Supreme Court Kills Apple’s Attempt to Dodge $440 Million Judgment for VirnetX

By Eileen McDermott
February 24, 2020

“The jury award we received, and confirmed by Federal judges, is less than a quarter of one percent of the cost of an iPhone. We believe this amount is more than fair considering the importance of Internet security.” – VirnetX statement

https://depositphotos.com/2795800/stock-photo-checkmate.htmlThe Supreme Court today denied certiorari in Apple, Inc. v. VirnetX, Inc. et. al., a development that VirnetX said in a press release spells “triumph” for the Internet security software company, following a decade long battle.

The underlying judgment was delivered in October 2017, when the U.S. District Court for the Eastern District of Texas increased the amount of damages to be paid by Apple from $302.4 million in a prior jury verdict up to nearly $440 million for Apple’s infringement of patents covering secure communications in applications like FaceTime.

Apple appealed to the Federal Circuit, which issued a Rule 36 judgment in January 2019 affirming the district court. In August 2019, the CAFC denied Apple’s requests for rehearing, and in October the Court denied subsequent motions to vacate that order and stay issuance of the mandate in the case. The formal mandate issued on October 8, making the Rule 36 judgment final, and Apple petitioned the Supreme Court on December 27.

High Court Not Moved by “Gaping Loophole” Argument

Apple argued in its petition that the Federal Circuit “flout[ed] more than a century of doctrine from this Court requiring “apportion[ment]” of patent damages “in every case,” invoking Garretson v. Clark, 111 U.S. 120, 121 (1884). 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.’”

The company added 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.

But VirnetX replied that Apple did not dispute that it incorporated VirnetX’s technology into its products, thereby infringing VirnetX’s patents, and said that Apple was “inventing rationales and supposed legal rules the Federal Circuit never adopted”.

There is a separate case pending between Apple and VirnetX in which the Federal Circuit ordered a recalculation of damages earlier this month, making the total outstanding judgment for VirnetX nearly $1 billion.

Apple Must Pay Up

According to VirnetX, Apple signed an agreement on October 16, 2017 “stipulating Apple agrees that…Apple will pay any payments then due under the Judgment within 20 days of completion of any appeal from the Judgment in this matter, as well as any proceedings seeking relief from the Judgment before the Supreme Court of the United States, and any remand proceedings in the event the court of appeals or Supreme Court grants Apple relief from the Judgment, or within 20 days of the expiration of the times for initiating such appellate or Supreme Court proceedings.”

“We trust Apple will honor the decisions rendered by our courts and their esteemed judges and honor an agreement to abide by the court’s decision,” Kendall Larsen, VirnetX CEO and President, said in a statement.

Larsen added:

We are extremely pleased with the Supreme Court’s decision not to hear Apple’s writ of certiorari. It has taken us 10 long years, 4 successful jury trials, 2 successful Appellate Court rulings and a favorable Supreme Court decision to get here.  We believe in the fairness of the American justice system and have respectfully played by its rules no matter how arduous.

We are a small company with valuable security technology. The inventors of that technology have senior level positions at VirnetX. It has always been our objective to create our own products with our proprietary technology. Unfortunately, when other companies are using your technology without permission, you must take action to protect that company asset.

We have always believed that we were in the right with our court actions against Apple. Four juries and countless judges agree. We believe that our technology provides an important security feature in some Apple products, especially the iPhone. The jury award we received, and confirmed by Federal judges, is less than a quarter of one percent of the cost of an iPhone. We believe this amount is more than fair considering the importance of Internet security.

IPWatchdog reached out to Apple’s counsel for comment, but had not received a response as of the time of publication.

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 24 Comments comments. Join the discussion.

  1. Pro Say February 24, 2020 7:30 pm

    As it should be.

    After some 10 years of Apple battling here, there, and everywhere — repeatedly; time for them to cut a long-overdue and well-deserved check.

    Congratulations to all the folks at VirnetX; along with their legal team.

    Job. Well. Done.

  2. Holly Daley February 25, 2020 7:45 am

    I have watched for more than 10 years how Apple works to death to steal from companies who are so much smaller and are entitled to compensation. I can’t imagine the cost to be represented in the courts over the years. Apple is not above the law. I am 77 and there is another company that is fighting Apple for infringement, etc. Voip-Pal has been doing the same against Apple.

  3. Steve Baker February 25, 2020 8:32 am

    For a “small company,” as is VirnetX and as described by their CEO, Kendall Larson, you’re in for a world of hurt if Apple integrates your intellectual property and should you pursue compensation for it. This was truly a David vs Goliath showdown.

