Tuesday was the second day of trial in the patent infringement suit filed by Juniper Networks (NYSE:JNPR) against Palo Alto Networks (NYSE: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 and my review of day one of the trial. I attended the trial Tuesday, and provide here my observations and thoughts.
Before the jury was brought in to the courtroom for the trial to continue, Juniper raised some issues with the judge. First, Juniper objected to a proposed jury instruction Palo Alto submitted late Monday evening regarding the access the parties' respective experts had to Palo Alto's source code. Palo Alto's proposal implies that Juniper's expert was offered the same level of access to the Palo Alto source code for the purpose of forming his infringement opinions as Palo Alto's expert was given, although they admit that Juniper's expert was not offered the same level of access initially. Juniper disputes that characterization, because their expert was not offered full unfettered access to Palo Alto's source code in the way that Palo Alto's expert was, either initially or ever. The judge asked Juniper to submit what it proposed the instruction to say and took the issue under consideration.
The next issue Juniper raised with the judge related to statements made by Palo Alto's attorney, Harold McElhinny, during his opening statement on Monday. Specifically, Juniper objected to his insinuation that an ASIC is required in order to infringe one of Juniper's patents (the '612 patent). ASIC stands for "application specific integrated circuit" and is shown in figures contained in the patents. In his opening statement, McElhinny indeed harped on the ASIC several times as being a feature of the patented invention. I knew he was opening himself up to criticism for so strongly implying an ASIC is required for infringement, because the judge's claim construction of the '612 patent is clearly not limited to only systems that contain ASICs. Juniper asked the judge to read the jury an instruction as soon as they came back in to the courtroom reminding them that infringement merely requires an accused device to contain each element of an asserted patent claim, that the meaning of patent claim terms is guided by her claim construction decision, and that attorney argument is not evidence.
Palo Alto objected to the proposed instruction, arguing that the embodiments shown in the patents are relevant to the issue of infringement under the doctrine of equivalents. The judge responded that McElhinny did not raise the issue in the context of the doctrine of equivalents and had instead jumped right to the issue, which she believed created a problem of leaving the impression that not having an ASIC means there cannot be literal infringement. "It's not that easy," remarked the judge. Indeed. As a result, after the jury was brought in to the courtroom, the judge did as Juniper requested, telling them that attorney argument is not evidence and that in ruling in the case they are to be guided by her instructions, including her claim construction of the various terms in the patents. This was the right thing for the judge to do.
Scott Kriens, Juniper Chairman of the Board and Former CEO
As its first witness, Juniper called Scott Kriens to the stand. Questioning of Kriens was performed by David McPhie, who began by asking him to describe his relationship to Juniper. Kriens told the jury he was chairman of Juniper's Board of Directors and that he had joined Juniper in 1996 as its CEO, a position he held for 12 years. Kriens then discussed the NetScreen acquisition, describing the two companies as being complementary because they had the same customers and both competed against Cisco. Kriens identified the patents-in-suit as being some of the assets acquired through the NetScreen transaction, and pointed out how the patents themselves name Juniper as the assignee. The amount Juniper paid to acquire NetScreen was not mentioned, as that is a fact the judge has excluded from this portion of the trial, since it is irrelevant to determining infringement. Kriens then described Juniper's patented technology as "foundational" and still in use today, as newer technologies are built on top of the foundation created by the patents. He showed the jury an example Juniper product, the SRX 650, and described how the patented technology was contained in the Junos operating system that ran the machine.
Cross-examination of Mr. Kriens was performed by Daralyn Durie of Durie Tangrie, co-counsel for Palo Alto in the case. Durie began by asking Kriens about a couple configuration documents published by Juniper for Junos, each of which listed patents covering the operating system. Kriens conceded that none of the patents-in-suit were listed in the documents. Durie then asked Kriens about speeches in which he said Juniper had failures, and about Juniper's stock price crashing, both of which were objected to by McPhie, objections the judge sustained. Finally, Durie asked Kriens if his stock holdings in Juniper were worth more than a billion dollars, and he said no. The clear intent by Palo Alto's attorney was to paint him as a rich guy so that the jury would not like him or place much faith in his testimony. I hate this kind of cross-examination, both because character attacks are almost always unnecessary and, perhaps more importantly, they are rarely effective when the same thing is true of both sides. Surely Palo Alto's corporate representative will also be a very wealthy person, a fact Juniper's lawyers may now raise when they cross-examine that witness. Durie's attacking demeanor and negative tone was also in stark contrast to Kriens' friendly and calm attitude. In my opinion, Durie's cross of Kriens failed to do anything productive for her client, and may have actually increased the jury's sympathy for Juniper.
