A trial has just kicked off in the patent hotspot of East Texas, and it's a big one. VirnetX, a patent-holding company that says it owns wide-ranging rights to Virtual Private Networks (VPNs), is facing off against Apple.
VirnetX says that Apple's VPN technology, as well as its FaceTime video-messaging, both infringe the company's patents. A jury trial began today, and VirnetX seeks $532 million in damages.
“Apple hasn’t played fair," VirnetX lawyer Brad Caldwell told the jury, according to a Bloomberg report on the trial's first day. "They have taken Virnetx’s intellectual property without permission."
“Apple believes in fairness and protecting intellectual property,” countered Apple attorney Greg Arovas. "VirnetX keeps moving the boundary, asking for more and more and more."
The trial, based in Tyler, Texas, is expected to last more than a week. It's a do-over of a 2012 jury trial, in which VirnetX won $368 million in damages, although with a slightly altered playing field. In addition to the $368 million, VirnetX was on the verge of getting an even bigger reward: a running royalty of nearly one percent of iPhone and iPad revenue. However, both the $368 million and the ongoing royalty were overturned on appeal.
The appeals court did uphold the finding that Apple's VPN on Demand service infringed VirnetX patents. Because of that, the current trial will likely focus more on Apple's FaceTime feature—and Apple's lawyers' efforts to limit the damage figure.
VirnetX's patents (1, 2, 3, 4) originated at a company called Science Applications International Corporation, or SAIC. VirnetX has been saying for years it has plans to market various products, including a "secure domain name registry," but today, its money comes from licensing patents. It has 14 employees and leases a small office suite in Zephyr Cove, Nevada, for $5,000 a month, according to its most recent yearly financial statement.
VirnetX has had some big wins in the past and is unafraid to go to trial. Its original patent assault on Microsoft ended with a $200 million settlement. Microsoft later paid up again, making a payment of $23 million to end claims that Skype infringed VirnetX patents. VirnetX also sued Cisco, but Cisco took the case to a jury trial and prevailed.
With changes to case law making it easier to invalidate patents and limit patent damages, the era of the high-stakes patent troll trial may be drawing to a close. VirnetX v. Apple could be one of the last cases in which a "non-practicing entity" has the potential to win a nine-figure payday from a big tech company.
That's not to say patent trolls are dying—they're just moving down-market. 2015 saw a massive number of patent lawsuits, but lots of entities are seeking smaller payoffs to go away.
Apple's trial lawyers are surely working around the clock to stop that from happening. Even if they do lose, though, there's no reason not to appeal the result. In the long term, VirnetX's business model looks like it won't be around to stay. Its stock hovers around $4, down from $20 in 2013. Whether the company's shareholders get to cash one last big check remains to be seen.
Correction: An earlier version of this article incorrectly stated that VirnetX leased its office for $5 per month. The lease payment is $5,000 per month.
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