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This report is a follow-up to our initial report on the patent infringement action brought by Juniper Networks (NYSE:JNPR) against Palo Alto Networks (NYSE:PANW). As yesterday's market action proves, this case is a significant one for both companies. If Palo Alto is found to be infringing Juniper's patents, the negative consequences for the company could be significant. A favorable verdict for Palo Alto, however, would remove this challenge to the company's prospects.

At the time of our initial report, the parties had filed, and were scheduled to argue, numerous motions and cross-motions, including motions for summary judgment as well as claim construction briefing, to limit the claims and defenses in the case. On February 6, 2014, the Honorable Sue L. Robinson for the United States District Court for the District of Delaware issued a decision on all of the outstanding motions.

The quick take-away from Judge Robinson's decision is this: the case is going to trial, yet Palo Alto succeeded in limiting the number of issues it will have to argue at trial to succeed in its defense. Juniper argued that Palo Alto should be barred - under the doctrine of assignor estoppel - from challenging the validity of the asserted patents in light of the fact that some of the inventors of the patents, who used to work for Juniper, now work for Palo Alto. The Court essentially agreed. That takes a big defensive weapon away from Palo Alto, meaning it will have to rely upon non-infringement to win this case. On the other hand, Palo Alto succeeded in taking away some arguments that Juniper can make under the doctrine of equivalents to prove infringement of four of the seven patents. More importantly, all Juniper's motions for summary judgment of infringement were denied. In sum, the decision was mixed, with wins and losses for both parties, thus setting the stage for trial.

As we previously reported, Juniper has asserted seven patents against Palo Alto. They are listed below, along with the relevant findings from the decision for each particular patent:

PATENT

TITLE

APPLICABLE RULINGS

8,077,723 - (Nir Zuk, Yuming Mao)

Packet processing in a multiple processor system

Assignor Estoppel Applies

JNPR SJ Motion Denied

2 terms for JNPR

1 term for PANW

7,779,459 - (Yuming Mao et al.)

Method and apparatus for implementing a layer 3/layer 7 firewall in an L2 device

Assignor Estoppel Applies

JNPR SJ Motion Denied

1 term for PANW

1 term split

No infringement by DOE

7,650,634 - (Nir Zuk)

Intelligent integrated network security device

Assignor Estoppel Applies

JNPR SJ Motion Denied

1 term for PANW

1 term for JNPR

No infringement by DOE

7,302,700 - (Yuming Mao et al.)

Method and apparatus for implementing a layer 3/layer 7 firewall in an L2 device

Assignor Estoppel Applies

JNPR SJ Motion Denied

1 term for PANW

1 term split

No infringement by DOE

6,772,347 - (Ken Xie, Yan Ke, Yuming Mao)

Method, apparatus and computer program product for a network firewall

Assignor Estoppel Applies

JNPR SJ Motion Denied

1 term for JNPR

7,734,752 - (Nir Zuk, Yuming Mao, Kowsik Guruswamy)

Intelligent integrated network security device for high-availability applications

Assignor Estoppel Applies

IPR instituted

JNPR SJ Motion Denied

2 terms for PANW

No infringement by DOE

7,107,612 - (Ken Xie, Yan Ke, Yuming Mao)

Method, apparatus and computer program product for a network firewall.

Assignor Estoppel Applies

IPR instituted

JNPR SJ Motion Denied

1 term for PANW

Assignor Estoppel

The doctrine of assignor estoppel prevents an entity that assigns away its patent from subsequently claiming that the patent is invalid after being sued for infringing it. Having previously decided that assignor estoppel negated Palo Alto's affirmative defense of invalidity with respect to the '634 patent, the court today rendered its decision as to the rest of the patents. First, the parties stipulated to the application of assignor estoppel as to the '752 patent. Second, heavily relying on the Federal Circuit precedent in Diamond Scientific Co. v. Ambico, Inc., 848 F.2d 1220 (Fed. Cir. 1988) and in Shamrock Technologies, Inc. v. Medical Sterilization, Inc., 903 F.2d 789 (Fed. Cir. 1990), the court held that the '723, '459, '700, '347 and '612 patents, where Mao and/or Zuk are listed as inventors, are subject to assignor estoppel.

