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VirnetX: After Apple Court Victory, What’s Next?

By Anya Wassenberg
Published on: 04:15 PST, Feb 5, 2016

What’s the next target for VirnetX, the small Nevada company that won a huge $626 million award against Apple on Wednesday?

VirnetX stock rose 47 percent on trading the day after its $626 million win against Apple in a patent infringement trial. The shares of VirnetX Holding Corp. closed Thursday at $7.06 on trading of approximately 17 million shares, up $2.27 from Wednesday’s close. The gain represents the highest share price VirnetX stock has reached since April of last year.

Apple was ordered to pay VirnetX the whopping $626 million litigation bill after it lost a long-running legal dispute over patent infringement, and the award represents one of the largest patent infringement verdicts in Texas history. The patents in question involve technology that operates over private networks, including Apple’s VPN on Demand as well as the iMessage and FaceTime applications. The federal jury’s decision was unanimous, and the infringement issue applies not only to the applications but the devices running them.

The size of the award was justified, according to the jury, which found that the patent infringement was deliberate. That means the jury was convinced that Apple was actually aware of the patents in question and used them anyway. That finding is key, since it allowed District Judge Robert Schroeder to triple the amount of the award.

The legal dispute had seen its share of pre-verdict drama, including a mistrial filing by Apple, which claimed that VirnetX had made improper arguments to the jury. VirnetX had previously won a verdict of $368.2 million against Apple, an award that was reversed by the Federal Circuit court. This recent ruling comes as a result of a retrial that was ordered after the Federal Circuit court upheld the previous ruling’s findings on the VPN on Demand technology.

As Apple plans to appeal both the ruling and the size of the award, industry observers are wondering where the landmark case will lead. Some, like Lexinnova’s intellectual property expert, Rahul Vijh, think that wearables like the Apple watch – one of the tech giant’s fastest-growing business sectors – are next on the list. Lexinnova is a company specializing in intellectual property analytics, litigation, and corporate legal services. Fundamentally, Thursday’s verdict is a sign of things to come, Vijh believes.

“For companies like VirnetX, the win provides a validation of the patent troll business model and also provides them with a crucial data point on how much patents like the ones in this case are worth in litigation.”

VirnetX Inc. and VirnetX Holding Corporation are non-practicing entities (NPE) with somewhat mysterious roots. Based in Nevada and incorporated in 2005, the company’s official profile describes it as a software development company with 14 employees. However, in practice it does not actually produce products or services, but rather the company has developed an impressive track record going after the tech industry’s biggest players for patent infringement and winning. In 2010, the company won a $200 million suit against Microsoft and another $23 million against Microsoft for a Skype related application in 2014.

During the 2010 trial, Microsoft lawyers suggested that VirnetX as a corporation had been created solely for the purpose of filing the lawsuits against it. That’s what has some industry insiders calling it a “patent troll” – or company whose sole purpose is to engage in this type of lawsuit.

In the meantime, VirnetX won’t be seeing any of the money anytime soon. The U.S. Patent and Trademark Office is also examining the case. Their preliminary finding goes the opposite direction than the court ruling in finding two of VirnetX’s patents questionable and invalidating the others.

With both the patent office review and court case in appeal, it is likely that the matter will find itself before the U.S. Court of Appeals for the Federal Circuit in Washington for a final ruling.

Brad Caldwell of Caldwell Cassady, VirnetX’s lawyer, has indicated that the company is considering options, which may include ordering Apple to actually remove the features that use the patented technology or a request for additional damages for ongoing infringement.

Apple is said to be currently modifying the applications in question in an attempt to avoid further patent infringement issues.

[Photo by Paul Sakuma/AP Images]

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