Federal Circuit Summary

Before Dyk, Linn, and Hughes. Appeal from the Northern District of California.

Summary: Claims directed to behavior-based virus scanning, as opposed to the traditional code-matching method, constituted a patent-eligible improvement in computer functionality. Also, for reasonable royalty damages, apportionment beyond the smallest, identifiable technical component of an accused product is required if the technical component contains non-infringing features.

Finjan filed a lawsuit against Blue Coat Systems for infringement of four patents relating to computer software for identifying and protecting against malware. A jury found that Blue Coat infringed each of the four asserted patents and awarded reasonable royalty damages. After a bench trial, the district court concluded that one of the asserted patents is directed to patent-eligible subject matter under Section 101. Blue Coat appealed the district court’s finding of patent-eligibility, and the jury’s finding of infringement and damages award.

With respect to patent-eligibility, the Federal Circuit affirmed the district court’s finding that the claims were not directed toward an abstract idea for two reasons. First, the claims were drawn to behavior-based virus scanning which analyzes a downloadable’s code and determines whether it performs potentially dangerous or unwanted operations. This was different than the traditional method of code-matching virus scanning. The Federal Circuit determined that this was an improvement in computer functionality. Second, the results of the behavior-based virus scan are attached to a new type of file which enables a computer security system to perform tasks that it could not do before. Also, the claims recited more than a mere result and provided specific steps of generating a security profile that identifies suspicious code and links it to a downloadable.

As for damages, Blue Coat argued that Finjan failed to sufficiently apportion damages to the infringing functionality of the accused product in calculating a royalty base for the reasonable royalty award for one of the asserted patents. Finjan asserted that it satisfied the apportionment requirement because it calculated its royalty base by using the “smallest, identifiable technical component” of the accused product. The Federal Circuit stated that the use of the “smallest, identifiable technical component” did not insulate Finjan from the “essential requirement” that the reasonable royalty award be based on the incremental value of the patented invention. Because the “smallest, identifiable technical component” of the accused product also included non-infringing features, it was not a proxy for the incremental value of the patented technology and further apportionment was required. Further, Finjan’s sole evidence supporting its royalty rate was testimony that the royalty rate was based on a 2008 verdict obtained by Finjan in another lawsuit. This was insufficient to support the royalty rate because Finjan failed to tie the facts of the prior lawsuit with the facts of this case. The Federal Circuit found that Finjan failed to present a damages case for one of the asserted patents that could support the jury’s verdict and remanded for a determination of whether Finjan waived its right to establish reasonable royalty damages under a new theory and whether to order a new trial on damages.

This case is: FINJAN, INC. V. BLUE COAT SYSTEMS, INC.

Written By: Nicole R. Townes and Daniel Kiang

Edited By: Paul Stewart