In particular, for four of the patents, the court reached its decision by considering the balance of equities and, more importantly, the relationship between Mao and Palo Alto. The evidence showed that Palo Alto has consistently held Mao out to be at least a founder and as such, there was always privity between Palo Alto and Mao: the court stated, "the estoppel also operates to bar other parties in privity with the assignor, such as a corporation founded by the assignor," citing Diamond, 848 F.2d at 1224.

With respect to the '723 patent, where Zuk is a co-inventor, his employment contract with NetScreen included an agreement to assign his inventions to NetScreen - which in effect, the court held, was an assignment of the patent to Juniper. Therefore, since Zuk is a founder of Palo Alto, "the '723 patent falls squarely within the holding of Diamond and is subject to assignor estoppel."

What does this mean for Palo Alto? This means that Palo Alto cannot rely upon its invalidity defenses in this litigation during the upcoming trial. However, there may be alternative avenues available to Palo Alto for mounting invalidity challenges for some, if not all, patents. For example, in his most recent decision, dated January 28, 2014, to institute an inter partes review of the '752 patent before the Patent Trial and Appeal Board at the United States Patent & Trademark Office, the Administrative Patent Judge James A. Tartal held that assignor estoppel "is not a basis for denying a petition requesting inter partes review." The recent institution of that IPR was the second one successfully requested by Palo Alto (IPR was also instituted with respect to the '612 patent). It's too late, however, for Palo Alto to petition for inter partes reviews for the remaining 5 patents because the original complaint was filed on December 19, 2011, more than one year ago. Yet, a third party "friend of Palo Alto," could potentially petition for IPR. It's been done before. See, for example, RPX (Apple's friend) petitions against VHC.

That said, even if the inter partes reviews result in successfully invalidating the patents, there is a risk that Palo Alto will nevertheless be estopped from asserting the invalidity of the two patents as a defense. This is because the district court has already found that the doctrine of assignor estoppel bars Palo Alto from raising invalidity as a defense, regardless of the merits of that defense. This could prove to be a hairy, technical legal question that the parties are sure to brief if it arises, yet one that could make or break Juniper's case. Regardless, Palo Alto will most certainly appeal this decision.

Claim Construction and Infringement

The court also construed certain key terms in each of the asserted claims of the asserted patents in order to render its decision on the parties' cross-motions for summary judgment of infringement and non-infringement. We will discuss each patent individually and readers are encouraged to refer to the table above summarizing the rulings for each asserted patent.

The '634 patent

There were two key limitations in dispute with respect to the '634 patent. The first limitation, "two or more security devices" was construed to mean "at least two physical devices, each of which performs a security function." Essentially the court agreed with Palo Alto's argument, and limited the claim to two physical devices, as opposed to a broader definition proposed by Juniper. Juniper's rejected construction would have encompassed multiple software applications running on a single processor or device. With respect to the second term, the court predictably decided not to limit the order of the steps recited in the method claim. Specifically, the "extracting" of instructions step does not have to occur before the "forwarding" step. This means that Juniper does not have to prove that Palo Alto's accused products performed the steps in a particular order.

Even though Palo Alto prevailed on claim construction, their expert testified that he was not sure whether Palo Alto's code was compiled into a "single executable file," thus leaving genuine issues of material fact regarding Palo Alto's argument that their software program is a single program, resulting in denial of parties' cross-motions for summary judgment. The judge pointed out that it wasn't clear whether Palo Alto's software ran on one or multiple cores, so that issue will likely be discussed at length during the trial. Palo Alto also failed to meet its burden of persuasion with respect to the second term by failing to present sufficient evidence to dispute Juniper's expert's testimony. Whether there is infringement of this claim will be decided at trial.

Palo Alto did, however, score an important victory with respect to Juniper's ability to argue infringement based on the doctrine of equivalents. Briefly, the doctrine of equivalents allows a patentee to raise a claim of infringement even though each and every element of the patented invention is not identically present in the infringing product. In other words, Juniper, as a result of this decision, cannot simply argue at trial that a single security device satisfies the "two or more security devices" claim limitation using the doctrine of equivalents. Any minor or insubstantial difference between the claimed invention and the accused product can now be the basis of non-infringement. This makes Juniper's burden at trial much harder.

