VirnetX v. Apple: Court Grants Enhanced Ongoing Royalty Based on Disparity Between Position at Trial and Position Post-Judgment on Non-Infringing Alternatives

by Jeffer Mangels Butler & Mitchell LLP
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On August 11, 2010, VirnetX filed suit alleging that Apple and several other defendants infringed several U.S. Patents, which generally describe a method for transparently creating a virtual private network ("VPN") between a client computer and a target computer or disclosing a secure domain name service. The accused products were Apple's VPN On Demand and FaceTime. The jury returned a verdict in favor of VirnetX, finding that the patents were not invalid and that Apple infringed the asserted claims. To compensate VirnetX for Apple's infringement, the jury awarded VirnetX $368,160,000 in damages.

After the jury trial, VirnetX filed a motion for an ongoing royalty against Apple, requesting that the royalty rate be enhanced from .52% to 1.52%. VirnetX argued the royalty rate should be trebled because of changed circumstances in light of the Georgia-Pacific factors and Apple's now willful infringement and because the bargaining positions of the parties would have dramatically shifted in favor of VirnetX. VirnetX also relied on Apple's continuing infringement post-trial, and its inability to easily implement the non-infringing alternatives discussed at trial.

Apple asserted that it is not a willful infringer because it continues to have a reasonable and good faith belief that the patents-in-suit are invalid, as evidenced by its efforts to invalidate the patents-in-suit at the United States Patent and Trademark Office ("PTO"). Apple also argued its efforts at the PTO also demonstrate that the case in was close. Apple also asked the district court to reduce the implied royalty rate, because it has successfully implemented a non-infringing FaceTime feature and it is currently working on a design-around for the VPN On Demand feature.

The district court found Apple's position disingenuous given its position during the trial "At trial, Apple's corporate representative, Mr. Gates, stated that it would cost Apple only $3.6 million to route all its FaceTime calls via relay servers, which VirnetX admits is non-infringing. Apple I, 11/2/12 a.m. Tr. 68:3-17. Mr. Gates further stated that it would be "a very simple change to make to route all the traffic through the relay," noting it would only take about two weeks to implement the changes. Id. at 71:20-21; Id. at 109:19- 110:16. Thus, while the jury already considered some of this evidence, it did not hear the whole story."

The rest of the story came after the trial when VirnetX sought a permanent injunction post-trial as Apple dramatically changed its position on these calculations, which became even more apparent during the hearing on the motion for an ongoing royalty. As a result, the district court found that Apple had misrepresented its ability to implement a non-infringing alternative to the jury. "While Apple has taken steps to mitigate its infringement, Apple grossly misrepresented its ability to implement a non-infringing alternative to the jury. The huge disparity between Apple's position at trial and Apple's position post-judgment also warrants increasing the implied royalty rate."

The district court also found that Apple's ongoing willful infringement should be considered in enhancing the royalty rate awarded by the jury. As a result, the district court awarded an ongoing royalty of 0.98% on adjudicated products and products not colorably different from those adjudicated at trial that incorporate any of the FaceTime or VPN On Demand features found to infringe at trial.

VirnetX Inc. v. Apple Inc., Case No. 6:13-CV-211 (E.D. Tex. March 6, 2014)

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Jeffer Mangels Butler & Mitchell LLP
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