On redirect, McPhie asked Kriens if he was responsible for listing patents in configuration documents, and he said he was not. McPhie also guided Kriens to pointing out to the jury how the patents-in-suit were not even all issued at the time the various documents were written, so it would have been impossible to list them. With that, the witness was excused and the court took a brief recess.
Avi Rubin, Juniper's Technical Expert
After the morning break, Juniper called its expert witness, Avi Rubin, professor of Computer Science at John's Hopkins University, to the stand. The direct examination of Rubin was performed by Lisa Glasser, who began by asking Rubin about his technical education and experience. She then had him walk the jury through various terms, including "packet", "network security", "flow", "session", "flow lookup table", "port scanning", etc. I felt Rubin did an excellent job explaining the underlying technology to the jury, as they seemed to stay engaged and attentive. For example, he used the example of employers deciding to either block or allow Facebook as an example use of a firewall, which made it relatable to the jury.
The '347 Patent
With those basics out of the way, Glasser turned Rubin to the first patent, the '347 patent. Rubin described it generally as a two-step process, involving first applying a policy (via a rule or set of rules) to determine if a packet of data should be allowed or sent for further analysis and then, second, applying special case rules to the packets not initially allowed to determine if they should be ultimately allowed or denied. Rubin went over the claim language of the two asserted claims from the patent, noting that the only difference between them is that claim 1 is to an apparatus and claim 24 is to a method. Glasser had Rubin point out how the claim language does not include any mention of an ASIC or any specific implementation at all. This was a critical point to make, as it rebutted Palo Alto's opening statement that heavily implied the absence of an ASIC would render an accused device not infringing.
Rubin then identified the Palo Alto products that he analyzed as the PA-5000, PA-4000, PA-3000, PA-2000, PA-200, and PA-500, and said they all ran the same software, so he did not need to analyze them separately. He told the jury, however, that his review of Palo Alto's source code was limited, because he was only allowed to sit at a computer in a law firm and remotely review the source code. He said he did not perform all of the tests on the source code's operation that he wanted, because he was not permitted to make changes to it to see how it would operate in response thereto. In my experience, having litigated over a dozen software intellectual property infringement cases, such experimentation is common in performing software analysis, and the fact that Juniper's expert was precluded from having such access to the accused source code strikes me as extremely unfair. Nonetheless, Rubin testified that in addition to the limited source code review he was permitted, he also reviewed several Palo Alto documents and the deposition testimony of Palo Alto employees.
Getting back to the specifics of the '347 patent, Rubin showed the precise lines of Palo Alto's source code that performed each portion of the asserted claims. He explained how Palo Alto has in its operating system a default deny rule that denies any packet of data entering the system from passing through unless it satisfies another rule that may be present for allowing packets. Rubin then explained that Palo Alto's software applied "special case" rules to those packets that are initially denied in order to determine if they should ultimately be allowed through or not. Glasser put on the screen the precise language of the two asserted '347 patent claims, and Rubin described how what he found in Palo Alto's source code matched each portion of each claim. Glasser then showed Rubin several Palo Alto documents that described their operating system, gave example uses, and suggested designs for customers, and Rubin pointed out how they all confirmed his conclusions from reviewing the source code.
