11 ll. 11-21. At claim construction, the parties agreed that "Downloadable" should be construed to mean "an executable application program, which is downloaded from a source computer and run on the destination computer." Additionally, the district court construed "Downloadable security profile that identifies suspicious code in the received Downloadable" to mean "a profile that identifies code in the received Downloadable that performs hostile or potentially hostile operations."

         We determined in Intellectual Ventures I LLC v. Symantec Corp., 838 F.3d 1307, 1319 (Fed. Cir. 2016), that "[b]y itself, virus screening is well-known and constitutes an abstract idea." We also found that performing the virus scan on an intermediary computer-so as to ensure that files are scanned before they can reach a user's computer-is a "perfectly conventional" approach and is also abstract. Id. at 1321. Here the claimed method does a good deal more.

         Claim 1 of the '844 patent scans a downloadable and attaches the virus scan results to the downloadable in the form of a newly generated file: a "security profile that identifies suspicious code in the received Downloadable." The district court's claim construction decision emphasizes that this "identif[y] suspicious code" limitation can only be satisfied if the security profile includes "details about the suspicious code in the received downloadable, such as . . . 'all potentially hostile or suspicious code operations that may be attempted by the Downloadable.'" Finjan, Inc. v. Blue Coat Sys., Inc., No. 13-CV-03999-BLF, 2014 WL 5361976, at *9 (N.D. Cal. Oct. 20, 2014). The security profile must include the information about potentially hostile operations produced by a "behavior-based" virus scan. This operation is distinguished from traditional, "code-matching" virus scans that are limited to recognizing the presence of previously-identified viruses, typically by comparing the code in a downloadable to a database of known suspicious code. The question, then, is whether this behavior-based virus scan in the '844 patent constitutes an improvement in computer functionality. We think it does.

         The "behavior-based" approach to virus scanning was pioneered by Finjan and is disclosed in the '844 patent's specification. In contrast to traditional "code-matching" systems, which simply look for the presence of known viruses, "behavior-based" scans can analyze a downloadable's code and determine whether it performs potentially dangerous or unwanted operations-such as renaming or deleting files. Because security profiles communicate the granular information about potentially suspicious code made available by behavior-based scans, they can be used to protect against previously unknown viruses as ...


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