Fortinet, Inc. v. Fortanix, Inc.

Background

Fortinet asserted five claims concerning Fortanix’s use of the mark “Fortanix”: trademark infringement under 15 U.S.C. § 1114, false designation of origin under 15 U.S.C. § 1125(a), California statutory unfair competition, California common-law unfair competition, and cancellation of Fortanix’s trademark registration. Fortinet alleged that the marks “Fortinet” and “Fortanix” created a likelihood of consumer confusion because both companies offered cybersecurity-related goods and services.

Fortanix moved for summary judgment on likelihood of confusion, its laches defense, Fortinet’s reasonable-royalty and corrective-advertising claims, and the testimony of Fortinet’s damages expert, David Hanson. Fortinet moved for partial summary judgment on Fortanix’s laches defense. Summary judgment is appropriate when the evidence shows no genuine dispute about a fact important to the outcome and the moving party is entitled to judgment under the law.

Likelihood of Confusion

The court denied Fortanix summary judgment on likelihood of confusion. Applying the Ninth Circuit’s multi-factor test, the court found that a reasonable factfinder could conclude that Fortinet’s mark was strong, the parties’ products were related, and the marks were similar because both used “Fort” as a dominant term. A factfinder could also view an email in which a potential customer referred to Fortanix as “Fortinet” as evidence of actual confusion, although the court described that evidence as weak.

The court found that the degree of care exercised by customers weighed against confusion because Fortanix’s products involved lengthy sales cycles, technical evaluation, and prices in the tens or hundreds of thousands of dollars. The marketing-channels and likelihood-of-expansion factors were neutral on the record presented. The intent factor could favor Fortinet because Fortanix knew of Fortinet’s existence when it selected its mark. Overall, the court concluded that Fortanix had not shown it was entitled to summary judgment on likelihood of confusion.

Laches

Laches is a defense based on unreasonable delay in asserting legal rights. The court denied both parties’ requests for summary judgment on Fortanix’s laches defense. The court concluded that Fortinet’s earliest legally relevant knowledge was September 19, 2017, when Fortanix’s mark was registered, and that Fortinet filed suit on October 2, 2020. Because the suit was filed slightly more than three years after that date and within California’s analogous four-year limitations period, a strong presumption existed against applying laches.

The court nevertheless found that the parties had presented triable issues of fact concerning five of the six equitable factors used to evaluate laches: the strength and value of Fortinet’s trademark rights, harm to Fortinet if relief were denied, Fortanix’s good-faith ignorance, competition between the parties, and harm to Fortanix from Fortinet’s delay. The diligence factor weighed against applying laches. Because factual disputes remained, neither party was entitled to summary judgment on the defense.

Damages and Expert Testimony

The court granted Fortanix summary judgment on Fortinet’s reasonable-royalty claim. Hanson proposed a 20-percent royalty based on databases containing royalty rates for computer programs and software or hardware. The court found that Fortinet had not shown a sufficiently reliable basis for calculating a royalty because neither party had a prior licensing agreement or licensing negotiations, and Hanson had not relied on agreements from the cybersecurity field in which the parties competed. The court therefore also granted Fortanix’s motion to exclude Hanson’s opinion about the amount of a reasonable royalty.

The court denied summary judgment on Fortinet’s claim for corrective-advertising costs and denied Fortanix’s request to exclude Hanson’s opinion about that amount. Hanson had estimated approximately $4.4 million for a corrective-advertising campaign, but Fortanix argued that Fortinet lacked evidence that its mark had lost value. The court held that a factual dispute remained over whether the email exchange showed actual confusion and therefore whether Fortinet could establish the required injury. The court expressly made no finding about whether one instance of actual confusion would be enough to support a corrective-advertising award.

Disposition

Fortanix’s motion for summary judgment was granted in part and denied in part: it was granted as to Fortinet’s reasonable-royalty claim and denied in all other respects. Fortinet’s motion for partial summary judgment on laches was denied. Fortanix’s motion to exclude Hanson’s opinions was granted to the extent it concerned the amount of a reasonable royalty and was otherwise denied. Judge Maxine M. Chesney entered the order on April 15, 2022.