VirnetX Soars After $368.2 Million Verdict Against Apple

Apple Told to Pay $368.2 Million to VirnetX in Patent Trial
Apple's Facetime apps. Source: Apple Inc.

VirnetX Holding Corp. rose the most in more than three years after a federal jury said Apple Inc. should pay $368.2 million for infringing patents for virtual-private-network technology.

VirnetX rose $7.32, or 28 percent, to $33.61, its biggest one-day jump since July 2009. The shares are up 35 percent this year as investors bet the company can garner large patent fees from Apple and Cisco Systems Inc. The company, which reported $36,000 in revenue from royalties in the first half of this year, has a market value of $1.7 billion.

A federal jury in Tyler, Texas, yesterday said Apple’s FaceTime function, used on the iPhone, iPod Touch and iPad as well as Mac computers, infringed four VirnetX patents. VirnetX had won a $200 million settlement from Microsoft Corp. in 2010 over the same technology and has claims pending against Cisco scheduled for trial in March.

“This victory further establishes the importance of our patent portfolio,” VirnetX Chief Executive Officer Kendall Larsen said in a statement.

The VirnetX patents cover the 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 get access to a company’s electronic files. VirnetX had sought $708 million in damages.

Following the verdict, Doug Cawley, a lawyer with McKool Smith in Dallas who represents VirnetX, said the company would seek an order to block further use of its inventions. Kristin Huguet, a spokeswoman for Apple, said yesterday the company had no comment. Apple can ask to have the verdict thrown out and, barring that, have the case reviewed by an appeals court in Washington that specializes in U.S. patent law.

Video Calls

The focus of the trial before U.S. District Judge Leonard Davis was on Apple’s FaceTime, which lets people use Mac computers to make video calls to an iPhone, iPod Touch or iPad. The Cupertino, California-based company said it used a different technology than what was covered by the VirnetX patents.

“Apple does not owe money to VirnetX,” Danny Williams, a lawyer with Williams, Morgan & Amerson in Houston who represents Apple, told the jury. “VirnetX is not entitled to money for things they did not invent. The VirnetX technology, if used, is a small part of very large, complex products.”

The case has received so much attention that Davis ordered the parties on Oct. 19 to tell their investors to stop calling the court. He said in a court filing that his office is receiving more than 10 calls a day.

CIA Work

The technology stemmed from work performed by SAIC Inc. for the U.S. Central Intelligence Agency to develop secure communications, VirnetX has said. VirnetX, based in Zephyr Cove, Nevada, was formed by former employees of SAIC, which was named as a party in the complaint though isn’t participating. According to VirnetX regulatory filings, McLean, Virginia-based SAIC may be entitled to a share of any verdict or settlement.

VirnetX has a separate patent case pending against Apple at the U.S. International Trade Commission in Washington. It also has claims against Cisco, Avaya Inc. and Siemens Enterprise Communications GmbH that are scheduled for trial in March. Siemens Enterprise is a venture by Siemens AG and closely held Gores Group.

The case at trial is VirnetX Inc. v. Cisco Systems Inc., 10cv417, U.S. District Court for the Eastern District of Texas (Tyler).

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