Cloud Cybersecurity New Hot Area for Patent Disputes: Blue Coat Systems in Major Patent Battle on its Cloud-based Security Products

Today’s threats against enterprise and personal data are more formidable and advanced than ever. Over the past decade the cybersecurity industry has rapidly expanded in response to the need for increased online and cloud-based computer security. The cybersecurity industry has focused much of its energy on designing new and improved technologies to protect networks, computers, programs, and data from continually-evolving malicious attacks and unauthorized access to information stored in the cloud. One result of the industry’s rapid expansion is its reorganization. No longer is the industry dominated by a handful of companies, but rather teeming with a variety of new and innovative entrants. As a consequence of the industry’s emerging reorganization, historical players and new entrants alike are litigating each other over their cloud-based intellectual property. Today’s example of patent litigation between Finjan, Inc. and Blue Coat Systems, Inc. (a unit of Symantec) is another instance of that trend. A previous example we reported on is the litigation between Symantec and Zscaler.

Finjan, a cybersecurity company in the field of online security solutions, particularly with their behavior-based approach to virus scanning, holds a portfolio of patents related to various aspects and methods of Internet security and protection. Finjan sold its hardware and software divisions in 2009, and has since focused primarily on patent enforcement and licensing. Since 2010, Finjan has filed nearly 20 patent infringement lawsuits against a multitude of major security and technology companies, with seven lawsuits filed in 2017 alone.

One of Finjan’s primary targets is Blue Coat Systems (a unit of cybersecurity giant Symantec acquired in 2016), a current market leader and innovator in the field of network systems management and cybersecurity. While Finjan’s market share in the cybersecurity industry has largely disappeared, Blue Coat’s products are currently used by 97% of Fortune Global 100 companies as well as by most of the intelligence and defense branches of the U.S. Government. Finjan’s litigation campaign against Blue Coat has been nothing short of a roller coaster ride, with a flurry of recent activity including a mistrial, partial affirmance, partial reversal, and remand.

Starting in 2013, Finjan filed suit against Blue Coat alleging several of Blue Coat’s Internet security software products infringed six of Finjan’s cybersecurity patents. Blue Coat’s cloud-based products include WebPulse (a cloud-based infrastructure for web threat intelligence), ProxySG (a secure web gateway appliance), Content Analysis System (a system that provides real-time malware scanning), and Malware Analysis Appliance (a customizable malware analysis solution combining a virtualized environment and a bare-metal emulator to detect unknown malware and zero-day threats).

Of particular interest was Finjan’s assertion of U.S. Patent 6,154,844 (the ’844 patent), the same patent that established Finjan’s behavior-based approach to virus scanning back in the 1990’s. The now-expired ’844 patent is directed toward a system that protects devices connected to the Internet from undesirable operations for web-based content. The claims of this patent generally cover linking a security profile that identifies suspicious code to the web-based content to facilitate the protection of computers and networks from malicious web-based content.

After trial in 2015, a jury found Blue Coat’s products infringed five of the six asserted patents, including the ’844 patent, and awarded nearly $40 million in damages to Finjan. Of that $40 million verdict, $24 million (over 60%) came from Blue Coat’s infringement of the ’844 patent. A bench trial following the jury verdict found, among many issues, that Blue Coat had not met its burden to show that the ‘844 patent is invalid as directed to patent ineligible subject matter under Section 101 of the Patent Statute. Blue Coat appealed the findings of infringement, the damages award, and the finding of patent eligibility to the Federal Circuit.

In 2015, around the same time the jury found Blue Coat liable for nearly $40 million in reasonable royalty damages, Finjan filed a second lawsuit against Blue Coat. This time, Finjan alleged that Blue Coat developed a new set of products that infringe Finjan’s cybersecurity technology. Blue Coat’s Global Intelligence Network (a cloud-based service for detecting malware technology that they incorporate into their newer products), Finjan contended, infringed six of their patents (two patents from Finjan’s initial suit against Blue Coat including the ’844 patent, and four additional patents). By purportedly incorporating Finjan’s intellectual property into Blue Coat’s newer offerings without first obtaining a license, Finjan argued Blue Coat’s newly released suite of web security appliance and software products infringed upon their intellectual property rights. Blue Coat believed that the nearly $40 million judgment was tantamount to a license that should cover their newer offerings.

Unfortunately for Finjan, in November 2017 another jury in the second trial found that Blue Coat’s products infringed only two of Finjan’s six asserted patents, while finding non-infringement for two others, and unable to reach a decision regarding the final two, including the ’844 patent. To make matters worse for Finjan, unlike the nearly $40 million verdict secured in their first suit, this time the jury awarded Finjan a mere $490,000 in damages, only around 1% of their previous damages award. Finjan quickly filed for a new trial to re-litigate the two patents on which the jury was undecided. U.S. District Judge Beth Labson Freeman scheduled the retrial to begin in early January 2018.

