Monday was the first day of trial in the patent infringement suit filed by Juniper Networks (JNPR) against Palo Alto Networks (PANW) in December 2011. For some background on the case, see my previous article discussing the judge's claim construction and summary judgment decision earlier this month. As a reminder, Juniper is asserting seven patents against Palo Alto, but because the trial is scheduled for only two weeks, which is not long enough to adequately cover seven substantively different patents, the Judge split the case into more than one trial. She asked Juniper to prioritize the patents it wished to proceed with in the first trial that started Monday, and they elected the '723, '347 and '612 patents, which are the three patents on which they received favorable claim construction decisions and were not limited as to the infringement arguments they can make. As another reminder, the current trial will not deal with issues of validity, as the judge barred Palo Alto from arguing that Juniper's patents are invalid, nor will it deal with the issue of damages. The issue of an injunction will be dealt with by the judge after this first trial if the jury finds that Palo Alto infringes any of the asserted patent claims. I attended the trial Monday and provide here my observations and thoughts.
At 9:00am the process of voir dire began with a jury pool of about 60 people being brought in to the courtroom. This is one of my favorite portions of any trial, and one that I think most others underestimate as to its importance. The makeup of the jury can dramatically affect the decision they render, as two different juries presented the same exact case verbatim can nonetheless come to different conclusions. Thus, I pay particularly close attention to the jury selection process.
Only nine members of the jury pool indicated having any technical or patent experience, and only one indicated having an opinion on the value of patents. After the judge and attorneys for the parties questioned members of the jury pool in private, a group of fourteen were randomly selected from which the parties were each allowed to eliminate three. In the group of fourteen, two had technology and patent familiarity, but both of them were eliminated. The remaining jury of eight consists of four women and four men that appear to range in age from twenty-something to sixty. I was not able to learn any more information about the education and employment backgrounds of the jurors, as those issues were discussed in private, but my sense of the jury from observation leads me to believe they are middle to lower middle class, with perhaps only half being college graduates. This is my hunch, though, which obviously could be wrong. After the jury was selected, the court broke for lunch.
Upon returning from lunch, the jury was shown the standard patent trial video and given preliminary instructions by the judge. Juniper then began its opening statement, with Juniper's attorney Morgan Chu telling the story of Juniper Networks' founding in 1996, and how the company was created in order to innovate to make the internet better. He described the overarching goal of the patents as seeking to increase both the safety and efficiency of communications between private networks and the internet. He then discussed each of the three patents specifically. For the '347 patent, he told the jury it covered two-step filtering, whereas the old technology screened packets of information in a single file format. For the '612 patent, he told the jury it covered dynamic rule generation so that new threats could be countered on the fly. And, for the '723 patent, he told the jury it covered efficient packet processing using at least three engines and where each packet gets a tag. In discussing the patents, Mr. Chu stayed at a relative high level, rather than drilling down to too many specifics.
Juniper's attorney then pointed out to the jury Juniper's expert witness, Avi Rubin, Professor of Computer Science at John's Hopkins University, who was sitting in the courtroom. He described how Professor Rubin analyzed Palo Alto's source code and Network Administrators Guide "NAG" to determine that the software on Palo Alto's accused products infringes each of the '347, '612 and '723 patents. He quickly pointed out the specific lines of source code and descriptions of functionality in the NAG that corresponded to various elements of the patent claims. Although some may feel he breezed by issues too quickly, I felt he presented the information at a sufficient level of detail at this early stage of the case. Too often lawyers want to go over every single point in their opening statements, which overwhelms and turns off the jury. In my opinion, you have to keep the jury engaged, especially a non-technical jury like the one that was selected in this case. As such, a good lawyer will tell the jury just enough to familiarize them with the major issues of contention, but not be excessive. Mr. Chu struck the right balance.
He could have (and perhaps should have) stopped at that point, but he instead chose to discuss the arguments he expected Palo Alto would make in defense. For the '347, he expected Palo Alto would argue their system only performs one step, not two as required by the patent. He also expected Palo Alto would argue its system does not reject any packets initially, and thus there could be no infringement. On the first point, he assured the jury that the evidence would show Palo Alto's system is not a one step process. On the second argument, he said the patents did not require rejecting packets initially, so that was irrelevant. On the '612 patent, Mr. Chu told the jury that Palo Alto might argue its "Block IP" process is not a "rule", as required by the patent. In response, he referenced the court's claim construction of the word "rule" to mean "actions applied to packets" and then put on the screen a page from Palo Alto's NAG that describes the Block IP functionality as an "action." He even highlighted and underlined the word "action" to drive the point home. On the '723 patent, he told the jury he expected Palo Alto would argue its packets are not routed to engines, but then said Palo Alto's system indeed does have three engines, called "SSO," "slowpath" and "fastpath," which work together, and thus satisfy the patent. He also said he expected Palo Alto to argue its system does not associate tags with packets, but pointed out that the claim construction merely requires a connection, even if indirect through intermediaries.
