Finjan, LLC v. Qualys Inc. ( 2020 )

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 FINJAN, INC., Case No. 18-cv-07229-YGR (TSH) 8 Plaintiff, DISCOVERY ORDER 9 v. Re: Dkt. No. 100 10 QUALYS INC., 11 Defendant. 12 13 Finjan seeks financial information concerning foreign sales of the accused Qualys 14 products. To determine if this information is relevant, we have to start with the basics. 35 U.S.C. 15 § 271(a) states that “whoever without authority makes, uses, offers to sell, or sells any patented 16 invention, within the United States or imports into the United States any patented invention during 17 the term of the patent therefor, infringes the patent.” (emphasis added). Section 271(a)’s reach is 18 limited to activity within the United States, as “no infringement occurs when a patented product is 19 made and sold in another country.” Microsoft Corp. v. AT&T Corp., 550 U.S. 437, 441 (2007).1 20 “Thus, while U.S. patent law allows for ‘damages adequate to compensate for the infringement,’ 21 there is no compensation for a defendant’s foreign exploitation of a patented invention, as such 22 activity is not infringement at all.” Kajeet, Inc. v. Qustodio, LLC, 2019 WL 8060078, at *13 (C.D. 23 Cal. Oct. 22, 2019) (quoting Power Integrations, Inc. v. Fairchild Semiconductor Int’l, Inc., 711 24 F.3d 1348, 1371 (Fed. Cir. 2013) (citing 35 U.S.C. § 284)). 25 Accordingly, the location of the alleged conduct bears directly on the relevance of foreign 26 sales information. After all, “[t]he royalty base for reasonable royalty damages cannot include 27 1 activities that do not constitute patent infringement, as patent damages are limited to those 2 ‘adequate to compensate for the infringement.’” AstraZeneca AB v. Apotex Corp., 782 F.3d 1324, 3 1343 (Fed. Cir. 2015) (quoting 35 U.S.C. § 284). If the alleged exploitation of the patented 4 invention occurred overseas, “information regarding defendant’s foreign sales is not relevant to 5 the hypothetical negotiation of the reasonable royalty amount because defendant would not be 6 liable for foreign sales that do not violate U.S. patent laws.” Kajeet, 2019 WL 8060078, *13. By 7 contrast, foreign sales are relevant for infringing products that are made, used, offered for sale, or 8 sold within the United States. See Railroad Dynamics, Inc. v. A. Stucki Co., 727 F.2d 1506, 1519 9 (Fed. Cir. 1984) (“When it made the 1,671 carsets in this country, it infringed claim 10. Whether 10 those carsets were sold in the U.S. or elsewhere is therefore irrelevant, and no error occurred in 11 including those carsets among the infringing products on which royalty was due.”). Of course, the 12 whole patented invention – not just part of it – must be made, used, offered for sale, or sold within 13 the United States; otherwise, the conduct does not amount to infringement. See Centillion Data 14 Sys., LLC v. Qwest Commc’ns Int’l, Inc., 631 F.3d 1279, 1288 (Fed. Cir. 2011) (“to ‘make’ the 15 system under § 271(a), Qwest would need to combine all of the claim elements—this it does not 16 do.”). 17 The parties seem to agree on the above general principles.2 Where they divide is on 18 whether Finjan is asserting a claim that Qualys’s foreign sales are of products that were made, 19 used, offered for sale, or sold in the U.S. Finjan is correct that a discovery motion is not the right 20 place for the Court to make a factual determination regarding whether Qualys’s foreign sales are 21 of products that infringe domestically, so the Court declines to discuss any of the evidence the 22 parties have submitted on that disputed point. The bigger issue is that Finjan’s infringement 23 contentions contend that Qualys’s accused products infringe only when they are combined with or 24 connected to other devices and software on a network, so mere development in the U.S. is not 25 enough to show that the foreign sales are of infringing products that were “made” here. Finjan’s 26 2 Finjan previously argued that worldwide sales are relevant to the reasonable royalty even if the 27 products are not made in the U.S., see ECF No. 79, but it now “confirms it is not seeking 1 infringement contentions also do not contend that Qualys “uses,” “offers for sale” or “sells” the 2 patented technology in the U.S. for foreign customers. In other words, Qualys argues that Finjan’s 3 theories of relevance for the foreign sales are way outside anything disclosed in its infringement 4 contentions. For its part, in the discovery letter brief, Finjan does not dispute that characterization 5 of its infringement contentions.3 Instead, Finjan argues that “the Court’s Patent Rules permit 6 Finjan, upon a timely showing of good cause, to amend contentions, and good cause includes 7 ‘recent discovery of nonpublic information,’ such as information about Qualys’s internal 8 activities. It is to develop exactly that nonpublic information that Finjan seeks this discovery. 