Court Order Awarding VirnetX .98% On-going Royalty on Accused Apple Products Publicly Issued
"We are very pleased with the court's order awarding us an on-going royalty of .98%," said
The redacted order is available at the end of this release.
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Statements in this press release that are not statements of historical or current fact, including statements regarding the strength of
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF TEXAS
CASE NO. 6:13-CV-211
Before the Court is
No. 10). For the reasons stated below, the Court GRANTS IN PART and DENIES IN PART
of 0.98% on adjudicated products and products not colorably different from those adjudicated at
trial that incorporate any of the
infringed U.S. Patent Nos. 6,502,135 ("the '135 Patent"), 7,418,504 ("the '504 Patent),
7,490,151 ("the '151 Patent), and 7,921,211 ("the '211 Patent) (collectively, "the patents-insuit").
I"). The '135 and '151 Patents generally describe a method for transparently creating a virtual
private network ("VPN") between a client computer and a target computer, while the '504 and
'211 Patents disclose a secure domain name service.
Both features establish secure communications, with
communication link for users when video-chatting.
creates a VPN when a user requests access to a secure website or server.
A jury trial regarding the instant suit commenced on
claims 1, 2, 5, 16, 21, and 27 of the '504 Patent; and claims 36, 37, 47 and 51 of the '211 Patent.
and that the asserted claims were invalid. Following a five-day trial, the jury returned a verdict that the
'135, '151, '211, and '504 Patents were not invalid, and that
injunction, or in the alternative, that the Court set an ongoing royalty rate.
Apple I, Docket No. 621. The Court denied
however, the Court gave the parties an opportunity to negotiate a license before setting an
ongoing royalty rate. See Apple I, Docket No. 732 at 42. Unable to reach an agreement with
royalty rate of .52% found by the jury to 1.52%. Docket No. 10 at 1.1
"Under some circumstances, awarding an ongoing royalty for patent infringement in lieu
of an injunction may be appropriate."
(Fed. Cir. 2007). When determining the amount of an ongoing royalty, the Court must consider
the change in the legal relationship between the parties to avoid incentivizing defendants "to
fight each patent infringement case to the bitter end because without consideration of the
changed legal status, there is essentially no downside to losing." Id. at 628. Accordingly,
"[t]here is a fundamental difference . . . between a reasonable royalty for pre-verdict
infringement and damages for post-verdict infringement." Amado v.
1353, 1361–62 (Fed. Cir. 2008). Therefore, an ongoing post-verdict royalty may appropriately
be higher than the jury's pre-verdict reasonable royalty.
Ongoing Royalty Rate
circumstances in light of the
Docket No. 10 at 2, 9.2
2 The most common approach to determine a reasonable royalty is using the
licensor and licensee, such as, whether they are competitors in the same territory in the same line of business; or whether they are inventor and promoter; (6) [t]he effect of selling the patented specialty in promoting sales of other products of the licensee; the existing value of the invention to the licensor as a generator of sales of his nonpatented items; and the extent of such derivative or convoyed sales; (7) [t]he duration of the patent and the term of the license; (8) [t]he established profitability of the product made under the patent; its commercial success; and its current popularity; (9) [t]he utility and advantages of the [patented invention] over the old modes or devices, if many, that had been used for working out similar results; (10) [t]he nature of the patented invention; the character of the commercial embodiment of it as owned and produced by the licensor; and the benefits to those who have used the invention"; (11) the extent of the licensee's use of the patented invention "and any evidence probative of the value of that use; (12) [t]he portion of the profit or of the selling price that may be customary in the particular business or in comparable businesses to allow for the use of the invention or analogous inventions; (13) [t]he portion of the realizable profit that should be credited to the invention as distinguished from non-patented elements, the manufacturing process, business risks, or significant features or improvements added by the infringer; (14) [t]he opinion testimony of qualified experts; and (15) [t]he amount that a licensor (such as the patentee) and a licensee (such as the infringer) would have agreed upon (at the time the infringement began) if both had been reasonably and voluntarily trying to reach an agreement; that is, the amount which a prudent licensee -- who desired, as a Case
bargaining positions of the parties would have dramatically shifted in favor of
alternatives discussed at trial, also favor increasing the implied royalty rate. Id. at 6–8. Additionally,
licenses were negotiated when the validity and infringement of
the patents were disputed, therefore the royalty rates were slightly discounted to account for the
uncertainty. Since validity and infringement are no longer an issue following the Court's
judgment in this case,
would have been negotiated between the parties. Id. at 4-5.
suit have a shorter term now, but argues this only slightly favors decreasing the royalty rate.
Id. at 5.
argues that six of the nine Read factors support increasing the implied royalty rate. Specifically,
patents are valid;
implied royalty rate.
business proposition, to obtain a license to manufacture and sell a particular article embodying the
patented invention -- would have been willing to pay as a royalty and yet be able to make a reasonable profit and which amount would have been acceptable by a prudent patentee who was willing to grant a license."
is insufficient itself to modify the implied royalty rate. Docket No. 18 at 7.
already considered related licenses, and
from those presented at trial. Id. at 8–9.
change the parties' respective bargaining positions because the prior hypothetical negotiation
already assumed the patents were valid, infringed, and enforceable. Id. at 9.
asserts 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"). Id. at 11-12.
the PTO also demonstrate that the case in this Court was close. Id. at 12. Accordingly,
urges the Court to reduce the implied royalty rate, because it has successfully implemented a
Demand feature. Id. at 3–5, 13.
