Apple to pay VirnetX $93.4 million in costs and interest for patent infringement

By Steve Brachmann
October 2, 2018

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On Monday, September 25th, Zephyr Cove, NV-based patent owner VirnetX Holding Corporation filed a Form 8-K with the U.S. Securities and Exchange Commission (SEC) regarding an agreement between that firm and Cupertino, CA-based consumer electronics giant Apple on costs and prejudgment interest related to the ongoing patent infringement proceedings between the two companies. A press release attached to the Form 8-K indicates that Apple has agreed to pay VirnetX $93.4 million in costs and prejudgment interest, which in addition to the $502.6 million patent infringement verdict awarded to VirnetX in district court brings the total VirnetX monetary award to $595.9 million.

The original $502.6 million was awarded by a jury this April in the Eastern District of Texas occurred after a fourth jury trial stemming from VirnetX’s allegations that Apple had infringed upon a series of four patents related to creating virtual private network (VPN) connections between a client and a server involving the sending of a domain name service (DNS) request. Previous jury trials had resulted in damages awards for VirnetX ranging from $302.4 million up to $625.6 million. The jury verdict issued in April following this fourth trial installment found that Apple’s VPN on Demand and the redesigned FaceTime features infringed upon the patents-in-suit leading to the $502.6 million verdict.

VirnetX had sought for the court to enhance the damages award in this case but that was denied by a memorandum opinion and order entered by U.S. District Judge Robert Schroeder on August 30th. VirnetX had moved for the court to enhance damages by 100 percent pursuant to the jury’s finding that Apple’s infringement of the patents-in-suit was willful. In considering the non-exclusive factors for enhancing damages based on the egregious behavior of defendants which stem from the Federal Circuit’s 1992 decision in Read Corp. v. Portec Inc., Judge Schroeder found that the evidence “clearly supports a finding that Apple attempted to conceal its infringement, and this factor weighs in favor of enhancement.” Still, Judge Schroeder ended up deciding that enhancement of damages was inappropriate in this case as the misconduct was brief and the remediation effort was significant. Further, while the jury’s damages award was supported by the evidence in the case, Judge Schroeder was not persuaded that enhancement of the verdict would lead to the deterrence of future infringing conduct.

Following the jury trial, VirnetX had also moved for an injunction or, in the alternative, a sunset royalty in the form of an ongoing royalty on the sale of infringing units. VirnetX argued that an injunction was irreparably harmed by Apple’s infringement which has prevented VirnetX from capitalizing upon its competing Gabriel security platform. However, Judge Schroeder found that Gabriel didn’t compete with either the FaceTime or VPN on Demand features because, unlike those two, is a cross-platform application compatible with Apple, Android, Windows and Linux devices. Thus, Gabriel faced no competition from Apple in 50 percent of the U.S. smartphone market and 80 percent of the U.S. computer operating system market. VirnetX’s licensing agreement with Skype, which has been downloaded more than 1 billion times on the Android platform as compared to the nearly 1,000 Android downloads of Gabriel, further damaged VirnetX’s argument for injunction based on irreparable harm. VirnetX’s request to enhance the ongoing royalty rate from $1.20 per unit up to $3.00 per unit was also denied based upon many of the same reasons cited by the court for not enhancing the damages award for willfulness.

Anyone who has followed this case between VirnetX and Apple will be well aware of the impact patent validity proceedings before the Patent Trial and Appeal Board (PTAB) have played on the case. Previous damages awards to VirnetX totalling $1.1 billion have been wiped out thanks to the PTAB’s invalidation of VirnetX patents, including patents which have been upheld as valid and infringed at the Federal Circuit. This includes at least one patent successfully invalidated by Apple even though Apple filed its petition for a validity challenge at the PTAB after the statute of limitations to do so had run out.

While the recent agreement between VirnetX and Apple on costs and prejudgment interest may have increased VirnetX’s award by tens of millions of dollars, there’s still no sense that VirnetX’s rights as a patent owner have been truly upheld by the U.S. patent system. 