The '347 patent

The one key limitation in dispute was "sorting/processing ... packets into ... initially denied packets". The court rejected Palo Alto's limiting construction of "applying rules to make a first determination that identifies packets to be dropped" and instead adopted Juniper's proposal leaving this term to be interpreted by its plain and ordinary meaning.

Not surprisingly, both parties' experts reached different conclusions with respect to whether the default rule in Palo Alto's source code was to "initially allow" or "initially deny" a packet. Judge Robinson relied on Palo Alto's expert's opinion to conclude that there exists a genuine issue of material fact regarding whether Palo Alto's accused products infringe the asserted claims and denied the cross-motions for summary judgment. Here again, infringement with respect to this patent will be decided at trial.

The '612 patent

The key term in dispute was "rules." The court construed this limitation to mean "actions to be applied against packets, as distinct from a look-up table, which is a data structure that stores information." This was a significant win for Palo Alto since the court specifically excluded a look-up table from the claim's scope.

However, with respect to infringement, the experts once again disagreed on whether the Block IP feature of the accused products uses entries stored in a look-up table. Juniper's expert opined that the entries are stored in a "hash table" which is different from a look-up table. Because of the differences in experts' opinions, the court will let the jury decide this issue and therefore denied the competing motions for summary judgment.

The '752 patent

There were two disputed claim limitations in this patent. Both constructions went in favor of Palo Alto. Yet, since the experts disagreed on whether the flow tables in the accused products satisfied the claim limitation requiring a primary and a secondary portion storing information for processing packets, the court denied the cross-motions for summary judgment.

However, the court did, once again, grant Palo Alto's motion for summary judgment with respect to the application of the doctrine of equivalents by precluding Juniper from arguing at trial that a flow table without portions satisfies the claim language under the doctrine of equivalents. Now, at trial, Juniper must show that its patented claims are literally infringed, without recourse to the doctrine of equivalents.

The '723 patent

There were three disputed claim limitations in this patent. Two out of three limitations were in favor of Juniper. However, Palo Alto scored an important victory with respect to the term "first engine" and "second engine," where the court held that the first and second engines have to be different and must be construed as "a first processor" and "a second processor." With respect to the term "route ... a/the packet" the court decided that the term is understood by its plain and ordinary meaning. With respect to "a tag" term, the court adopted Juniper's construction of "a structure for holding data."

Palo Alto's expert opined that both engines can run on the same core, while Juniper's expert analyzed the source code and concluded that the engines can be run on different cores of the Cavium chip. There were other disagreements between the experts and consequently, the court decided that several issues of material fact remain unresolved and denied the cross-motions for summary judgment. Infringement will be resolved at trial.

The '459 patent and the '700 patents

The two competing claim constructions related to the terms "security screening" and "without performing the security screening." The court adopted a broad construction borrowing language from both parties' proposals with respect to the first term, and agreeing with Palo Alto's proposal with respect to the second term. Specifically, the second term was construed to mean "without inspection."

Remarkably, the experts' opinions were once again in stark contrast. Palo Alto's expert explained that all incoming packets are subject to inspection of information in the header to determine whether the packet should be discarded, prior to policy lookup and therefore the limitations at issue are not met by the accused products. While there is more to this argument than meets the eye, the bottom line is that the experts disagreed and the court was hesitant to grant either party's motion for summary judgment.

The court did grant Palo Alto's motion for summary judgment of non-infringement of the '459 and '700 patents under the doctrine of equivalents. What this means is that Juniper cannot argue at trial that intra-zone packets may be inspected and still meet these claim limitations under the doctrine of equivalents. Literal infringement will be resolved at trial.

Conclusion

This case is set for trial on February 24th, and as astutely mentioned today by Dan Ravicher, is shaping up to be a "classic battle of the experts." The stakes will be high, and there is always a chance of a settlement at the 11th hour on the "courthouse steps" or even earlier. Either way, today's market action confirms the importance of this patent case to Palo Alto's fortunes. The upcoming trial, should it happen, will be the next crucible and likely a significant trading opportunity in its own right.

Source: Juniper Networks Vs. Palo Alto Networks - Summary Judgment Ruling Sets The Stage For Trial