    What VirnetX accomplished is simply amazing. Apple tried every litigation tactic, including approximately 50 IPRs (inter partes reviews) to challenge the patents. This can easily exhaust a small companies resources and a patent holder to fold their tent. Even when Apple was time barred from challenging the patents, they solicited others to attack them, as was proven with Apple being the real party in interest behind the mask of RPX.

    Well done VirnetX on your perseverance. Most small companies would have never been able to withstand the full 10-years of Apple’s gamesmanship.

  4. Mindy McMurray February 25, 2020 9:17 am

    Congratulations. Apple now needs to pay up. Shame on them for this. No one should have to go through 10 years of this.

  5. Patent Investor February 25, 2020 9:52 am

    This case is the ultimate example of PTAB abuse of the system. Apple did indeed pay for 38 IPRs with their name on the paper work and there were seven IPRs which Apple paid and abetted RPX in filing (and which the attorney of record was caught in a pretty blatant lie about who knew what and when) and then there were seven IPRs filed by newly created LLCs (THAT doesn’t sounds suspiciously like at Apple at all does it?). THEN after having lost their time bar issue fights they simply filed more petitions and “joined” several of the IPRs of a hedge fund with ties to RPX and to one of those newly created LLCs. Amazingly enough, the entities whose IPRs they were immediately started using Apple’s lead attorney as their counsel and Apple immediately started footing the bill for everything, but yet the CAFC saw NO PREJUDICE in allowing Apple to remain joined.

    This system is a total sham and an embarrassment to our country.

  6. Paul F. Morgan February 25, 2020 11:12 am

    Apple’s long avoidance of finality here does not go unpunished. Post-judgment interest from the judgement has kept on accumulating, and is significant for large judgments like this.

  7. Anon February 25, 2020 12:09 pm

    While the point by Mr. Morgan is most likely true, and perhaps I am reading into the post a little too much based on Mr. Morgan’s other known positions, but the notion here that “Apple will be suitable punished” is more than just a little fallacy and does NOT speak to the overall mechanism of Efficient Infringement.

    Getting ‘caught” (and after TEN years finally being made to pay) ONCE does not even come close to evening the scales for all of the other instances in which the other party cannot stomach it out for so long.

    The bottom line remains: Efficient Infringement may fully be characterized as a Rational Actor move.

    And that is just NOT a good thing.

  8. Carrie February 25, 2020 12:19 pm

    Congratulations VirnetX! Hopefully more and more people will see how Apple operates. They may not be worried about the money. They should be worried about their brand and their reputation.

  9. Patent Investor February 25, 2020 12:28 pm

    Yes Paul, I’m sure if you asked VirnetX’s management they’d MUCH prefer to have Apple’s piddly little extra $10-$15 million dollars instead of the $300 million in the bank which would allow them to engage other institutions and possible license them too. The stock price of potential cash in the bank is MUCH better than that of an ongoing concern with ongoing royalty payments and the price multiple of that income.

    And I’m also sure that same $10-$15 million is quite punitive for Apple! What does that work out to, 1/50,000th of their cash on hand?

  10. angry dude February 25, 2020 1:49 pm

    Don’t celebrate until money is in your bank account (offshore account preferably)

    Crooks are crooks – not to be trusted

    That includes scotus, potus, cafc, pto, district courts etc etc etc

  11. angry dude February 25, 2020 2:09 pm

    Holly Daley @2

    “Apple is not above the law”

    Well, as it is right now, Apple IS above the LAW

    Trump may hate the guts of bezos and apple lgbts and google punks BUT he will never sacrifice Apple or Google or Amazon stocks

    Because that’s what it takes to bring justice – their artificially inflated stocks will fall as they should…

    Pecunia non olet

    Sad

  12. Perkins February 25, 2020 2:15 pm

    Hopefully VirnetX will receive enough money to at least cover its 10+ years of legal fees.

  13. angry dude February 25, 2020 2:23 pm

    @Paul F. Morgan & Anon

    Dudes,

    You are distracting reader’s attention from real pressing issues here

    Interest ??? you gotta be kidding

    It’s like getting interest from the guy who robbed you on the street in bright daylight.. you’ll be very lucky to get back what he stole from you

  14. Anon February 25, 2020 3:42 pm

    angry,

    You really have to stop responding based purely on emotion and lack of reason.

    Had you bothered (at all) to employ even the slightest power of reasoning ability, you would see that I was not aligning with Mr. Morgan and was not — in fact — distracting from any important take-away here.

    In fact, I was ADDING an important one (and even one that you likely agree with).

    It appears that instead of ANY reasoning, the minute you see a post with my moniker, you already have your feelings-based response formulated.

    Of course, responding like that is your choice. You don’t get to choose the fact that such a choice is a poor one and reflects poorly on you, and WILL drag down your credibility when you DO try to present a reasoned viewpoint.

