The Claim Game

The recent lawsuit that VirnetX has brought against Apple in regards to Apple's infringement of VirnetX's patents through the use of Apple's modified VPN On Demand, FaceTime and iMessage technologies. However, this is not the first suit VirnetX has brought against Apple. In 2012, VirnetX won a $384M suit against Apple in regards to Apple's FaceTime and VPN On Demand service. This award was vacated however, after the case was appealed. In doing so, the U.S. Court of Appeals for the Federal Circuit sent the case for retrial on damages at the district court level.

Though the current VirnetX v. Apple lawsuit has awarded VirnetX $625M, Apple has filed to declare papers to U.S. District judge Robert Schroeder for mistrial. Apple claims that VirnetX's attorneys have "misled" the jury during closing arguments. Schroeder's decision has yet to be revealed. The patents contested in this case include: US 7418504: Agile network protocol for secure communications using secure domain names, US 7490151: Establishment of a secure communication link based on a domain name service (DNS) request, and US 6502135: Agile network protocol for secure communications with assured system availability.

As discussed in my previous post, patent trolls have larger deterrent effects on innovation when they target small companies like start ups. Though there is often a call for urgent patent reform to address trolls, patent system reform has had a limited impact on regulating patent trolls. The most recent sweeping patent reform passed is the Leahy Smith America Invents Act (or the AIA for short). The AIA has introduced various provisions to deter patent trolls. For example, the AIA requires the filing of multiple suits and fulfilling multiple fees when suing multiple companies. Additionally, the AIA has created post-grant proceedings in which defendants have an advantage over patent trolls. However, the AIA was enacted in 2012, yet patent trolls have not been altogether deterred. I hope to learn about other policy proposals that may deter patent trolls through the course of this class.

Patent trolls are arguably one of the greatest loopholes of the patent system. Otherwise referred to as Non Practicing Entities (NPEs), patent trolls have patents and enforce patent rights, but they do not innovate. Instead of acquiring patents to protect innovations, patent trolls acquire patent rights for the sake of having these rights and the prospect of profiting off of them. Upon gathering patent rights, patent trolls enforce these rights by suing various companies on the grounds of infringement. These cases, or even the threat of these cases, provide patent trolls with revenue.

The company VirnetX is an example of a patent troll. With over 80 internet security patents, VirnetX has acquired many patent rights over the years and enforced these rights by the means of targeting many companies with lawsuits. Notably, VirnetX has been involved with lawsuits against Apple, Cisco, and Microsoft. Recently, VirnetX has sued Apple in regards to patents that Apple's FaceTime and iMessage technology have violated. The court ordered that Apple pay a fine of $625 million, more than VirnetX's requested $532 million.

Given the size and power of tech giants like Apple, the detriment that this lawsuit will have on Apple as an innovator is questionable at best. However, patent trolls may also target smaller companies. In such scenarios, small companies may be discouraged from even pursuing a lawsuit due to limited funds. As a result, small companies are likely to settle for what trolls request. That said, it is arguable that patent trolls significantly deter innovation that occurs at the level of start-ups and small companies.

Patent trolls illuminate the imperfection that is the patent system. Though there has been patent reform enacted in recent years, such reform has not necessarily addressed the issue of patent trolls. In my next post, I will delve further into the VirnetX v. Apple case and explore policy suggestions that attempt to remediate the issue of patent trolls.