“Corporate Sewer” Apple to Pay $302 Million to “Patent Troll” VirnetX in Patent Infringement Case

October 4, 2016

On Friday September 30, 2016, a jury awarded VirnetX Holding Corporation more than $302 million in a patent infringement case against Apple Inc.
VirnetX is a small internet security and software technology company that relies on patent licensing for revenue. VirnetX owns over 115 patents that “facilitate secure communications” and “create a secure environment for real-time communication applications such as instant messaging, VoIP, smart phones, eReaders and video conferencing.”
The feud involves four VirnetX patents. In its press release, VirnetX states the infringements “related to (1) damages owed to VirnetX for infringement by Apple’s original VPN-on-Demand (VOD) and (2) the alleged infringement by Apple’s original FaceTime product, under the new claim construction of ‘secure communication link’.”
This case has been going on since 2010 and is on its third round of trials. In all three trials, federal juries in the Eastern District of Texas found Apple liable for infringement. In the second trial against Apple, a jury awarded VirnetX over $625 million. However, the verdict was thrown out because the judge determined consolidating the cases confused jurors, who heard over 50 references to the prior jury verdict. The judge ordered that the case be retried in two separate trials, so now there are two cases: “Apple I” and “Apple II.” Apple II is expected to be scheduled once Apple I is finished.
According to writer “IP Hawk” from Seeking Alpha,

Apple is a “corporate sewer” that “can’t find two employees who have corroborating stories related to the case.”

IP Hawk also wrote that in 2013, Apple contracted with a different company to route their FaceTime calls in a non-infringing manner, but costs started to spiral out of control. In response, Apple broke security certificates and forced users to update their software from IOS6 to IOS7, which Apple employees then laughed about in emails, as revealed in court transcripts.

VirnetX, on the other hand, is often described as a “patent troll,”

an unflattering term which refers to VirnetX’s apparent propensity for licensing patents in order to sue anyone that infringes upon them. For example, in 2010 VirnetX won $106 million in a patent infringement suit against Microsoft. After that verdict, Microsoft paid VirnetX $200 million to license the technology. In 2013, VirnetX sued Microsoft again, and won $23 million in a settlement. These are hefty sums for a company made up of about 20 full and part-time employees. The Eastern District of Texas, the venue for all these cases, has a reputation for being friendly toward patent-holders and for being a “rocket-docket”— a place where these cases can be tried relatively quickly.
The case has refreshed conversation about the flaws of the US patent system. “Patent trolls,” whose apparent purpose is simply to hold patents and aggressively pursue litigation for infringement, “subvert the intent of the patent system.” The system is meant to reward inventors by ensuring their hard work will not simply be copied—not reward those who merely acquire the patent, do not use it, and then assert litigation against companies who independently develop technology that the patent covers.
Apple is appealing and the case will move on to the U.S. Court of Appeals for the Federal Circuit in Washington for final judgment, so VirnetX might not actually see this money. The DC circuit will apply the legal standard of the U.S. Patent and Trademark Office when it reviews whether the patents are valid. The agency’s standard is generally tougher one than what a district court would apply. The patent office on September 9, 2016 already conducted parallel reviews of the four patents in question and determined that none covered new inventions.