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A recent order from the Northern District of California provides
patent practitioners interesting guidance regarding conduct during
licensing discussions—and may be a cautionary tale to
potential licensors engaged in efficient infringement. In
Finjan, Inc. v. SonicWall, Inc., 5-17-cv-04467, the court
denied the defendant SonicWall's motion to dismiss the
plaintiff Finjan, Inc.'s ("Finjan") willfulness
allegations. Finjan alleges both that SonicWall infringes ten of
Finjan's patents covering behavior-based and antimalware
security, and also that SonicWall's infringement was willful
because it engaged in insincere licensing discussions in order to
intentionally delay the infringement litigation.
The court concluded that the factual allegations are sufficient
to state a claim, including that for nearly three years prior to
the litigation, the parties engaged in licensing discussions
regarding Finjan's patent portfolio. In November 2016, Finjan
described each asserted patent and its relation to SonicWall's
products. SonicWall eventually refused the license offer from
Finjan and Finjan filed the lawsuit in August 4, 2017.
Finjan further alleged that it is entitled to enhanced damages
under 35 U.S.C. § 284 based on willful infringement by
SonicWall. Section 284 allows a court to "punish the full
range of culpable behavior" such as "willful, wanton,
malicious, bad-faith, deliberate, consciously wrongful, flagrant,
or—indeed—characteristic of a pirate" and is
reserved for "egregious cases of misconduct beyond typical
infringement." Halo Elecs., Inc. v. Pulse Elecs.,
Inc., 136 S. Ct. 1923, 1931, 1933-1935 (2016). In assessing
egregiousness, "culpability is generally measured against the
knowledge of the actor at the time of the challenged conduct."
Id.
SonicWall's motion to dismiss argued that Finjan's
complaint showed only "good faith, pre-suit settlement
discussions," and that Finjan had not pled allegations that
would show SonicWall engaged in "egregious" behavior.
Finjan countered that it alleged more than mere knowledge of the
patents, and that SonicWall strung Finjan along for three years of
"sham negotiation" while SonicWall sold new products that
it knew infringed the asserted patents.
The court noted that Finjan identified to SonicWall every one of
their patents and detailed how SonicWall's products related to
those patents. As a result, SonicWall not only knew of the
existence of the asserted patents, but also how their products
allegedly infringed those patents. Taking Finjan's allegations
as true, the court concluded that there is "more than a sheer
possibility" that SonicWall engaged in disingenuous
discussions that intentionally prolonged negotiations—all
while knowing that it infringed. The court rejected SonicWall's
argument that allowing settlement discussions to form the basis of
willful infringement claims would go against the public policy to
encourage settlement. That said, the court emphasized that while
Finjan had met its burden to allege facts from which a plausible
conclusion could be reached, further evidence mat not prove that
SonicWall's behavior was egregious.
To the extent that efficient infringers believe that there will
be no repercussions to intransigence in licensing discussions with
a patent licensor, this decision should provide some pause. While
it remains to be seen whether Finjan can prove the facts alleged,
if it does SonicWall may ultimately pay a steep price for bad faith
negotiation tactics designed to delay litigation and extend its
infringement runway. We will continue to monitor.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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