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Update: Short Palo Alto Based On Patent Trial

|Includes:JNPR, Palo Alto Networks (PANW)

The patent infringement trial in Juniper Networks (JNOR) v. Palo Alto Networks (NYSE:PANW) is about to conclude. Closing arguments will likely take place tomorrow, after Juniper's cross-examination of Palo Alto's expert concludes. That means there could be a verdict this week.

Juniper Appears to Have Proved Infringement

Juniper presented its case for infringement last week, and appeared to meet its burden of proof on establishing infringement of the asserted claims, literally and under the doctrine of equivalents. Juniper based its case-in-chief on the expert testimony of Dr. Avi Rubin, a noted expert on network security based and Professor at Johns Hopkins. Dr. Rubin did a very good job on direct examination, distilling complex concepts down to understandable, bite-sized concepts for the jury, comparing Juniper's asserted claim terms to the accused Palo Alto products and effectively demonstrating why the accused products "read on " the asserted claim terms -- both literally and under the doctrine of infringement. Importantly, Dr. Rubin used the testimony of Palo Alto's expert, Dr. Mitzenmacher, to establish infringement under the doctrine of equivalents. Dr. Rubin did this by accepting as true the arguments and conclusions of Dr. Mitzemnacher and then explained how accepting Dr. Mitzenmacher's testimony as true, the accused Palo Alto products perform substantially the same function, in substantially the same manner to achieve substantially the same result as the claimed inventions. Using the defendant's expert testimony in this manner appeared to be very effective.

Palo Alto's attorney cross-examined Dr. Rubin. Although Palo Alto's attorney, Marc Jacobs, appears to be a superb trial lawyer, with a powerful and commanding presence in the courtroom, Dr. Rubin maintained his composure -- and even more important, his credibility. On balance, it spears that Dr. Rubin held-up well on cross, and thus his testimony remains in tact.

After Juniper rested, Palo Alto put on its case in chief through its expert, Dr. Mitzenmacher. Again, Palo Alto was more than ably represented by its trial lawyer, Marc Jacobs, who did a very effective job with Dr. Mitzemnacher presenting Palo Alto's point of view.

HOWEVER, on cross-examination, Juniper's lead lawyer, Morgan Chu, did what appeared to be a very effective job exposing flaws in Dr. Mitzenmacher's testimony. Importantly, Mr. Chu was able to get Dr. Mitzenmacher to admit that he withheld certain facts from the jury in presenting his expert conclusions -- the clear implication being that Dr. Mitzenmacher's testimony was misleading.

Further, in an interesting twist, Mr. Chu had Dr. Mitzenmacher review his multi-page resume and then got Dr. Mitzenmacher to concede that his resume barely mentioned the word "security" -- maybe only a couple of times back in the body of the CV. BY CONTRAST, Mr. Chu then showed the jury that Dr. Rubin's CV portrayed Dr. Rubin as a noted expert on network security matters. The implication here is that while Dr. Mitzenmacher may be a very accomplished individual, perhaps even expert in his chosen field, he is NOT an expert in network security matters and compared with Dr. Rubin is not on equal footing when it comes to the network security issues at issue in this case.

Juniper's lawyer is finishing his cross-examination of Dr. Mitzenmacher. Palo Alto will have some more redirect. At that point, the case will conclude and proceed to closing arguments. A verdict could very well come this week.

Again, no telling what the jury will do, but based on what transpired in court it looks (to me at least) that Juniper held its ground here and arguably proved infringement. Because the judge eliminated Palo Alto's right to contest the validity of Juniper's patents, if the jury returns a verdict of infringement, that's it -- Juniper wins the case.

At that point, the case will proceed to Phase II where Juniper will present evidence on Palo Alto's indirect infringement. Importantly, at this stage, Juniper will be allowed to present deposition testimony of Palo Alto's co-founders -- and the named inventors of the Juniper patents -- in support of its argument that Palo Alto knowingly allowed third party customers to infringe.

Increased Risk to an Injunction: Palo Alto Concedes that Juniper is a Direct Competitor

At trial, Palo Alto's CEO took the stand and admitted that Juniper was a direct competitor. This increases th4e risk of an injunction in this case in the event that Palo Alto is found to infringe. This is because under the law, and assuming that all other requirements for an injunction exist, courts have found that permanent injunctions are appropriate when infringement exists between direct competitors in a rapidly-evolving technology market.

Disclosure: I am short PANW.

Stocks: PANW, JNPR