“VirnetX notes that the case ‘has been pending for more than a decade, has been the subject of three trials and two appeals,’ and that ‘in each trial, the jury found against Apple’ in addition to the district court finding that Apple engaged in gamesmanship. ‘The petition presents no issue warranting review and is plagued by fatal defects regardless.’”
VirnetX on Wednesday filed its brief in opposition to Apple’s petition for certiorari to the Supreme Court, which asks the High Court to review the Federal Circuit’s January 2019 decision sustaining a $440 million award for VirnetX.
In October 2019, the Federal Circuit issued a formal mandate in VirnetX, Inc. v. Cisco Systems and Apple, Inc., making its January 15, 2019 Rule 36 judgment against Apple final. The mandate came after the Court’s denial on October 1 of Apple’s motions to stay and vacate the August 1 decisions affirming-in-part, vacating-in-part, and remanding a decision of the Patent Trial and Appeal Board (PTAB), and separately denying Apple’s August 1 request for rehearing and rehearing en banc in its appeal from the U.S. District Court for the Eastern District of Texas ruling awarding VirnetX nearly $440 million.
Apple petitioned the Supreme Court on December 27, asking the Court to review the following questions:
- whether the Federal Circuit’s reliance on prior licenses to ascertain infringement damages, without satisfying apportionment rules, conflicts with this Court’s precedent requiring apportionment “in every case.” Garretson v. Clark, 111 U.S. 120, 121 (1884).
- whether intervening PTO invalidations apply in all pending cases, including appeals that remain pending at the rehearing or certiorari stage.
Arguments to Supreme Court
Apple argues in its petition that the Federal Circuit “committed two fundamental legal errors…. It applied a rule that is fueling grossly excessive damages awards. And it sustained the inflated award even though the PTO has invalidated the underlying patent claims.”
In its January 22 brief, VirnetX notes that the case “has been pending for more than a decade, has been the subject of three trials and two appeals,” and that “in each trial, the jury found against Apple” in addition to the district court finding that Apple engaged in gamesmanship. “The petition presents no issue warranting review and is plagued by fatal defects regardless,” says VirnetX.
The patents at issue in the case are:
- U.S. Patent No. 6502135, titled Agile Network Protocol for Secure Communications with Assured System Availability. It claims a method of transparently creating a VPN between a client computer and a target computer in a way that overcomes security issues in distributed systems which aren’t solved by traditional firewalls.
- U.S. Patent No. 7418504, titled Agile Network Protocol for Secure Communications Using Secure Domain Names. It protects a system for providing a domain name service for establishing a secure communication link, the system configured for storing a plurality of domain names and corresponding network addresses, receiving queries for network addresses and indicating whether the domain name service system supports secure communication links.
- U.S. Patent No. 7490151, titled Establishment of a Secure Communication Link Based on a Domain Name Service (DNS) Request. It claims a data processing device comprising memory storing a module for intercepting DNS requests sent by a client and determining whether those intercepted requests correspond to a secure server.
- U.S. Patent No. 7921211, same title as the ‘504 patent. It protects a system for providing a domain name service configured and arranged to be connected to a communication network in a way that allows message payloads to be encrypted into tunneled agile routing protocol (TARP) packets which can only be unlocked using a session key.
VirnetX notes in its brief that “Apple no longer disputes that it incorporated VirnetX’s technology into its products, infringing VirnetX’s patents.”
Apple: There’s A ‘Gaping Loophole’ at the CAFC
Instead, Apple invokes Garretson v. Clark, 111 U.S. 120, 121 (1884) to argue that the Federal Circuit “flout[ed] more than a century of doctrine from this Court requiring “apportion[ment]” of patent damages “in every case.” In Garretson, the Supreme Court held that “a patentee cannot recover the entire profit from an infringing product as damages unless ‘the entire value of the whole machine * * * is properly and legally attributable to the patented feature.’”
Apple argues that case law at the Federal Circuit over the last five years has resulted in the adoption of a “gaping loophole” allowing for an epidemic of inflated damages awards.
Patentees may now skip apportionment entirely when they prove damages using one of the most common damages methodologies—pointing to prior licenses. This method entails introducing a license (or several licenses) for the same or a different patent in a different end-product and uncritically assuming that the patentee and accused infringer in this case would have negotiated the same rate. Here, for example, the patentee introduced a handful of licenses with third parties for infringement claims asserted against conventional desktop phones, and assumed that the per-unit average rate across these agreements reflects the value of the technology in Apple’s much more complex devices.
Apple contends that this approach makes apportionment “effectively a dead letter” and that only the Supreme Court “can end this innovation busting deviation from settled law.”
Secondly, Apple says that the Federal Circuit sustained the judgment even though it is based on patent claims that the USPTO has invalidated. The Supreme Court has held in cases such as Moffitt v. Garr, 66 U.S. (1 Black) 273, 282-83 (1862) that “when patent claims are invalidated, their invalidation applies in ‘pending suits,’” says Apple. In the present case, the Federal Circuit “denied effect to intervening PTO invalidations, leaving Apple on the hook for hundreds of millions of dollars based on invalid claims.”
VirnetX: Invented Rationales and Nonexistent Rules
But VirnetX argues that Apple is “inventing rationales and supposed legal rules the Federal Circuit never adopted”:
The Federal Circuit, [Apple] argues, exempts prior licenses from apportionment. But the Federal Circuit has never adopted any such exception. Apple simply failed to raise a meaningful apportionment argument, much less show that VPN on Demand and FaceTime use VirnetX’s secure-communications technology differently than previously licensed products. The Court should not grant review to address a non-existent rule.
The fact is, says VirnetX, that “Apple simply failed to show any apportionment defect. Indeed, it repeatedly waived the challenges it now seeks to raise.”
Furthermore, Apple’s assertion that the Federal Circuit ignored intervening legal changes is “frivolous,” says VirnetX.
As the record here establishes, the court simply and properly understood that no development affects the damages judgment below. Apple’s own concessions made that clear. After 10 years of litigation, Apple has no plausible arguments for resisting the judgment. It continues the pattern of “gamesmanship” and delay that resulted in the district court enhancing damages below. The petition should be denied, and this case brought to a close.
Read more about this decade-long battle at the links below:
October 9, 2019:
March 21, 2019:
February 5, 2019:
January 6, 2019:
October 2, 2018:
April 12, 2018:
November 25, 2017:
October 21, 2017:
June 25, 2017:
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