A recent order from the Northern District of California provides patent practitioners interesting guidance regarding conduct during licensing discussions—and may be a cautionary tale to potential licensors engaged in efficient infringement. In Finjan, Inc. v. SonicWall, Inc., 5-17-cv-04467, the court denied the defendant SonicWall’s motion to dismiss the plaintiff Finjan, Inc.’s (“Finjan”) willfulness allegations.  Finjan alleges both that SonicWall infringes ten of Finjan’s patents covering behavior-based and antimalware security, and also that SonicWall’s infringement was willful because it engaged in insincere licensing discussions in order to intentionally delay the infringement litigation.

The court concluded that the factual allegations are sufficient to state a claim, including that for nearly three years prior to the litigation, the parties engaged in licensing discussions regarding Finjan’s patent portfolio.  In November 2016, Finjan described each asserted patent and its relation to SonicWall’s products.  SonicWall eventually refused the license offer from Finjan and Finjan filed the lawsuit in August 4, 2017.

Finjan further alleged that it is entitled to enhanced damages under 35 U.S.C. § 284 based on willful infringement by SonicWall. Section 284 allows a court to “punish the full range of culpable behavior” such as “willful, wanton, malicious, bad-faith, deliberate, consciously wrongful, flagrant, or—indeed—characteristic of a pirate” and is reserved for “egregious cases of misconduct beyond typical infringement.” Halo Elecs., Inc. v. Pulse Elecs., Inc., 136 S. Ct. 1923, 1931, 1933-1935 (2016).  In assessing egregiousness, “culpability is generally measured against the knowledge of the actor at the time of the challenged conduct.”  Id.

SonicWall’s motion to dismiss argued that Finjan’s complaint showed only “good faith, pre-suit settlement discussions,” and that Finjan had not pled allegations that would show SonicWall engaged in “egregious” behavior.  Finjan countered that it alleged more than mere knowledge of the patents, and that SonicWall strung Finjan along for three years of “sham negotiation” while SonicWall sold new products that it knew infringed the asserted patents.

The court noted that Finjan identified to SonicWall every one of their patents and detailed how SonicWall’s products related to those patents. As a result, SonicWall not only knew of the existence of the asserted patents, but also how their products allegedly infringed those patents.  Taking Finjan’s allegations as true, the court concluded that there is “more than a sheer possibility” that SonicWall engaged in disingenuous discussions that intentionally prolonged negotiations—all while knowing that it infringed.  The court rejected SonicWall’s argument that allowing settlement discussions to form the basis of willful infringement claims would go against the public policy to encourage settlement.  That said, the court emphasized that while Finjan had met its burden to allege facts from which a plausible conclusion could be reached, further evidence mat not prove that SonicWall’s behavior was egregious.

To the extent that efficient infringers believe that there will be no repercussions to intransigence in licensing discussions with a patent licensor, this decision should provide some pause. While it remains to be seen whether Finjan can prove the facts alleged, if it does SonicWall may ultimately pay a steep price for bad faith negotiation tactics designed to delay litigation and extend its infringement runway.