IP Law Daily Willfulness finding error and attorney fee award require remand of Cisco/SRI dispute
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Wednesday, March 20, 2019

Willfulness finding error and attorney fee award require remand of Cisco/SRI dispute

By Peter Reap, J.D., LL.M.

A federal district court erred in finding that Cisco willfully infringed SRI’s network security patents, and its award of attorney fees to SRI required recalculation, requiring remand. The lower court’s other rulings were affirmed.

A jury’s finding that Cisco willfully infringed two computer network security patents asserted by SRI International was not supported by substantial evidence, and, therefore, the federal district court in Wilmington, Delaware, erred in denying Cisco’s motion for judgment as a matter of law (JMOL) of no willful infringement, the U.S. Court of Appeals for the Federal Circuit has decided. The lower court also erred in the amount of its award of attorney fees to SRI. The denial of the JMOL motion was vacated, as were the awards of enhanced damages and attorney fees, and the case was remanded for further consideration. Rulings by the district court on the patent eligibility of SRI’s patents, claim construction, anticipation, and award of ongoing royalties on sales of products that were actually found to infringe or are not colorably different, were affirmed (SRI International, Inc. v. Cisco Systems, Inc., March 20, 2019, Stoll, K.).

SRI International, an independent research company, sued Cisco Systems, Inc., for the infringement of two patents: (1) U.S. Patent No. 6,711,615 ("Network surveillance") and (2) U.S. Patent No. 6,484,203 ("Hierarchical event monitoring and analysis"). The patents monitored computer networks for intruders and created suspicious-activity reports. On May 12, 2016, the jury returned a verdict finding that Cisco directly and indirectly infringed both patents in the following products and services: Cisco intrusion protection system products, Cisco remote management services, Cisco IPS services, Sourcefire IPS products, and Sourcefire professional services. Finding the infringements willful, the jury awarded SRI damages of a 3.5% royalty, which totaled $23,660,000.

After the verdict, Cisco moved for judgment as a matter of law, a new trial, and remittitur of the damage award. SRI moved for enhanced damages, including attorney fees. The district court, while rejecting Cisco’s motions for new trial, judgment as a matter of law, and remittitur, granted SRI’s motions for attorney fees, doubled the damages, awarded SRI a compulsory license on post-verdict sales, and granted SRI prejudgment interest, compounded quarterly. Cisco appealed the district court’s claim construction and denial of summary judgment of ineligibility, as well as its grant of summary judgment of no anticipation, enhanced damages, attorney fees, and ongoing royalties. As an initial matter, the appellate court adopted SRI’s proposal and used ’615 patent claim 1 as the representative claim.

Patent-eligible subject matter. Here, claim 1 is not directed to an abstract idea, the court said. Thus, it passed the two-step Alice test established by the Supreme Court to determine whether a patent claims ineligible subject matter, the Federal Circuit determined. The district court correctly concluded that the claims are more complex than merely reciting the performance of a known business practice on the Internet and are better understood as being necessarily rooted in computer technology in order to solve a specific problem in the realm of computer networks.

Contrary to Cisco’s arguments, the claims are not directed to just analyzing data from multiple sources to detect suspicious activity. Instead, the claims are directed to an improvement in computer network technology. The specification bolstered the court’s conclusion that the claims are directed to a technological solution to a technological problem. Cisco’s arguments that the claims are directed to an abstract idea because (1) they are simply directed to generic steps required to collect and analyze data; (2) the invention does not involve an improvement to computer functionality itself; and (3) are so general that they encompass steps that people can go through in their minds, were rejected.

Claim construction. The district court construed "[n]etwork traffic data" to mean "data obtained from direct examination of network packets." The district court explained that "[t]o say that the data ‘is obtained from direct examination of network packets’ means to differentiate the original source of the data, not how or where the data is analyzed. . . . The fact that the data may be stored before analysis is performed on the data does not detract from its lineage." On appeal, Cisco contended that the term should instead be construed as "detecting suspicious network activity based on ‘direct examination of network packets,’ where such ‘direct examination’ does not include merely examining data that has been obtained, generated, or gleaned from network packets."

Cisco’s proposed construction went too far in limiting the amount of preprocessing encompassed by the claim, the Federal Circuit reasoned. The specification showed that preprocessing is a contemplated and expected part of the claimed invention. Cisco’s argument that SRI disclaimed preprocessing during reexamination of its patents was also not persuasive. SRI’s statements in the prosecution history do not invoke a clear and unmistakable surrender of all preprocessing, including decryption, decoding, and parsing. Thus, the lower court’s construction was affirmed.

