third time's the charm —

Full scale of Apple’s patent loss to VirnetX is now clear: $440 million

Judge: Apple’s decision to sell after losing a 2012 trial was “unreasonably risky.”

Apple's FaceTime has been found to infringe patents belonging to VirnetX, a public patent-holding company.
Enlarge / Apple's FaceTime has been found to infringe patents belonging to VirnetX, a public patent-holding company.

A patent-holding company called VirnetX has won a massive patent case against Apple, for the third time. Today, it became clear just how big the win was.

An order unsealed Friday (PDF) reveals that, not only did a federal judge award VirnetX the full $302 million jury verdict that it won last year, but the judge tacked on $41.3 million in enhanced damages and $96 million in costs, attorneys' fees, and interest. In all, Apple has been ordered to pay a staggering $439.7 million to VirnetX because its VPN on Demand and FaceTime features were found to infringe VirnetX patents.

In a statement today, VirnetX CEO Kendall Larsen said he's "elated" with the court's final judgment.

"This is the third time a jury has ruled in our favor against Apple," said Larsen. "This Final Judgement amount is large because sales of Apple's infringing products are large. The cost of our security technology in infringing devices has been apportioned and is less than a quarter of one percent of the device's cost. We believe this established per device rate for security is very reasonable and will greatly assist us with our domestic and global licensing efforts."

In his order, US District Judge Robert Schroeder increased the jury's $1.20 per unit royalty award by 50 percent, targeted to the time frame in which he said Apple was infringing willfully.

VirnetX has won three separate jury trials against Apple, all in the Eastern District of Texas, a longtime hotspot for patent-holding companies seeking to sue tech companies. The first was in 2012, when a jury awarded $368 million in damages and the judge granted an ongoing royalty of one percent. Both holdings were overturned on appeal, however.

In February 2016, a second trial resulted in a $625 million verdict against Apple. That verdict was thrown out by the judge, who didn't approve of VirnetX lawyers' references to the 2012 trial. A third trial, in September 2016, resulted in a $302 million verdict, which is what the judge added to in his recent judgment.

Risky and Reckless

Schroeder said enhanced damages were warranted because of Apple's repeated attempts to stay the litigation due to reviews at the US Patent Office and how the company sought "to inject evidence of the proceedings into the trial, even after receiving adverse rulings from the Court," Schroeder wrote. He also ruled that Apple's continued infringement after the first verdict in 2012 could not be justified and therefore must be considered willful.

Continuing to sell products with VPN on Demand and FaceTime features was "unreasonably risky or reckless," Schroeder held.

Apple also created conflicts on the eve of trial, by hiring a jury consultant who used to work for VirnetX during the first trial, as well as a former VirnetX appellate counsel. Apple's "failure to ensure that its consultant actually had no conflicts unnecessarily complicated the trial," and the company's decision to do so warrants the payment of attorneys' fees related to the third trial, Schroeder held.

Apple didn't respond to a request for comment from Ars. In court papers, the industry giant makes clear its intention to appeal the judgment.

The finding of infringement by the jury (Docket No. 598) makes Apple’s continued sales after the verdict of products with the VPN on Demand and the FaceTime features unreasonably risky or reckless.

VirnetX is a publicly traded patent-holding company, the kind of business often derided in the tech sector as a "patent troll." The company's website advertises certain services, including a secure mail and messaging system called the Gabriel Collaboration Suite. But VirnetX's SEC filings show that Gabriel doesn't earn any revenue at all. The company, which has 20 full-time and part-time employees and is based in Zephyr Cove, Nevada, makes its revenue from licensing its patents and suing companies it argues infringe those patents.

The company's financial future largely rests on the outcome of lawsuits against Apple. In the company's most recent 10-K filing, it discloses nine ongoing litigations, all involving alleged infringements by Apple.

VirnetX has had some big wins in the past. Its original patent attack on Microsoft ended in a $200 million settlement. Microsoft later paid $23 million to end claims that Skype also infringed VirnetX patents. VirnetX sued Cisco, but Cisco took the case to a jury trial and prevailed.

VirnetX's patents (1234) originated at a company called Science Applications International Corporation, or SAIC.

Channel Ars Technica