Will VirnetX ever see a dollar?
VirnetX ($VHC) has won another trial against Apple ($APPL) in the federal court in Texas. This time the verdict is approximately $502M. As far as patent verdicts go, that is big and very respectable. Likewise, the stock jumped over 40% in after hours trading.
Unfortunately, for VirnetX, this is a case of déjà vu. We have the feeling that we have been here before. That’s because, we have been here before. In 2012, VirnetX won $368M against Apple. That verdict was partially vacated by the Federal Circuit based upon a flawed damages analysis. (Indeed, the Federal Circuit’s precedential decision in VirnetX v. Apple made new law on patent damages.) In 2016, VirnetX won another trial against Apple to the tune of $625.6M. Again, an enormous verdict by any patent-damages standards. That verdict was also thrown out after the trial court deemed the trial itself was unfair. Later in 2016, VirnetX won another trial against Apple for $302M.
VirnetX is represented by stellar, competent and undoubtedly determined counsel. They have successfully ushered the company through multiple trials that convinced juries to award hundreds of millions of dollars in patent damages. It is easy, as many do, to callously label VirnetX a “patent troll,” and saddle the company with all the stereotypical pejoratives that so often go along with that term. But, convincing multiple juries that the patents are infringed and not invalid, one has to ask – maybe Apple really did steal the ideas in these patents? The company, VirnetX, was founded by former engineers from SAIC (Science Applications International Corp.), which developed technology for many federal agencies, including the Dep’t of Homeland Security.
Either way, none of it may matter. VirnetX just prevailed at trial on patents that have already been invalidated by the Patent Office. Despite the boost to the company’s share price, and the elation of its investors, all four tried patents currently stand invalidated pursuant to petitions for inter partes re-examination and inter partes review. All of those invalidity decisions are currently pending before the Federal Circuit. If those decisions are upheld, and VirnetX exhausts its appeals, then that will in all likelihood eviscerate any obligation by Apple to pay VirnetX its $502M.
What is the lesson here? VirnetX has been litigating with Apple for years, and despite repeated victories, it may all come for naught. The hey-day of stock market activity around PME (patent monetization entities) has undoubtedly subsided. The time when investor buzz around volatile and event-driven stocks such as Vringo ($VRNG), Parkervision ($PRKR), Unwired Planet ($UPIP), Document Security Systems ($DSS), among others, has waned. In many ways, VirnetX has persevered through all of that, and performed exceptionally at jury trials. Portions of the tech community will likely celebrate VirnetX’s defeat at the hands of the Federal Circuit if it affirms the PTO invalidity decisions. But many patent monetization entities were former startups. Even the infamous Vringo was born out of an effort to monetize patents invented by Lycos, one of Google’s original competitors for search. If Big Tech proves again and again that it will litigate these cases to death, and that these cases never go anywhere, then does that prove they can take your ideas without fear of retribution? And then what becomes of the motivation to buy your startup? And then who wins?