NetFuel, Inc. v. Cisco Systems Inc.
5:18-cv-02352
N.D. Cal.Jul 31, 2020Background
- NetFuel sued Cisco for patent infringement (Patents-in-Suit: U.S. Pat. Nos. 7,747,730 and 9,663,659), alleging infringement by features in Cisco OSs (EEM, CoPP, LPTS, EPFT).
- NetFuel’s preliminary damages contentions identified two overarching recovery theories: (1) reasonable royalty based on comparable licenses and (2) reasonable royalty based on apportioned Cisco profits, but provided no damages computation or detailed apportionment support.
- During discovery Cisco served interrogatories seeking specific factual support (including identification of comparable licenses and apportionment bases); NetFuel produced limited responses and at one point disavowed relying on PlexOS as practicing the patents.
- Fact discovery was extended; NetFuel served two supplements to its damages contentions, the second (May 1, 2020) adding 14+ pages of new factual and apportionment theories (e.g., reliance on a 2008 BNP Paribas PlexOS license, a prior version “Cichlid,” a 20% apportionment figure, and a proposed 50/50 revenue split) after portions of its expert reports had been excluded by Daubert.
- Cisco moved to strike NetFuel’s second supplemental damages contentions and related interrogatory responses as untimely and prejudicial; NetFuel opposed, arguing no duty to timely supplement and that the additions were proper factual supplementation.
- The court held Rule 26(e) and Patent L.R. 3-8 require timely supplementation when a damages theory shifts materially, found NetFuel’s supplements introduced material, prejudicial changes, struck the second supplement, and declined to award attorneys’ fees.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Does Rule 26(e) require timely supplementation of Patent L.R. 3-8 damages contentions? | No duty to supplement; any amendments are permissible | Rule 26(e) requires prompt supplementation when damages contentions are incomplete or incorrect | Court: Rule 26(e) requires timely supplementation when a damages theory shifts materially |
| What constitutes a “material” change warranting supplementation? | A damages "theory" is the general method (category) and minor factual shifts are allowed | Material change includes new facts that alter the basis of a theory, not just category shifts | Court: Material includes new factual support that changes how a disclosed theory will be proven; mere category disclosure is insufficient |
| Did NetFuel materially change its damages case by adding BNP license, Cichlid background, and apportionment numbers (20% and 50/50)? | These are permissible factual clarifications or derived from previously disclosed expert statements | These are new, substantive theories and facts disclosed after close of fact discovery and expert exclusions | Court: Yes—these were material, undisclosed changes and therefore untimely and struck |
| Are the discovery-sanction remedies (exclusion of supplements; fees) appropriate? | Exclusion is inappropriate; at most harmless; fees unnecessary | Exclusion required to avoid prejudice; fees requested | Court: Exclusion (striking supplements) warranted as not justified or harmless; declined to award attorneys’ fees |
Key Cases Cited
- Looksmart Grp., Inc. v. Microsoft Corp., 386 F. Supp. 3d 1222 (N.D. Cal. 2019) (adopts duty to timely supplement damages contentions when a damages theory materially shifts and explains required specificity)
- Woods v. DeAngelo Marine Exhaust Inc., 692 F.3d 1272 (Fed. Cir. 2012) (discusses purpose of damages contentions to narrow issues and require factual support)
- Yeti by Molly, Ltd. v. Deckers Outdoor Corp., 259 F.3d 1101 (9th Cir. 2001) (affirms exclusionary sanction for failure to make required disclosures under Rule 26)