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Apple Loses Lawsuit: Company Ordered To Pay Damages To VirnetX In Patent Infringement Case

By Cal Jeffrey
Published on: 09:13 PST, Oct 4, 2016

Apple lost a patent-infringement lawsuit last Friday that will cost the company $302 million, and that is just the beginning. A federal jury in Tyler, Texas, ruled that Apple must pay damages to VirnetX, a company that specializes in virtual private networks (VPN), for violating two of its patents.

According to Silicon Valley Business Journal, Apple used proprietary technology owned by VirnetX within its FaceTime video-calling software. Apple insists that the technology is worth no more than $25 million and vowed to take the decision to an appellate court. However, the court case is only the first of two between the smartphone titan and VirnetX.

Both of the Apple lawsuits started in 2010 as a single patent infringement case that has been a long and drawn-out battle between the two companies. At that time, VirnetX filed suit over the unauthorized use of its intellectual property (IP). The IP in question was patented software that is used in Apple’s FaceTime application. The feature is called, “Virtual Private Network on Demand” or “VOD,” and according to TechCrunch, VirnetX says it violates four of its licenses.

After a three-year-long hearing, the court awarded VirnetX $368 million in damages for patent infringement in 2013. Apple reportedly changed the software following the loss, but VirnetX went after the tech Goliath again claiming the changes were not enough.

TechCrunch reported in February of this year that “a U.S. court judged that the iPhone-maker had infringed on patents used in its iMessage and FaceTime services” and awarded $625 million in damages to VirnetX.

Apple filed an appeal, and in August, the appellate court partially overturned the ruling on the case.

According to SVBJ, “The top patent court in the U.S., partly overturned the verdict claiming issues with how the trial judge instructed jurors to calculate damages.”

The ruling overturned the damages but also ordered that two separate patent lawsuits be heard. Apparently, over the course of the years that the battle has been going on, the technology and the four contested patents are being used in different ways than they were previously.

Bloomberg reported that the court deemed the decision unfair to Apple because the case was essentially combining two separate patent lawsuits. In the court’s opinion, the combination of differing issues left the jury confused as to how to award damages. Therefore, it ruled the whole case be retried as two separate lawsuits.

The first of those two retrials concluded on Friday, with a federal jury deciding that Apple owes VirnetX $302 million for infringing two of the four patents. The award was on par with what the company was asking for in the case. Apple had argued that the IP was only worth $25 million, but the plaintiffs pointed to the billions of dollars in profits made with the unlicensed IP in the years that have passed since the lawsuit was first filed.

Although the judgment is currently set at $302 million, SVBJ reports that “Apple will face another court date to determine whether it willfully infringed on the VirnetX patents, which could lead to additional damage awards.”

While the first lawsuit looked at patent violations in Apple’s FaceTime app, the second is concerned with the newer security features in iMessages and the other two contested patents, reports DigitalTrends.

Apple is expected to challenge the decision again. Bloomberg weighed in on Apple’s odds during an appeal.

“The U.S. Patent and Trademark Office conducted parallel reviews of the four patents and on Sept. 9 said none covered new inventions. The agency uses a different standard of review and it’s easier to have a patent found invalid by the patent office than a district court. Still, the ultimate decision will lie with the U.S. Court of Appeals for the Federal Circuit in Washington, which specializes in patent law. The Federal Circuit will use the patent office’s legal standard when reviewing the agency’s decisions, and the district court’s legal standard when ruling on the jury verdict. That means VirnetX needs to win in both instances to ultimately get money from Apple.”

While Bloomberg’s outlook seems optimistic for the tech giant, SVBJ points out that VirnetX makes the majority of its money through the licensing of its patented technology. This business model has a higher occurrence of patent infringement due to its nature. Thus, VirnetX has been involved with and has won several patent infringement lawsuits in the past. The last one was against Microsoft, which was settled in 2014 for $23 million. The company has been involved in so many lawsuits that DigitalTrends and others have labeled it a “patent troll.”

Whether the label is deserved or not, the end to the legal drama cannot be over soon enough for Apple. Even in winning scenarios, defending against patent infringement is costly. Considering that there is another lawsuit to hear and an inevitable appeals process to go through, the Cupertino powerhouse will be shelling out legal fees and tangling with the “troll” for quite some time into the future.

[Featured Image by Peter Macdiarmid/Getty Images]

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