Palo Alto Networks To Pay Juniper In Firewall Patent Settlement

Palo Alto Networks will make a one-time $175 million payment to Juniper Networks to end a longstanding patent dispute between the two companies.

Both vendors revealed the end to the dispute Wednesday in which Juniper accepted the payment, which consists of $75 million in cash, $70 million in shares of common stock and a warrant to purchase $30 million in common stock.

Under the terms of the settlement agreement, Juniper and Palo Alto agreed to dismiss all patent litigation, license the patents in dispute for the life of the patents and agreed not to sue each other for patent infringement for eight years.

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’Juniper Networks initiated this litigation in order to protect our intellectual property and investment in innovation that is reflected in our leading security products,’ said Mitchell Gaynor, executive vice president and general counsel at, Juniper, in a statement. ’This settlement fully achieves those objectives, and we are very pleased with this resolution.’

Palo Alto Networks president and CEO Mark McLaughlin said the company is pleased to move past the patent dispute.

"While we are confident of our position in the case, we believe this outcome is in the best long-term interest of our shareholders and customers as it allows us to further focus our efforts on what we do best: innovating, growing the business, and solving the toughest cybersecurity problems for our customers,’ McLaughlin said in a statement. The company's shares were trading up nearly 11 percent in after-hours trading following the settlement news to $77 from a market close of $69.51.

Juniper filed a patent infringement lawsuit in 2011, accusing Palo Alto of infringing on security six patents used in its firewall technology. The complaint alleges that Palo Alto co-founders Nir Zuk and Yuming Mao, both former Juniper executives, built Palo Alto with Juniper’s technology at its core.

The lawsuit focused on patents that Juniper received following its $4 billion acquisition of NetScreen Technologies in 2004. Zuk and Mao joined Juniper with that merger, but left about two years later to found Palo Alto in 2005. It alleged that Zuk and Mao personally worked on the six patents and claimed that they actively recruited Juniper employees. Palo Alto countered Juniper with its own intellectual property infringement claims. The dispute finally went to court in January.

NEXT: Patent Settlements Are Generally Good News, Resellers Say

Solution providers tell CRN that patent dispute settlements are usually good news for the technology vendors involved. Potential customers typically question solution providers about the viability of a vendor's product due to ongoing patent litigation, but settlements generally have little impact on sales, said Scott Fuhriman, a network security expert and vice president of sales and product development at Liberty Lake, Wash.-based TierPoint.

"You definitely don't see too many disputes resulting in major changes for any vendor involved," Fuhriman said. "There always seems to be a move to settle patent issues out of court and be done with it."

Mark Miller, principal at M&S Technologies, a Dallas-based Juniper and Palo Alto partner, told CRN he doesn’t expect the settlement to have a major impact on either vendor.

’I think Juniper could probably use the cash to put toward other things and, as far as Palo Alto, I think [the case] was more of an annoying gnat following them around that they just needed to get rid of it,’ Miller said. ’I don’t think it will impact their business any.’

Miller said his Juniper security business has been ’stable’ this year, while his Palo Alto business is seeing ’huge growth.’

’This lawsuit has been out there for a long time and it’s never really had an effect,’ Miller said. ’I’ve never had a customer ask me about it."

News of the settlement came on the same day that Palo Alto reported its third fiscal quarter results in which the networking security vendor beat analyst expectations. Total revenue for the fiscal third quarter grew 49 percent year-over-year to $150.7 million, compared with $101.3 million in the fiscal third quarter of 2013. It beat the $146.2 million Wall Street consensus estimate. The company also posted a loss for the fiscal third quarter of $139.1 million, or $1.86 per share, compared with a loss of $7.3 million, or 10 cents per share, in the fiscal third quarter of 2013.

During a financial call with analysts Wednesday, McLaughlin said the lawsuit had a negligible impact on sales and added that the company has been focused on its product road map, integrating its $200 million acquisition of endpoint security firm Cyvera, and the next edition of its cloud-based Wildfire threat detection and prevention subscription service.

"It doesn't appear that there was any impact from a selling perspective," McLaughlin told financial analysts during the company's earnings call. "Feedback from the field is that this has not been a significant issue from a going-to-market perspective. The numbers wouldn’t' suggest it either."

KRISTIN BENT contributed to this story.

PUBLISHED MAY 28, 2014