NetFuel, Inc. v. Cisco Systems Inc.
- Edward Davila
- 5:18-cv-02352
- U.S. District Court · Northern District of California
- 13
In NetFuel v. Cisco, Judge Davila struck NetFuel’s late damages disclosures and declined Cisco’s request for attorneys’ fees.
NetFuel’s late damages theories and factual support could not be used in the case, while Cisco obtained an order striking NetFuel’s second supplemental damages contentions and related interrogatory responses. Cisco did not receive attorneys’ fees.
What happened
NetFuel, Inc. v. Cisco Systems Inc. is a patent-infringement case involving two patents about software agents used to monitor and manage computer networks. NetFuel accused four features in Cisco’s network operating systems of infringement and sought reasonable-royalty damages.
Cisco asked the court to strike NetFuel’s second supplemental damages contentions and related answers to three interrogatories. Cisco argued that NetFuel had added new damages theories and factual support after fact discovery and expert discovery had closed. NetFuel opposed the motion.
The court ruled that parties must timely update their damages disclosures when their damages theory materially changes. It found that NetFuel’s late disclosures made material changes and were not justified or harmless, so it granted Cisco’s motion and struck the disclosures and responses. Judge Edward J. Davila declined to impose attorneys’ fees.
The detailed version
- NetFuel, Inc. v. Cisco Systems Inc. · No. 5:18-cv-02352
- Edward Davila
- July 31, 2020
Background
NetFuel sued Cisco for allegedly infringing U.S. Patent Nos. 7,747,730 and 9,663,659. The patents concern software programs called “agents” that monitor and manage computer networks and network devices. NetFuel accused features in Cisco’s IOS, IOS XE, IOS XR, and NX-OS operating systems.
NetFuel’s preliminary damages contentions identified reasonable royalties based partly on comparable technology licenses and partly on Cisco sales or profits attributable to the patented invention. The contentions did not include a damages estimate or the underlying facts supporting apportionment. Cisco later served interrogatories seeking information about comparable licenses and NetFuel’s factual and legal bases for apportioning damages.
On the last day of fact discovery, NetFuel served its first supplemental damages contentions and supplemental interrogatory responses. After fact and expert discovery closed, and after the court struck portions of NetFuel’s expert reports, NetFuel served second supplemental damages contentions and second supplemental responses to Cisco’s Interrogatory Nos. 10, 15, and 20. The new disclosures contained fourteen pages of additional damages theories and factual allegations.
Legal standard
The court held that Federal Rule of Civil Procedure 26(e) requires a party to timely supplement or amend Patent Local Rule 3-8 damages contentions when the party’s damages theory changes in a material respect. The court explained that damages contentions must identify the damages categories, theories of recovery, factual support, and computations. Merely identifying a broad theory does not allow a party to provide the substance of that theory after discovery has closed.
Under Federal Rule of Civil Procedure 37(c)(1), a party that fails to provide required information may not use it at a motion, hearing, or trial unless the failure was substantially justified or harmless. The court found that NetFuel’s failure met neither exception.
Material changes identified by the court
The court found that NetFuel’s supplemental disclosures materially changed its damages theories and factual support in several respects:
- 2008 BNP Paribas license: NetFuel relied extensively on a 2008 software license involving BNP Paribas, but its earlier contentions did not identify that license or explain its significance. The court ruled that NetFuel could not newly rely on that license to establish a reasonable royalty rate. - Cichlid and commercialization: NetFuel added information about an earlier version of PlexOS called Cichlid and used it to support a new commercialization theory and to apportion the value of the PlexOS license. The court found that this was more than background information and constituted a material change. - Twenty-percent apportionment: NetFuel attempted to use a theory assigning 20 percent of a per-unit license fee to the value of its intellectual property. The court had previously struck the expert version of that theory and found that the factual support for the theory had not been timely disclosed. - Fifty-fifty revenue split: NetFuel also attempted to add a theory that the parties would have agreed to split revenues equally in a hypothetical negotiation. The court found that the earlier contentions discussed apportionment generally but did not disclose a valuation or a 50/50 split.
The court rejected NetFuel’s arguments that the new information was permissible because it fit within an already identified category of damages, because it could have been inferred from documents or testimony, or because Cisco’s document production delayed NetFuel’s calculations. The court also rejected the argument that an earlier order excluding expert testimony justified presenting the same theories through fact witnesses.
Disposition
The court granted Cisco’s motion to strike. It struck NetFuel’s second supplemental damages contentions and its second supplemental responses to Cisco’s Interrogatory Nos. 10, 15, and 20. The court found that allowing the late disclosures would substantially prejudice Cisco and disrupt the case by requiring renewed depositions, expert work, and other discovery.
The court declined to impose attorneys’ fees. It stated that the evidence-exclusion sanction was serious and that adding a monetary award was discretionary and unnecessary. The order addressed discovery and damages disclosures; it did not decide whether Cisco infringed the patents or determine the amount of damages.
Read the full 13-page opinion on CourtListener, the free public archive maintained by the Free Law Project.