VirnetX Whipsaws Amid Renewed Hope in Patent Fight Against Apple

(Bloomberg) -- VirnetX Holding Corp. whipsawed as renewed hope for a big payout from Apple Inc. Thursday collided with the reality that a decade-long patent fight with the tech giant is no closer to a conclusion.

VirnetX shares initially jumped after a U.S. appeals court revived aspects of a patent for secure communications and rejected the iPhone maker’s efforts to toss a related infringement verdict. VirnetX, which typically reports less than $2 million in revenue a year, rose as much as 16% in New York trading and then fell as much as 17% from Wednesday’s close. Shares were down 16% at 11:43 p.m.

Apple can’t challenge some of the claims of the patents because it already lost invalidity arguments in a separate case, the U.S. Court of Appeals for the Federal Circuit in Washington ruled Thursday. The Patent Trial and Appeal Board was correct to invalidate other claims of the patents, the court said in an opinion posted on its electronic docket.

A federal jury had said both patents cover technology used by Apple’s Facetime service. Federal juries have awarded VirnetX almost $1 billion for these and two other patents against Apple related to virtual private networks. In a separate order Thursday, the Federal Circuit rejected Apple’s request to reconsider its January ruling that upheld the infringement verdict.

Long History

The decision Thursday hinges on the many twists the case has taken in the past decade. Apple had lost earlier trials that looked at both validity and infringement; the Federal Circuit upheld the patents but ordered retrials on infringement. Meanwhile, Apple successfully challenged the validity of all aspects of both patents in parallel proceedings at the review board.

VirnetX said that some aspects of the patents -- those found to be valid and infringed in the earlier trials -- had already been ruled on by the Federal Circuit so the issue was dead. Apple argued that, because the case was remanded on other issues, that wasn’t a final decision. In the 2-1 opinion, the Federal Circuit sided with VirnetX, and ordered the board to terminate its decisions.

VirnetX fared less well when it came to arguments on patent claims that weren’t part of the trial or were challenged by Cisco Systems Inc. There, the court upheld the review board. The Cisco challenge involved patent claims that were part of the Facetime verdict.

VirnetX patents cover use of a domain-name service to set up virtual private networks, through which a website owner can interact with customers in a secure way or an employee can work at home and access a company’s electronic files. The technology stemmed from work performed for the U.S. Central Intelligence Agency to develop secure communications, VirnetX has said.

While VirnetX has consistently won at a trial court in Texas, Apple has been the victor at the patent office. The Federal Circuit, which considers appeals from both venues, has had to juggle the competing rulings.

Last month, it ordered the review board to take a second look at the validity of two patents for virtual private networks, and the month before said the board erred in invalidated some aspects of the patent in the Facetime case. VirnetX only has to win on one aspect of any of the patents to ensure it gets at least some money from Apple, and the recent decisions have led investors to triple the company’s stock price this year.

The main decision ruled on Thursday is VirnetX v. Apple, 17-1591, U.S. Court of Appeals for the Federal Circuit (Washington).

To contact the reporter on this story: Susan Decker in Washington at sdecker1@bloomberg.net

To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net, Elizabeth Wasserman

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