In the midst of the retrial, on January 10, 2018, the Federal Circuit released its decision regarding Blue Coat’s appeal of the $39.5 million jury verdict and bench trial validity findings in the original case. First, rejecting Blue Coat’s invalidity assertion of patent ineligibility under Section 101, the Federal Circuit affirmed that the ’844 patent is directed to patent eligible subject matter. Because the ’844 patent employs a new kind of file that enables a computer security system to accomplish tasks it could not before (namely utilizing a security profile that allows a system to accumulate and utilize newly available behavior-based information about potential threats), the Federal Circuit concluded that the ’844 patent is directed to a non-abstract improvement in computer functionality rather than the abstract idea of general computer security such as mere virus scanning. The Federal Circuit also found no error in the district court’s subject matter eligibility determination for Finjan’s U.S. Patent 7,418,731.

With regard to damages, however, the Federal Circuit found erroneous the jury’s finding of infringement for U.S. Patent 6,965,968 and vacated the $7.75 million damages award (almost 20% of Finjan’s total award) associated with it. Finally, the Federal Circuit agreed with Blue Coat that the $8-per-user-royalty-rate was unsupported by substantial evidence and that in calculating that royalty base, Finjan failed to apportion damages exclusively to the infringing functionality of Blue Coat’s products. Consequently, the Court vacated the $24 million in damages attributed to the ’844 infringement finding, and remanded the case back to Judge Freeman to determine whether Finjan has waived the right to establish a reasonable royalty damages under a new theory, and whether to order a new trial on damages.

Not only did the Federal Circuit’s holding erase over $32 million (or around 80%) of Finjan’s initial infringement award, it also triggered the mistrial of the Finjan and Blue Coat retrial regarding the two patents from Finjan’s second lawsuit which lacked the jury’s infringement consensus. According to Judge Freeman, she was concerned that because of the substantial amount of time each side had spent discussing past damages and findings of infringement in the days-old first retrial, a mistrial and empanelment of new jurors was necessary in light of the recent Federal Circuit holding. Judge Freeman also granted a new trial for damages related to the ’844 patent, to be held in conjunction with any damages if infringement is found at the conclusion of the second retrial.

So, after all that calamity, while Finjan may have survived a Section 101 patent ineligibility challenge (resulting in one of only a handful of positive Federal Circuit patent eligibility findings since the Supreme Court’s Alice opinion), the decision on damages has a much farther-reaching effect than triggering a mistrial in just one case. For example, in their opening brief in the Federal Circuit, Blue Coat listed four other cases that would be directly affected by the case’s outcome, including Finjan cases against Symantec, Palo Alto Networks, Inc., ESET, LLC, and Sophos, Inc.

As mentioned earlier, one final point of interest is Blue Coat’s tie to cybersecurity giant Symantec. In the Finjan litigation, the Blue Coat unit of Symantec took the position that Finjan’s ’844 patent is directed to an abstract idea and thus patent ineligible subject matter. Namely, Blue Coat argued Finjan’s virus scanning patents were directed to “flagging messages as suspicious” and whose claims contain only conventional computer components that are routinely found to be insufficient to establish an inventive concept. Symantec also successfully challenged security patents held by Intellectual Ventures resulting in a Federal Circuit opinion that IV’s patents are directed to patent ineligible subject matter. Yet in 2016 and 2017, Symantec filed two lawsuits against Zscaler, a company also focused on cloud-based security systems. There, Symantec asserted multiple patents generally relating to antivirus, web securities, and security scanning technologies – the same type of technologies Symantec’s Blue Coat unit argued were patent ineligible subject matter and invalid under Section 101 against Finjan. Among the many twists and turns in the ongoing cloud security patent battles, it will be fascinating to see how Symantec threads the needle as both a patent plaintiff and a patent defendant.

Authored By: Jonathan Barnard

Contributing Author: Bart Eppenauer

By | 2018-01-22T21:05:50+00:00 January 22nd, 2018|Cloud Security, Competitor Case, High Volume Plaintiff|Comments Off on Cloud Cybersecurity New Hot Area for Patent Disputes: Blue Coat Systems in Major Patent Battle on its Cloud-based Security Products

About the Author:

Jonathan Barnard
Jonathan focuses his practice on patent prosecution, intellectual property licensing and patent infringement defense strategy. He also handles patent portfolio lot analysis, early case and litigation risk assessment, claim charting for directed prosecution, cybercrime-related issues and post-Alice patent eligibility assessment issues.