Glasser then asked Rubin if he was familiar with a report submitted by Palo Alto's expert, Michael Mitzenmacher, professor of Computer Science at Harvard, that disagreed with him about these conclusions. Rubin acknowledged he was, but stated that he remained confident in his opinion, because Mitzenmacher interpreted the patent to require things that the court's claim construction determined it does not require, such as a specific order or timing of actions, and the setting of an action variable. Glasser then asked Rubin if he had an opinion on the issue of infringement if he assumed, for the sake of argument, that Mitzenmacher was correct in his interpretation of the patent's requirements. Rubin said that under the doctrine of equivalents, Palo Alto's software would still infringe, because it performs the same function in the same way to get the same result. Thus, even if the accused products do not literally infringe the '347 patent, because for example the patent requires an action variable setting, as suggested by Mitzenmacher, they nonetheless infringe because they are substantially equivalent.
The '612 Patent
Glasser then turned Rubin to the '612 patent, which he described as covering dynamic security products that create new rules upon certain events. Rubin told the jury that it is the "Block IP" feature contained in Palo Alto's software that infringes the patent and pointed out the lines of source code that implement that feature. He described how he ran an experiment on one of Palo Alto's accused devices to see what would happen if it were under attack. He determined that prior to simulating an attack the Block IP file did not contain any IP addresses, but after the simulated attack it contained the IP address of the source of the simulated attack. This, in his opinion, proved that Palo Alto's products do what the source code indicated they did, which is create a new rule on the fly in response to an event (i.e. a simulated attack).
Rubin discussed the court's claim construction in detail and how it specifically excluded lookup tables from the term "rule". As a reminder, the court construed the term "rule" in the '612 patent to mean "actions to be applied against packets, as distinct from a look-up table, which is a data structure that stores information." Rubin noted that Mitzenmacher argues Block IP is a lookup table, and thus not a "rule" under the court's construction. Rubin stated he disagreed, and referred to portions of the patent specification that defined a lookup table. He concluded that the Block IP feature was not a lookup table, because it only included an IP address, as opposed to all the other types of information stored in a lookup table, such as session, data flow, port, and other data. Rubin also said lookup tables do not apply across sessions, but rules do, and that Palo Alto's Block IP feature was the latter, not the former, for that reason. Lastly, Rubin said that even if Block IP is a lookup table, and thus excluded from the court's definition of the term "rule", Palo Alto's software still infringes the patent under the doctrine of equivalents, because Block IP nonetheless performs the same function in the same way to get the same result as a "rule" in the '612 patent.
The '723 Patent
Glasser then turned Rubin to the final patent-in-suit, the '723 patent, which he noted was filed in 2005, several years after the first two patents. Rubin pointed out that although the '723 patent was newer, its technology could still be used with the technology in the older patents, because it merely adds additional functionality to the previous inventions. This was a good way for Juniper to begin to undercut Palo Alto's argument that it does not infringe Juniper's old patents because its products are new, which is the argument I identified in my review of day one of the trial made by Palo Alto's attorney in his opening statement that I said was quite weak because it can be easily countered. With this question to Rubin, Juniper seems well-prepared to respond to Palo Alto's "we're new so we don't infringe" argument.
On the '723 patent specifically, Rubin explained to the jury that it related to packet processing and used the word engines to mean either hardware or software that performs certain functions on data flow. He flagged for the jury that the first engine in Palo Alto's systems is called SSO, which includes a scheduler, the second engine is called slowpath, and the third engine is called fastpath. He then reviewed the several parts of claim 1 of the '723 patent and the court's claim construction of various terms therein, including "tag" and "associate a tag". At that point, court recessed for the day before he began discussing his specific element-by-element analysis of how the '723 patent is infringed by Palo Alto's products. He will start with that Wednesday morning.
As of the end of his testimony Tuesday, I felt Rubin was doing a very good job presenting his analysis of the patents, and noted that the jury appeared to remain interested and listening closely throughout. Several of the jurors would constantly lean forward in their chairs and take notes, while none seemed to fidget, appear bored, or close their eyes (which I have seen more times than I can count). The jurors even declined the opportunity to take a break at one point during the afternoon when the judge offered it, saying virtually in a unanimous voice that they wanted to continue. That was after an hour and a half of Rubin's testimony. I was very impressed that the jury wanted to stay the course and keep muddling through what was very technical, dry, and complex subject matter.
Like on Monday, I began Tuesday short PANW, as I remain confident 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 Tuesday to change my opinion. I plan to attend the trial throughout the week and continue 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.