  15. Patent Investor February 25, 2020 5:00 pm

    And this little tidbit hit the IPR docket today in the Mangrove vs VirnetX IPRs against two of the patents in suit, the 135 and the 151. Apple was allowed to join even though there were seriously shady looking dealings between Mangrove and RPX. Gene Quinn, I’d love to hear your thoughts on this docket entry!!

    “The Board is in receipt of one or more communications that may relate to the above listed proceeding(s). These communications have not been properly filed as authorized papers in this proceeding and, as such, will not be considered. The Board is making these communications available under seal to the parties. See Exs. 3001–02. The parties may contact the Board at Trials@uspto.gov, should they wish to discuss the matter further.”

  16. Mr.259 February 25, 2020 5:26 pm

    As an individual inventor, that has been in various licensing/litigations, following the VirnetX decision has been, well, an example of how much money will be spent rather that pay a license fee. Angry should stay angry. That is 1 outcome out of hundreds (being modest) of inventors and inventor companies that just don’t have the staying power.

    They have the invention, have the priority date, no prior art problems, but defending your patent over ten years is an insurmountable task. Why should or would Apple pay any license, go to court and exhaust all motion practice. Throw it all against the wall, see what sticks. In recent history, since at least Bilski vs Kappos, something will. There is no-zero-incentive to settle.

    Angry says that Apple is above the law, that’s wrong. The major tech companies, data base management and hardware companies are the law in the world of software and applications. Just ask Chen.

  17. Anon February 25, 2020 7:30 pm

    These communications have not been properly filed as authorized papers in this proceeding and, as such, will not be considered. The Board is making these communications available under seal to the parties. See Exs. 3001–02

    I would be interested in any views that such a ‘court’ action of providing something under seal — at the same time effectively saying the items are NOT pertinent — is something that would not stand up to a Freedom of Information Act request.

  18. Patent Investor February 26, 2020 9:51 am

    Anon, looks like multiple posters on the Investor Village board have already submitted FOIA requests as of this morning. Timeliness is never a big governmental concern when it comes to providing answers to these requests, so it will be interesting to see how long they take to get responses.

  19. Ternary February 26, 2020 12:35 pm

    Congrats VirnetX. Great job in persistence, legal work and a great patent portfolio.

    Not to rain on your parade, but your win may be a cause of further increased focus on “functional claiming” by the anti-patent crowd. Your win (though not as dramatic as NTP v, Research in Motion, as it doesn’t threaten to shut down Apple) is a tough reminder to infringers of the potential power and value of patents. The fun part, for outsiders, is to see how most of Apple’s attacks have utterly failed. Which is good, I find. However, it may provide further motivation to undermine patentability of computer-implemented inventions.

    Taking a closer look at the claims in the original patents, I find that a proposed narrow interpretation of “function” may potentially invalidate the claims as now being asserted.

    Pending proposals in Congress to “compromise” with improved 101 language have a definite anti-patent purpose and would put your portfolio right inside a potential target audience.

  20. Anon February 26, 2020 2:00 pm

    Thanks PI,

    I know that Gene has had some dealings with that lack of timely reply ‘feature’…

    Ternary,

    Thank you as well – the entire view of “compromise” MUST be fought when those seeking such are but seeking the opposite of the initial effort to FIX the Gordian Knot mess created by the Supreme Court (and amplified by the lower courts and to a certain degree, the Patent Office).

  21. angry dude February 26, 2020 4:41 pm

    @ Anon & Ternary

    Dudes,

    What you write about (in the manner most american english-speaking lemmings can’t even comprehend) DOES NOT matter anymore

    It’s a cancer at very late stage – the patient (US Patent System ) is comatose and is about to die… hopefully with patent attorney “profession” in the USA

  22. Anon February 26, 2020 5:20 pm

    angry dude,

    If you really believed what you stated, then the expenditure of your own energies in trying to further the single drumbeat (an Efficient Infringer drumbeat at that) is drawn into question.

    Why are you SO intent not to have ANY discussions of law by anyone?

    You literally want to stop ALL reason in your quest of your own emotions.

    How do you not get what a t001 this makes you out to be?

  23. angry dude March 1, 2020 6:37 pm

    Anon @22

    Dude,

    There is no patent law in the US right now – and you know it well

    Nothing to discuss. Period.

  24. Anon March 1, 2020 7:56 pm

    For someone that crows “nothing to discuss,” you expend an enormous amount of energy on a LAW BLOG.

    Why is that? Why expend so much energy that does nothing but furthers what the Efficient Infringers want?

    Maybe — just maybe — apply a little reasoning.

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