Anticipation. The district court did not err in granting summary judgment that the asserted claims are not anticipated by SRI’s own EMERALD 1997 reference. EMERALD 1997 did not expressly disclose directly examining network packets as required by the claims—especially not to obtain data about network connection requests. Nor did Cisco’s expert testimony create a genuine issue of fact on this issue. Rather, the district court was correct in concluding that Cisco’s expert’s testimony is both inconsistent and "based on [] multiple layers of supposition."

Cisco also argued that the district court erred by granting summary judgment for SRI sua sponte despite SRI’s failure to move for such relief. That argument was without merit, the Federal Circuit held. Any notice requirement was satisfied because Cisco itself indicated that the issue was ripe for summary adjudication and SRI took the position that the claims were not anticipated.

Willfulness. Cisco also appealed the district court’s denial of JMOL that it did not willfully infringe the asserted patents. On appeal, SRI identified additional evidence that purportedly supported the jury’s willfulness verdict. Specifically, SRI presented evidence that Cisco expressed interest in the patented technology and met with SRI’s inventor in 2000 before developing its infringing products. Additionally, SRI submitted evidence that Cisco received a notice letter from SRI’s licensing consultant on May 8, 2012, informing Cisco of the asserted patents (a year before SRI filed the complaint). Finally, like the district court, SRI made much of the fact that "key engineers" did not look at SRI’s patents until SRI took their depositions during this litigation.

Even accepting this evidence as true, the record was insufficient to establish that Cisco’s conduct rose to the level of wanton, malicious, and bad-faith behavior required for willful infringement, in the Federal Circuit’s view. First, it was undisputed that the Cisco employees who did not read the patents-in-suit until their depositions were engineers without legal training. Given Cisco’s size and resources, it was unremarkable that the engineers—as opposed to Cisco’s counsel—did not analyze the patents-in-suit themselves. The other rationale offered by the district court—that Cisco designed the products and services in an infringing manner and that Cisco instructed its customers to use the products and services in an infringing manner—was nothing more than proof that Cisco directly infringed and induced others to infringe the patents-in-suit, the appellate court explained.

While the jury heard evidence that Cisco was aware of the patents in May 2012, before filing of the lawsuit, the record did not support a willfulness finding going back to 2000. The jury’s verdict of willful infringement before May 8, 2012, was not supported by substantial evidence and the appellate court left it to the district court to decide in the first instance whether the jury’s presumed finding of willful infringement after May 8, 2012, was supported by substantial evidence.

Attorney fees. The district court concluded that Cisco’s aggressive litigation tactics, in addition to the fact that the jury found that Cisco’s infringement was willful, led it to exercise its discretion pursuant to Section 285 to award SRI its attorney fees and costs. The district court did not abuse its discretion in so finding, the Federal Circuit ruled.

However, the district court erred in granting all of SRI’s fees. Section 285 permits a prevailing party to recover reasonable attorney fees, but not fees for hours expended by counsel that were excessive, redundant, or otherwise unnecessary. The district court should have reduced SRI’s total hours to eliminate clear mistakes. Therefore, the attorney fees award was remanded only for removal of attorney hours clearly included by mistake and consequent recalculation of reasonable attorney fees.

Ongoing royalty. Cisco argued that the district court abused its discretion in awarding the 3.5% ongoing royalty on "all post-verdict sales" without considering Cisco’s design-arounds. Cisco had moved to supplement its post-trial briefing with declarations describing its redesign efforts, a motion the district court denied.

The district court did not abuse its discretion in awarding "a 3.5% compulsory license for all post-verdict sales" and properly exercised its discretion in denying Cisco’s motion to supplement the record regarding alleged post-verdict design-around activity, according to the appellate court. Cisco did not redesign its products until after trial, and Cisco did not file its motion to supplement until after completion of post-trial briefing. Given the stage of the proceedings and SRI’s opposition, the trial court acted within its discretion when denying Cisco’s motion to supplement.

Dissent. In a dissenting opinion, Judge Lourie dissented from the majority’s ruling upholding the patent-eligibility of the claims. In Judge Lourie’s view, they are clearly abstract and recite nothing more than deploying network monitors, detecting suspicious network activity, and generating and handling reports.

This case is No. 2017-2223.

Attorneys: Frank Scherkenbach (Fish & Richardson, PC) for SRI International, Inc. William F. Lee (Wilmer Cutler Pickering Hale and Dorr LLP) for Cisco Systems, Inc.

Companies: SRI International, Inc.; Cisco Systems, Inc.

MainStory: TopStory Patent TechnologyInternet FedCirNews

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