U.S. District Judge Beth Labson Freeman, Northern District of California.

The U.S. Court of Appeals for the Federal Circuit on Wednesday upset a $39.5 million award in long-running patent litigation between Finjan Inc. and Blue Coat Systems Inc., causing a San Jose federal judge to throw the brakes on another ongoing trial between the cybersecurity rivals.

The D.C.-based appellate court carved $7.75 million out of a 2015 verdict won by Finjan and ordered that an additional $24 million be apportioned or possibly eliminated altogether. Within hours U.S. District Judge Beth Labson Freeman called a halt to Finjan's latest trial seeking another $46 million in royalties from Symantec subsidiary Blue Coat, which had just begun Monday.

Writing for the panel in Finjan v. Blue Coat Systems, Judge Timothy Dyk said that Finjan had “plucked from thin air” the royalty base for its 6,154,844 patent and ordered Freeman to decide whether Finjan is entitled to a new trial on those damages at all.

In response, Freeman ordered two new trials. In February, she'll decide liability in the current case where Finjan is alleging that new Blue Coat products infringe the '844 patent and another patent that wasn't at issue in the 2015 trial. A second trial will be held in December on damages stemming from both cases.

In a press release, Finjan IP chief Julie Mar-Spinola characterized the December trial as “a clean slate” for proving damages on the '844 patent.

The Federal Circuit ruling overall looks like a win for Blue Coat and appellate counsel Durie Tangri. Partner Mark Lemley argued the appeal, and partner Daralyn Durie had joined Morrison & Foerster and Quinn Emanuel attorneys on Blue Coat's trial team for what is now the third trial between the parties.

There were some positives for Finjan, which is represented by Kramer Levin Naftalis & Frankel. The Federal Circuit rejected Blue Coat's Section 101 challenge to the '844 patent, the most valuable of the four at issue in the 2015 trial. In fact, Dyk credited Finjan with pioneering the technology embodied in the patent: virus scans that are based on software behavior, rather than by simply comparing code against previously identified viruses.

“Significantly, this opinion should end any further challenges to the validity of the '844 patent,” Mar-Spinola said in the press release.

The appellate court also affirmed the jury's finding that Blue Coat infringed two other patents and Finjan's damages rationale for those. That appears to lock in at least $7.6 million in damages for Finjan.

But the court found a fourth patent not infringed, which will cost Finjan $7.75 million. And Dyk's opinion severely criticized Finjan's damages methodology on the '844 patent. Blue Coat's product does more than block malware—it also helps businesses block unwanted content such as pornography or social media. The jury should have apportioned the damages on that basis, Dyk said.

Plus, Finjan's damages expert offered no legitimate explanation for the $8-a-unit royalty base he advanced, Dyk said. That failure “could result in a situation in which Finjan receives no compensation” for the '844 infringement, the judge wrote, with Judges Richard Linn and Todd Hughes concurring. Dyk remanded the case to Freeman ”to determine whether Finjan has waived the right to establish reasonable royalty damages under a new theory and whether to order a new trial on damages.”

Finjan, whose stock was down 5 percent Wednesday, is counting on the latter. “We appreciate [Freeman]'s decision to declare a mistrial this morning,” Mar-Spinola stated in the press release. “We look forward to retrying the liability (infringement) phase of the dispute on February 12, 2018, and having a clean slate for trying damages and willful infringement against Blue Coat on December 10, 2018.”