Michael Jacobs, Morrison Foerster partner
Michael Jacobs, Morrison Foerster partner (Jason Doiy / The Recorder)

SAN FRANCISCO — Palo Alto Networks Inc. will pay Juniper Networks Inc. about $175 million to establish a cease-fire in the companies’ bicoastal patent war.

Under the terms of a settlement announced Wednesday, the rival network security companies agreed to exchange licenses to the patents at issue and refrain from suing each other over other patents for eight years.

The deal ends three years of fierce patent litigation over firewall technology, including a trial that ended in March with a hung jury. The feud pit former colleagues against each other in federal district courts in Oakland and Delaware and even in Santa Clara County Superior Court.

Santa Clara-based PAN, which was founded by former Juniper employees, saw its stock rise about 10 percent in after-hours trading.

“This allows us to further focus our resources and time on our customers and growing our business,” PAN CEO Mark McLaughlin said in a statement.

Sunnyvale-based Juniper said the deal affirmed the value of its intellectual property.

“Juniper Networks initiated this litigation in order to protect our intellectual property and investment in innovation,” Mitchell Gaynor, Juniper’s executive vice president and general counsel, said in a statement. “This settlement fully achieves those objectives.”

Juniper was represented by Irell & Manella partners Morgan Chu, Jonathan Kagan, Lisa Glasser and David McPhie, who declined to comment. PAN lead lawyer Michael Jacobs of Morrison & Foerster also declined to comment.

As part of the deal, PAN will pay Juniper $75 million in cash. Juniper will also gain $70 million worth of PAN’s common stock and warrants to buy about $30 million more, making Juniper a part owner of its bitter rival.

PAN founder Nir Zuk worked at Juniper for roughly one year after the company acquired his employer, NetScreen Technologies Inc., in 2004. Zuk then left Juniper in early 2005 and started Palo Alto Networks. But his role at Juniper later hobbled his new company’s legal defense.

After suing PAN in Delaware in 2011, Juniper argued that PAN could not challenge the validity of some of the patents because Zuk and others now at PAN were listed as the inventors. Juniper wielded the so-called assignor estoppel doctrine, which holds that a person who once owned a patent cannot argue that it is invalid. U.S. District Judge Susan Robinson in Delaware agreed.

Reluctant to cede the point, PAN took aim at the doctrine in state court last year, arguing that it violates California’s broad noncompete laws. But Santa Clara County Superior Court Judge James Kleinberg rejected that gambit in January, ruling that the case belonged in federal court.

Durie Tangri partner Daralyn Durie, who represented PAN alongside MoFo, predicted that the breadth of the assignor estoppel doctrine will later be considered by higher courts.

“It’s an important question that ultimately the [U.S. Court of Appeals for the Federal Circuit] is going to have to grapple with,” she said. “The courts have already scaled back on licensee estoppel, reflecting a strong public policy interest in getting rid of invalid patents.”

PAN confronted Juniper before a Delaware jury, but a mistrial was declared in March. Robinson held off on scheduling another trial.

The settlement also clears up litigation in the Northern District of California, where PAN’s allegations of patent infringement were met with counterclaims by Juniper. U.S. District Judge Saundra Brown Armstrong granted a stipulation dismissing the case late Wednesday.

Contact the reporter at jlove@alm.com.