 

Image Source: Deposit Photos.

The Author

Steve Brachmann

Steve Brachmann is a writer located in Buffalo, New York. He has worked professionally as a freelancer for more than a decade. He has become a regular contributor to IPWatchdog.com, writing about technology, innovation and is the primary author of the Companies We Follow series. His work has been published by The Buffalo News, The Hamburg Sun, USAToday.com, Chron.com, Motley Fool and OpenLettersMonthly.com. Steve also provides website copy and documents for various business clients.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 5 Comments comments. Join the discussion.

  1. valuationguy October 2, 2018 8:20 am

    “Further, while the jury’s damages award was supported by the evidence in the case, Judge Schroeder was not persuaded that enhancement of the verdict would lead to the deterrence of future infringing conduct.”

    This is the state of the federal judiciary thinking these days given the AIA and the SCOTUS and CAFC mangling of patent law……higher monetary penalties are inadequate to DETER future infringing conduct per the judge’s personal view….so he won’t enter an injunction or enhance damages (despite ZERO Read factors in Apple’s favor and over half in VHC’s favor!!!) ….the only two legal recourse nominally available (I say nominally since the judiciary still gives lip service that injunctions are available to patent owners) to any patent owner given today’s MANDATORY LICENSING SCHEME.

  2. Josh Malone October 2, 2018 9:30 am

    Steve, this headline is misleading. It sent me scrambling to read the dockets and stock reports. Apple has not “agreed to pay”. They appear to have agreed to the amount they hypothetically would have to pay in the event the jury verdict had to be obeyed. But that is not how it works. Jury verdicts are not enforceable in U.S. patent cases. Shocking, but true.

  3. Bemused October 2, 2018 11:57 am

    Sadly, I have concur with Josh’s comment @2. Unfortunately, Apple will never pay these costs and interests nor will they ever pay damages for infringing these patents.

    Let me repeat something Steve said in his article: FOUR JURY TRIALS. Think about that for a minute. Four different times this patent holder has gone through a week-long patent trial and four different juries have concluded that these patents are valid, infringed and that the patent holder is owed hundreds of millions of dollars in damages.

    And to pour more salt in the wound, this dispute started waaaaay back in 2010 (August 11, 2010) when Virnetx filed its complaint against Apple. And by the time this most recent verdict goes up and comes back from the CAFC (as it surely will given the size of the damages award), it will be sometime in 2020 (and that’s assuming the PTAB doesn’t finish the job off first of killing the asserted patents).

    In other words, four trials, four CAFC appeals, ten years in litigation, millions of dollars in expenses incurred, hundreds of thousands of hours of attorney time and…nothing. Any wonder why efficient infringement is the go-to business model for Big Tech?

    Shame (and my complete and utter contempt) for the CAFC, SCOTUS and Congress.

  4. David H October 2, 2018 3:18 pm

    “Anyone who has followed this case between VirnetX and Apple will be well aware of the impact patent validity proceedings before the Patent Trial and Appeal Board (PTAB) have played on the case. Previous damages awards to VirnetX totalling $1.1 billion have been wiped out thanks to the PTAB’s invalidation of VirnetX patents, including patents which have been upheld as valid and infringed at the Federal Circuit. This includes at least one patent successfully invalidated by Apple even though Apple filed its petition for a validity challenge at the PTAB after the statute of limitations to do so had run out. ”

    The PTAB challenges on the patents in suit are currently up on appeal and being briefed. A hearing should be scheduled in early 2019. Nothing has been wiped out yet. An appeal on the “3rd” trial is also being briefed.

  5. EG October 3, 2018 7:43 am

    To all:

    Until Congress, by new legislation, makes clear that the rule (before eBay) that a permanent injunction will be granted when there’s patent infringement “unless [there’s a really, really good reason(s) to hold otherwise],” this pattern of “efficient infringement” by the multinational (so-called tech) Goliaths will continue unabated. That’s (unfortunately) the “simple truth.”

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