9 Denying it on the basis that the contentions have not yet fully developed the case would put Finjan 10 in the impossible situation of being unable to update contentions, because it is unable to receive 11 nonpublic information, because it has not yet updated contentions.” ECF No. 100. 12 There are two problems with Finjan’s argument. First, it does not make any sense. The 13 foreign sales information that Finjan seeks has nothing to do with the liability evidence that either 14 does or does not show that the products Qualys has sold overseas were infringing when they were 15 made here, or that Qualys used, offered for sale, or sold here products for its foreign customers. 16 That evidence is about primary conduct, not sales information. 17 Second, fact discovery closes on October 1, 2020, ECF No. 78, which is two weeks from 18 now. Finjan has not moved to amend its infringement contentions to include the infringement 19 theories that would make foreign sales information relevant. At this point, unless Finjan moved to 20 shorten time, its unfiled motion to amend could not even be heard until after fact discovery is 21 closed. Of course, it would be up to Judge Gonzalez Rogers to decide whether to allow Finjan to 22 3 By contrast, at the hearing Finjan asserted that its infringement contentions do contend that 23 Qualys infringes by domestically making the patented invention, which it then sells in foreign sales. Finjan pointed to its infringement contention for claim 4a of the ‘154 patent, which refers to 24 a storage medium that stores the software. Finjan asserted that Qualys’s domestic development of the software (which of course has to be stored in something) satisfies claim 4a. However, the 25 Court is unpersuaded. As Qualys correctly pointed out, claim 4a also incorporates by reference the analysis for claim 1a (it says: “See analysis for Claim 1a above”), which discloses “a system 26 for protecting a computer” that comprises certain components and which would not be satisfied merely by software in a storage medium. Pointing to this infringement contention was Finjan’s 27 sole attempt to assert that its domestic “making” theory was disclosed in its infringement 1 amend its infringement contentions in a material way after fact discovery has closed. But as 2 || matters stand now, Finjan is trying to obtain discovery based on infringement theories that are way 3 outside its infringement contentions, fact discovery is about to close, and Finjan has not even 4 || asked Judge Gonzalez Rogers for permission to amend. The undersigned is quite skeptical that 5 || Finjan’s new infringement theories will ever be in this case. 6 To be clear, the Court is not holding that infringement contentions under the Patent Local 7 Rules define the outer bounds of relevance for discovery purposes. Finjan is right that such a 8 || holding would have a chicken-and-egg quality to it, since Patent Local Rule 3-6(c) expressly 9 contemplates that infringement contentions may be amended based on nonpublic information 10 || obtained in discovery. Rather, the Court’s point is that we are almost at the end of fact discovery, 11 and Finjan seems to have done nothing to make its new infringement theories part of its liability «= 12 || case.* Finjan’s motion to compel the foreign sales information is therefore DENIED. IT IS SO ORDERED. 14 || Dated: September 17, 2020 O 1 THOMAS S. HIXSON A 6 United States Magistrate Judge 17 Z |—_— “ Finjan has a few back up arguments, but they are makeweights. Finjan argues that Qualys’s 19 foreign customers benefit from security updates that Qualys develops from information that it ains in part from the infringing domestic use by its U.S. customers of Qualys’s products. That 29 || & Pp ging Y ys sp argument is irrelevant, however, because the reasonable royalty compensates for infringement, and 71 Finjan’s argument does not demonstrate that the foreign sales are of products that infringe. Also, Finjan does not even articulate how the value of that “benefit” would be reflected in the foreign 22 || sales information it seeks. Finjan also asserts that Qualys induces its foreign customers to infringe in the U.S. by using Qualys’s U.S.-based cloud platform. Again, however, that argument fails to 23 demonstrate that products in other countries infringe. Finjan also does not explain how the foreign sales information it seeks would be related to any damages for the alleged induced domestic y £ □ infringement on the cloud platform. Finally, Finjan makes a two-sentence assertion that foreign 5 sales are relevant to establishing the commercial success of Finjan’s inventions. However, that argument is too underdeveloped for the Court to meaningfully assess it. The Court has previously 26 admonished Finjan for making conclusory arguments. See ECF No. 89 (“If Finjan is going to press this point, it must assert a well-developed argument and not just make a conclusory 27 assertion.”). Indeed, the whole reason for the current letter brief is that Finjan’s arguments in the 28 previous letter brief were so undeveloped the Court required further briefing. See id.