Both parties agree the Court should first consider the jury's implied royalty rate.
based on changed circumstances between the original hypothetical negotiation in 2009 and the
hypothetical negotiation that would occur post-judgment in 2013. Because the Court is using the
implied royalty rate as a starting point for determining the ongoing royalty rate, "the Court
focuses on any new evidence that was not before the jury." Mondis Tech., Ltd. v. Chimei Innolux
Corp., 822 F. Supp. 2d 639, 647 (
suit with other companies. While
license not considered by the jury,
weighed differently at a negotiation post-judgment. Docket No. 10 at 4–6. Additionally,
Case 6:13-cv-00211-LED Document 53 Filed
continued success in licensing its patents and companies' willingness to license its patented
technology. Id. While the jury has considered most of these licenses,
up to 2009 were not nearly as successful as its efforts up to 2013. See Mondis, 822 F. Supp. 2d
at 648 (finding an improvement in licensing success warranted "an increase [in the royalty rate]
from the jury's determination"). Accordingly,
increasing the implied royalty rate.
The only other major circumstance that has changed—aside from willfulness which the
Court will address next—is
should be decreased to account for
However, the cost of implementing a non-infringing alternative instead of licensing the patentsin-
suit was presented to the jury. At trial,
that it would cost
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
When VirnetX sought a permanent injunction post-trial,
course, estimating it would cost at least
Apple I, Docket No. 653, Ex. 2 at 2; id. Ex. 3 at 3; see Apple I, Docket No. 732 at 41.
argued it required
Apple I, Docket No. 653 at 3, 5.
miscalculations were even more apparent at the
and it had yet to implement a non-infringing VPN On Demand feature.
48:25–49:4; id. at 49:12–22 ("And again,
this fall."). While
misrepresented its ability to implement a non-infringing alternative to the jury. The huge
increasing the implied royalty rate.
In light of the changed circumstances, the reasonable royalty rate should be increased by
25% to 0.65%. However,
2012). As an initial matter,
infringer. Docket No. 18 at 5. However, "[f]ollowing a jury verdict and entry of judgment of
infringement and no invalidity, a defendant's continued infringement will be willful absent very
how much the implied royalty rate should be enhanced to account for
The Read factors provide guidance in determining whether and how much damages
should be enhanced in light of
whether the infringer deliberately copied the ideas or design of another; (2) whether the
infringer, when he knew of the other's patent protection, investigated the scope of the patent and
formed a good-faith belief that it was invalid or that it was not infringed; (3) the infringer's
behavior as a party to the litigation; (4) the infringer's size and financial condition; (5) the
closeness of the case; (6) the duration of the infringer's misconduct; (7) any remedial action
taken by the infringer; (8) the infringer's motivation for harm; and (9) whether the infringer
attempted to conceal its misconduct.
Both parties agree factor one, eight, and nine are neutral. Docket No. 10 at 9, 11; Docket
No. 18 at 11. Factors three and six are also neutral as there was no evidence
any litigation misconduct and it is unclear how long
See Apple I, Docket No. 732 at 44 (declining to award attorney's fees because
appear to act in bad faith). The remaining four factors support enhancing the implied royalty
favor enhancement. While
belief that the patents-in-suit are invalid and that it does not infringe, the jury's verdict and this
Court's judgment do not support
Defendant could no longer assert a good faith belief of non-infringement or invalidity after the
jury's verdict); see also
that its continued infringement post-judgment was not willful because the asserted claims of the
patents-in-suit were rejected in a pending reexamination). Finally, factor seven also slightly
Case 6:13-cv-00211-LED Document 53 Filed
favors enhancement. While
royalty rate, the ongoing royalty rate is increased 50% to 0.98%.
iOS 3.0 or later and Apple Mac computers running
unadjudicated products, that incorporate
argues that the accused
products, therefore the Court should apply the ongoing royalty to all of
incorporate the infringing functionalities.
the features. See Docket Nos. 18, 23. Accordingly, the Court sees no reason not to include
unadjudicated products that incorporate any of the
to infringe at trial in the ongoing royalty base. Cf.
6:09-cv-203, 2013 U.S. Dist. LEXIS 37275, at *15–16 (
unadjudicated models in the ongoing royalty base where it was unclear whether the models were
colorably different from the adjudicated models, and the potential number of products was
unknown and could have increased after more discovery). However, to ensure the ongoing
royalty is not overly broad, the royalty shall only apply to adjudicated products and products not
colorably different from those adjudicated at trial, including but not limited to the iPhone 5, iPod
Touch 5th Generation, iPad 4th Generation, and the iPad Mini.
Accordingly, for the foregoing reasons,
Rate is GRANTED IN PART and DENIED IN PART.
Case 6:13-cv-00211-LED Document 53 Filed
royalty of 0.98% on adjudicated products and products not colorably different from those
adjudicated at trial that incorporate any of the
infringe at trial. The Clerk is directed to close Cause No. 6:13-cv-211.
So ORDERED and SIGNED this 25th day of February, 2014.
UNITED STATES DISTRICT JUDGE