Mr. Chu finished his opening argument in about forty minutes. Although I felt his initial discussion of infringement struck the right balance between substance and brevity, in trying to preemptively deflect Palo Alto's counterarguments, I felt he lost that balance and left the jury somewhat confused. I'm not a fan of preemptively responding to my opponent's arguments, because maybe they won't make them, or at least not as well as I make them for them. Thus, while it may be worrisome to know your opponent may make arguments you cannot immediately rebut, my opinion is that there is plenty of time later in the trial to do so and it is better to wait. Regardless, for better or worse, Mr. Chu decided to raise what he expected Palo Alto would argue in his opening statement. I simply note that I think that was not the right decision, especially in this case, where you have a very non technical jury that was probably still emotionally dealing with the fact that they were going to have their lives disrupted for up to the next three weeks because of this trial.
Palo Alto's attorney, Harold McElhinny, then began his opening statement. Before discussing the specifics of the case, including the asserted patents and Palo Alto's accused products, he first took the jury through an overview of the history and terminology of firewall technology. He explained how firewall technology has to adapt and change quickly to keep ahead of the threats being posed to networks, which are themselves constantly becoming more sophisticated and powerful. He then discussed several terms of art, including IP packet, port, data flow, and stateful inspection. He told the jury that the problem with old firewall technology, by which he clearly implied the patented technology, was that it wasn't flexible, in that it could only either allow or deny traffic.
At this point it became clear to me that Palo Alto's defense is going to be that their products are new and Juniper's patents are old and, therefore a new product cannot infringe an old patent. The argument is highly misleading, because something can indeed be both new and yet still infringe old patents, but I acknowledge it is an argument that can be convincing to a non-technical lay jury. Right on cue, the next thing Mr. McElhinny told the jury about was Palo Alto's founding in 2005 and its introduction of so-called "Next Generation Firewall" in 2007. He said Palo Alto's accused products are referred to as "Next Generation" because they are more flexible than the old systems in that they do not limit handling of traffic to either opening or closing ports. He said, for example, that Palo Alto's software can strip out malicious portions of data flow while permitting other portions through, citing the Army's use of Palo Alto's products as enabling the secure use of Facebook (NASDAQ:FB) by soldiers overseas.
Palo Alto's attorney then transitioned to discussing the patents specifically, telling the jury, "Juniper is trying to fit square peg patents into Palo Alto's round hole products." He pointed out to the jury Palo Alto's expert, Michael Mitzenmacher, Professor of Computer Science at Harvard, and then went over specific portions of each of the asserted patents that Palo Alto's products do not have, which then means they do not infringe. For the '612 patent, Palo Alto's attorney told the jury that their products do not create new rules on the fly and that the "Block IP" functionality cited by Juniper is a lookup table, not a rule as defined by the court in the claim construction decision. For the '347 patent, he told the jury Palo Alto's software does not initially deny packets, and thus is only one step, not two steps. And, for the '723 patent, he told the jury it was about combining two separate devices (firewall and intrusion detection) in to the same box and that Palo Alto's accused system (which he admitted includes components called SSO, slowpath and fastpath) was a single piece of software, which are not separate processes.
At several points during Palo Alto's opening statement, Juniper's attorney made objections to the court. The two main sensitive issues were the court's claim construction of certain terms of the patents and the marketplace's opinion of Palo Alto (as being superior to Juniper). In response to Juniper's objections, the judge allowed Palo Alto's attorney to proceed on issues relating to the patents, noting that a curative jury instruction could be given later if needed to remind them they are to abide by her claim constructions. The issue of marketplace opinion, however, clearly frustrated the judge and she instructed Palo Alto's attorney to move on.
If Mr. Chu left the jury slightly confused, I think Mr. McElhinny didn't do much better. The first half of his opening statement was not specific to the case at hand, leaving one to ask what its relevance was. The second half of his opening merely made the arguments Juniper predicted he would make, and he did not take the opportunity to reply to Juniper's arguments in response thereto. Had he taken what Mr. Chu said in his opening about what he thought Palo Alto was going to argue and told the jury why Mr. Chu was not fairly describing Palo Alto's defenses, that could have left the jury with a very favorable impression, especially as he had the last word before court recessed for the evening. As it is, the jury left with two sides talking past each other, instead of really taking on the strongest aspects of each other's arguments. In my opinion, neither side ended the day any better or worse than it started.
Before jury selection, the day started with the judge and lawyers for the parties discussing a few issues relating to what arguments could be made and what evidence could be introduced during the trial. The judge took some of the issues under consideration and deferred ruling on others until they arose in the litigation. The judge resolved one of the more controversial issues after lunch, ruling that she would allow testimony from Palo Alto's expert regarding his testing of their source code. Juniper had argued such testimony was unfair to admit because their own expert was not provided the same level of access for testing purposes. The Judge felt it was more fair to allow Palo Alto's expert to testify about his testing and let Juniper make the jury aware that they were not provided the same type of access.
I began the day short PANW, as I believe the market misinterpreted the judge's claim construction and summary judgment decision and, as a consequence, is underestimating the risk that Palo Alto faces from the suit. Nothing happened Monday to change my opinion. I plan to attend the trial throughout the rest of the week and continuing providing updates and thoughts through my Seeking Alpha column and my Twitter feed.
Disclosure: I am short PANW. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: My position as of submission of this article to the Seeking Alpha editors is disclosed. However, legal matters like the one discussed herein are highly dynamic as there can be, for example, new developments in the mentioned matter itself or in the law that applies to the matter at any moment without notice. Thus, the opinions I express herein are my opinions as of submission of this article to the Seeking Alpha editors and I may change my opinions or my position in any related security at any time for any reason. This article was originally available for my clients and to the public for a fee. It is now being made available here for free for the public.