There are few corporate entities less scrupulous than so-called patent trolls. They’re companies that don’t manufacture or sell the intellectual property they own, but nonetheless happily extract licensing fees and settlements from companies they identify as guilty of infringing on said property. In this morally dubious category of firms, Nevada-based VirnetX is unquestionably one of the most prolific: It won a $200 million verdict against Microsoft in 2010, and turned its attention to Apple that same year. Now the decision against Apple is out, and the news isn’t at all good for the iPhone maker.
“Cases like this simply reinforce the desperate need for patent reform.”
Jurors in an East Texas federal court awarded VirnetX a massive $625 million over patents related to Apple’s virtual private network (VPN) and FaceTime features. The penalties amounted to almost a $100 million more than VirnetX was seeking.
The fine actually represents a consolidation of two separate settlements. A jury in 2012 ordered Apple to pay $355 million after ruling that the company violated several of VirnetX’s secure VPN network patents, but the decision was overturned on appeal. This week, the court reinstated the original fine and assessed additional damages of $290 million over intellectual property violations in FaceTime.
At issue are several patents, at least one of which which dates back to 1998. They describe “secure communications” over the Internet, vague technology that VirnetX argues Apple improperly imitated in its implementation of VPN, FaceTime, and iMessage encryption. “The jury saw what we have been saying all along: Apple has been infringing on VirnetX’s patented technology for years,” the legal firm that represents VirnetX said in a statement.
Apple, unsurprisingly, disagreed. “We are surprised and disappointed by the outcome and we’re going to appeal,” said a company spokesperson, who added that all of the patents which VirnetX cited in its original case have since been invalidated by the United States Patent Office. “Our employees independently designed this technology over many years,” the company said. “Cases like this simply reinforce the desperate need for patent reform.”
The Cupertino company may have a point. According to research firm United Patents, holding companies like VirnetX filed 66.9 percent of patent lawsuits in the United States in 2015 alone, and the Eastern District of Texas handled a disproportionate number of those cases — 44 percent (and over 400 alone last November). Why the preference for Texas? Consumer advocacy group the Electronic Frontier Foundation maintains that the Eastern District erects arbitrary judicial barriers to defendants in patent trials. While companies as large and profitable as Apple can afford a legal team capable of combating such out-of-state cases, smaller firms often opt to settle with patent abusers.
There’s hope on the horizon — a petition currently before the Federal Circuit aims to reduce the number of cases in the Eastern District’s jurisdiction — but until bogus patent enforcement becomes significantly more challenging or expensive, patent holding firms will no doubt continue to litigate. VirnetX, for one, is actively pursuing cases against Cisco, Siemens, Avaya, and others.