WILMINGTON, Del. – On Monday, February 24, the major patent dispute between Juniper Networks, Inc., and Palo Alto Networks, Inc., will go to trial.
The lawsuit involves several patents related to next-generation firewall technology. Juniper brought suit against Palo Alto Networks ("PAN") on December 19, 2011, alleging that the latter's products unlawfully infringe upon six of Juniper's patents. Nearly a year later, Juniper amended its complaint to allege that PAN was infringing upon two additional Juniper patents as well, though Juniper also removed one of the original patent infringement claims in its amended complaint.
At the center of the action are Yuming Mao and Nir Zuk, who between the two of them invented all seven of the patented technologies at issue in the case. Mao and Zuk both used to work for a company called NetScreen Technologies. In April 2004, Juniper purchased NetScreen Technologies for $4 billion in stock, acquiring the company's patents in the deal. Mao and Zuk became employees of Juniper as part of the acquisition, and their inventions became Juniper's property.
The trouble started when Zuk left Juniper ten months later to found PAN and compete against Juniper. Nearly a year after that, Mao also left Juniper to join PAN, where he negotiated for the title of co-founder. Now Juniper claims that PAN is using Juniper's patents, developed by Mao and Zuk, against Juniper.
On February 6, the Court ruled on several key motions in the case that were argued in a hearing this past November.
PAN has tried to advance the argument that the patents are invalid to begin with. This is a common affirmative defense in patent cases, but a bit absurd in light of the circumstances: the patents in question were ones that PAN's co-founders invented and assigned to Netscreen/Juniper in the first place.
This is where the doctrine of assignor estoppel comes in. Under this doctrine, if someone sells or otherwise contracts to assign a patent to another party and then infringes upon the patent, equity (a term lawyers like to use for "fairness and common sense") generally prevents him from asserting a defense of patent invalidity. Juniper filed a motion for summary judgment on this issue and won. Consequently, as per the Court's February 6 order and other orders, PAN may not argue at trial that Juniper's patents are invalid.
The day was not a total win for the plaintiff, though. These things rarely are. PAN, for its part, has been crowing to the press and investors about the victories it achieved in the February 6 order. PAN won a number of summary judgment motions limiting technical arguments Juniper can make at trial about what constitutes infringement of certain patents. The Court also agreed to construe several of the patent claims in a manner favorable to PAN.
In many other ways, the Court's February 6 decision was a draw for the parties, as it refused to grant summary judgment on any entire cause of action for either party, forcing all actions in the case to trial.
"After reviewing the expert reports," Judge Sue L. Robinson wrote in her decision, "the court concludes that a classic battle of the experts exists…resulting in genuine issues of material fact."
Tit for Tat
Meanwhile, in a related case, PAN filed its own lawsuit against Juniper on September 30, 2013, before the United States District Court in the Northern District of California. The suit alleges that Juniper has infringed upon three of PAN's patents.
Juniper has characterized this latter suit as "not entirely unexpected," potentially suggesting that facts arising from the discovery process of the Delaware litigation revealed information that PAN can now use to go on the offense against Juniper. That, or the parties are playing a game of legal tit for tat. After losing an important motion in the Delaware case on the assignor estoppel issue, PAN requested that the USPTO reexamine the validity of some of the patents at issue, trying to make an end run around the federal ruling. When the USPTO granted the request as to at least one of the patents, Juniper moved to suspend the reexamination. PAN then filed a separate suit in a California state court, claiming – among other things – that Juniper's invocation of the assignor estoppel doctrine violated California state law regarding fair business practices. Juniper's attorneys got the state case dismissed with prejudice, and PAN is now on the hook to Juniper for legal fees and costs.
Here in Status Symbol Land
In the end, however, none of the results of the above litigation are likely to have a particularly major effect. Financial analysts are even bullish on PAN.
"While the…litigation has the potential to create volatility and drag on for months or years, after talking with a patent attorney, we are fairly confident that in a reasonably bad case scenario, [PAN] would only pay about a [one-time $45 million] settlement and a 4% royalty fee going forward," says Wells Fargo researcher Gray Powell.
PAN may have put it best in its most recent annual SEC filing: "Our industry is characterized by the existence of a large number of patents and frequent claims and related litigation regarding patent and other intellectual property rights."
In other words, it's just another day in Silicon Valley.
Photo courtesy of Shutterstock.
Joe Stanganelli is a writer, attorney, and communications consultant. He is also principal and founding attorney of Beacon Hill Law in Boston. Follow him on Twitter at @JoeStanganelli.