The U.S. Court of Appeals for the Federal Circuit reversed an infringement verdict for the method claims in a “locked code” products case, but upheld both the infringement verdict on the apparatus claims and the manner in which the Georgia-Pacific reasonable royalty factors were applied to damages. Finjan, Inc. v. Secure Computing Corp., Case Nos. 09-1576, -1594 (Fed. Cir., Nov, 4, 2010) (Linn, J.).

Finjan sued Secure Computing for infringing its patents on “proactive scanning,” which involve detecting and disarming unknown internet-based threats to computers, such as viruses. Finjan obtained an infringement verdict on both its method and apparatus claims, despite the fact that the infringing software was “locked” (i.e., it required the owner to purchase a license to use it) in the systems that were sold with the software already installed. On appeal, the Federal Circuit reversed the infringement verdict as regards to the method claims for lack of evidence that the software was actually used. However, Court affirmed the infringement verdict regarding the apparatus claims because the claims recited software components having capability (e.g., “a logical engine for preventing execution”), rather than actual operation.

Secure Computing also appealed the jury’s basis for the reasonable royalty. Secure Computing claimed that the jury misapplied the “entire market value” rule by using the full market value without proof that the patent-related feature was the basis for customer demand. However, the Court concluded that Secure Computing waived this argument by not raising it during trial.

Secure Computing also argued that the rate used by the jury lacked support under the Georgia-Pacific factors. Secure Computing attacked the royalty factor used, wherein a large profit margin would tend to support a higher reasonable royalty rate. Finjan’s expert used company-wide profits (not just profits for the accused products) to calculate his proposed rate and discounted certain expenses, including one-time costs and R&D for unrelated products. However, the Federal Circuit concluded that the jury could rely on this calculation because there was substantial evidence that the company-wide profit margin was similar to the profit margin for the hardware products.

Because there was no evidence of actual use, Secure Computing also argued that the factor requiring consideration of the extent to which the infringer used the invention mitigated against a higher reasonable royalty rate. The Court dismissed this argument, explaining that for sales-based infringement, the seller is the infringer, and the seller “uses” the product by selling it. As for the remaining en banc factors in issue, the Court concluded that there was sufficient evidence to satisfy the factors relating to the importance of the invention in the infringing products and the portion of realizable profits that should be credited to it. Regarding the factor relating to existing licenses, the Federal Circuit concluded that Finjan’s lump-sum worldwide license to Microsoft was relevant, so long as the economic circumstances of Finjan and Microsoft were taken into account, along with the fact that the Finjan product did not directly compete with Microsoft and received intangible benefits from Microsoft’s endorsement.