VirnetX Urges SCOTUS to End Apple Gamesmanship in Decade-Long Patent Battle

By Eileen McDermott
January 24, 2020

“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.’”

https://depositphotos.com/159708306/stock-photo-legal-battleand-lawsuit.htmlVirnetX 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:

  1. 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).
  2. 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:

Key Victory for VirnetX at Federal Circuit in Long-Running Battle with Apple

March 21, 2019:

Apple is Afraid of Inventors, Not Patent Trolls

February 5, 2019:

Federal Circuit Rule 36 Judgment in VirnetX v. Cisco and Apple: A Look at the Oral Arguments

January 6, 2019:

Federal Circuit Affirms Apple IPR Victory over VirnetX Patent

October 2, 2018:

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

April 12, 2018:

VirnetX Awarded $502.6 Million in Fourth Jury Trial against Apple

November 25, 2017:

Three rounds of IPR petitions invalidates VirnetX patent after Apple gets around statute of limitations

October 21, 2017:

VirnetX wins nearly $440 million verdict against Apple, including willful infringement damages

June 25, 2017:

The PTAB Killing Fields: VirnetX patents worth more than $1 billion in district court lost at PTAB

 

Image Source: Deposit Photos
Image ID: 159708306
Copyright: lightsource 

The Author

Eileen McDermott

Eileen McDermott is the Editor-in-Chief of IPWatchdog.com. Eileen is a veteran IP and legal journalist, and no stranger to the intellectual property world, having held editorial and managerial positions at several publications and industry organizations. She has acted as editorial consultant for the International Trademark Association (INTA), chiefly overseeing the editorial process for the Association’s twice-monthly newsletter, the INTA Bulletin. Eileen has also served as a freelance editor for the World Intellectual Property Organization (WIPO); as senior consulting editor for the Intellectual Property Owners Association (IPO) from 2015 to 2017; as Managing Editor and Editor-in-Chief at INTA from 2013 to 2016; and was Americas Editor for Managing Intellectual Property magazine from 2007 to 2013.

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 12 Comments comments. Join the discussion.

  1. Josh Malone January 24, 2020 9:03 am

    Apple is determined to put a stake in the heart of the comatose patent system. They argue for infinite attacks on a patent spanning a decade. Meanwhile they change the laws and stack the PTAB with their cronies to invalidate the patent. They say they this strategy must be permitted to nullify multiple jury verdicts and judgments of real courts.

  2. Pro Say January 24, 2020 10:49 am

    Go, VirnetX, go.

    I have never, do not now, and will never own an Apple (or Google, Amazon, or Facebook) product.

  3. June Mclean January 24, 2020 10:53 am

    Stop Apple thieves. They need to be stopped enough 10 yrs now, when will it stop. It is not fair what they are doing to VHC.

  4. Pro Say January 24, 2020 11:17 am

    p.s. Cert denied.

  5. anonymous January 24, 2020 2:54 pm

    VirnetX’s brief is worth reading to understand the extent to which Apple has gone to delay and to mislead the Court. From the brief: “The court found that Apple had improperly attempted to delay court proceedings, ‘repeatedly’ seeking to ‘stay the litigation,’ ‘even after receiving adverse rulings from the Court,’ and after the Federal Circuit had upheld the jury’s no-invalidity finding. . . . Finding this case ‘exceptional,’ the court awarded VirnetX attorney’s fees. . . . It again cited Apple’s meritless stay requests, as well as other ‘gamesmanship.’”

    Three trials and two appeals over 10 years. Apple lost both trials. From prior licenses, the jury found $1.20/unit to be a reasonable royalty, while Apple argued $0.01 was proper. Apple was off by a factor of 120. Apple thinks innovation is worth one penny per $1000 phone. That’s the takeaway – Apple does NOT respect innovation unless it is its own. Gamesmanship. Delay. Litigation misconduct. Willful infringement.

    Willful patent infringement is part of Apple’s very business plan. Congress needs to understand the damage these efficient infringers cause not only to specific plaintiffs but to the integrity of the patent system as a whole.

    SCOTUS will be correct to deny cert.

  6. angry dude January 24, 2020 4:01 pm

    In the meantime Trump in Davos is having fun making some bizarre but nice comments about Musk, Edison and “inventor of the wheel”, and not so nice comments about his congressional critters back at home…
    Congressional critters in the meantime are busy 24/7 impeaching Trump…
    Everyday “bipartisan” wash dc politics as usual… fueled by $$$ and free (to both parties) congressional chocolate candies

    In some other not-so-fake news Wall Street Journal publishes articles like “America’s Innovators Need Clear Patent Laws” (like we didn’t know it for the last 14 years – I could write it myself back in 2006 and name all of the bad actors)

    Pox on both of their houses !
    “Inventor of the wheel” is long dead !
    Too little, too late
    To the morgue !

  7. angry dude January 24, 2020 5:32 pm

    Apple is just “too big to fail”.. you know … a darling of Wall Street, a trillion dollar (in mostly fake valuation) “american” corporation every american lemming should have in 401K

    Yet, it WILL fail and fail hard .. when America fails

    There are entities out there much bigger and much more powerful than all of Apple, Google, Amazon, Facebook, Cisco, IBM, Dell, Microsoft etc etc etc combined

    Those entities are called COUNTRIES – big countries like China or Russia with UNLIMITED resources
    It only takes clear political will and US tech domination will be gone in a few short years (it’s already gone in many tech fields like drones, VR/AR, 5G, AI etc etc)

  8. Donald Anderson January 25, 2020 4:59 am

    The skill, talent. Knowledge, and know how behind the the development of the technique used in creating the work product owned by. Vernetx should be upheld by SCOTUS. Apple and it’s lawyers have been allowed for for too long to power their way into continuing to steal another’s rightfully owned property. This has been an absolute travesty of justice.

  9. Steve January 25, 2020 10:08 am

    Thanks for this nice report and various links, too! Well done.

  10. Carrie Hafeman January 27, 2020 1:09 pm

    I agree with Steve. Great article Eileen, and thanks for all the links to the other stories.

  11. Helaine Talish January 27, 2020 7:24 pm

    It’s Goliath vs David…very sad as a long time stock holder to see the injustice in our system..Apple has used vhc patents for years (even tried other systems that didn’t work for owners of apple products …VHC if a win would not put a dent in Apples piggy bank..

  12. Pro Say January 28, 2020 6:52 pm

    “iPhone sales smash expectations”:

    https://www.cnbc.com/2020/01/28/apple-aapl-earnings-q1-2020.html

    You bet they do . . . in material part on the many backs of independent inventors, small companies like VirnetX, and other patent owners.

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