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FNJN: Still Awaiting Blue Coat Appeal Ruling, Which May Not Be Simple

By Lisa Thompson


Finjan (NASDAQ:FNJN) reported Q3 results and updated shareholders on current events. More important that the Q3 results was the discussion of the various outcome possibilities of the two trials that have been completed and have not yet been decided. 

The first and most important is the Blue Coat appeal. Since hearing from the court has taken so long, the company has less confidence in getting a simple Rule 36 decision saying the previous decisions stand. In the appeal, Blue Coat is only questioning one of the five patents. It is disputing the “844” patent. The dispute is both the patentability of the patent and the way the dollar amount owed on the patent was calculated. This patent was $24.4 million of the $39.5 million awards. So theoretically, $15.1 million of the award should be paid immediately and Finjan is going to ask for that (plus interest) when it hears from the court. Of the $24.4 million remaining, the court is being asked to either half that amount, or send it back to a lower court to come up with a new calculation. The new calculation could result in any number, even a higher one. So it seems that the results from the appeal could be $15.1 million (plus interest),  $27.3 million (plus interest), $39.5 million (plus interest) or anything else between $15.1 million and over $39.5 million.

In the ESET case in Germany the judge has asked for an independent expert to look at ESET’s source code to determine if the company infringed and it also asked that expert to define “DSP” and “client computer” as they relate to ESET’s products. Finjan has been able to show exactly where in the source code the company infringed. 

Another new revenues source being pursued by the company is a true up of a previous license granted Trustwave, which is now owned by Singapore Telecom. Independent auditors have determined that sales from Trustwave products have exceeded the scope of the original license and the company is in the process of trying to collect those additional fees plus the cost of the audit. 

Q3 2017 Results

Finjan booked no revenue in Q3 2017. Expenses were $5.8 million including the start of a quarterly license fee now being paid to Avira of $325,000 per quarter. This resulted in a reported loss of $4.2 million after a $1.5 million gain on change in fair value of warrant liability or a loss of $0.16 per share. 

Events During Q3 2017

On August 24, 2017, Finjan created a wholly owned subsidiary, Finjan Blue, entered into a Patent Assignment and Support Agreement with IBM. Finjan Blue acquired select IBM patents in the security sector in exchange for $8.5 million cash, with $2.0 million already paid upon execution and $6.5 million to be paid over the next four years. This deal includes 25 patents and 16 pending patents or applications in the cybersecurity field. The company will be filing which specific patents they are shortly. The agreement is for five years and Finjan will reap all the financial benefits of any licensing or litigation while IBM promises to support those efforts with information on those patents as needed. IBM retained the right to use those patents for its own products and services and Finjan may use them for their businesses. While there is some overlap with patents Finjan already owns, it does open up new segments of the security market. None of these patents have been defended in court nor been challenged in the USPTO. 

On September 6, 2017, Finjan released VitalSecurity™ Gen 4.0 Secure Mobile Browser (VitalSecurityVPN). VitalSecurityVPN is the first mobile browser with an integrated VPN for use on Apple and Android platforms. It has had 145,000 downloads in just two months with 75% of them coming from the Android platform. Finjan is working to get its product preinstalled on phones at carriers in both the US and India. 

Also in the quarter, Finjan filed suit against Juniper Networks in the U.S. Northern District of California on September 29, 2016. The complaint (Case No. 5:17-cv-05659) alleges that Juniper's products and services infringe eight patents: 6,154,844; 6,804,780; 7,613,926; 7,647,633; 7,975,305; 8,141,154; 8,225,408; and 8,677,494. Finjan is seeking, among other things, a jury trial, past damages not less than a reasonable royalty, injunctive relief, enhanced damages for willful infringement, and reasonable attorneys' fees and costs. 

2017 Estimates

In addition to results from the Blue Coat appeal, Finjan expects to book another $6 million in previously negotiated license payments in Q4. It has another remaining $2.5 million to book in 2018. Revenues for Q4 should range from $22 million and $51 million depending on the outcome of Blue Coat I. 

For our fourth quarter estimate, we are keeping the original $45 million expected for Blue Coat I plus $6 million for previously negotiated license payments resulting in revenues of $51 million and a fully diluted EPS of $1.14. The year becomes revenues of $78 million and an EPS of $1.45. Results hinge on the Blue Coat outcome and the ability to negotiate new licenses before year-end or collect from Trustwave.


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