By all targeting Apple Inc. (APPL) with infringement actions at the same time, VirnetX Holding Corp. (VHC), Marathon Patent Group (MARA), Acacia Research Corp. (ACTG) and many other non-practicing entities may be coming up against the law of diminishing returns as they alienate judges and even juries, not to mention Apple Inc.
Apple was sued by 40 NPEs in 2015, which ranked fourth behind Samsung with 71, AT&T with 50 and Hewlett-Packard with 43, according to data from RPX Corp. (RPXC).
Apple has roughly $40 billion in cash and short-term investments, so even if it loses every one of these cases, the impact can’t possibly be too traumatic to its financial situation. Apple also had a big patent win over Samsung, which might help offset financial losses it incurs in these upcoming cases.
Perhaps the biggest danger to Apple is if someone is able to win an injunction in the district court or an exclusion order at the International Trade Commission, which might prevent it from shipping its products. That could have a more serious effect and cause Apple to reconsider possible settlements.
Meanwhile, shares of VirnetX have nearly doubled since the Zephyr Cove, Nevada-based company announced a federal judge’s order in the long waited re-trial with Apple regarding pretrial motions ahead of this week’s trial.
VirnetX previously won a $368 million award against Apple, which Apple succeeded in getting tossed. The ruling by Judge Robert Schroeder III precluded Apple from arguing invalidity and allowed VirnetX to present its damages report.
VirnetX shares currently trade at about $3.85 a share and have traded between $1.95 and $8.09 over the past year.
In his opening statement at the trial on Monday, Jan. 25, Bradley Caldwell, a partner with Caldwell Cassidy and Curry in Dallas, who is the lead counsel for VirnetX, presented a damages estimate of $532 million to $739 million based on 443 million unit sales and a cost of $1.20 and $1.67 per unit.
Caldwell couldn’t be reached for comment.
VirnetX officials declined to comment.
Apple officials also declined to comment.
“The days of really big damages awards and royalty rates are largely past,” said Elvir Causevic, president of Black Stone IP in San Francisco in a phone interview. “It’s getting harder to justify them in the current environment.”
While Causevic declined to comment specifically on cases, he said the courts typically look for comparisons when they set damages awards, such as the amount Apple agreed to pay to Ericsson, which hasn’t been disclosed, earlier this month.
The settlement may have been as much as $500 million based on what Stockholm-based Ericsson has said. When the settlement was announced Ericsson said it expected full year 2015 intellectual property rights revenue of 13 billion to 14 billion Swedish krona ($1.5 billion to $1.6 billion). Last year, the intellectual property rights revenue was 9.9 billion Swedish krona ($1.16 billion).
While investors expect VirnetX to get anywhere from $50 million to $400 million from the case, if it ultimately gets closer to $50 million, the stock is likely fall, investors have said.
Apple has already already filed post trial briefs seeking a judgement as a matter of law in its favor, setting the $234.7 million award to the Wisconsin Alumni Research Foundation (WARF) aside, or ordering a new trial. If that fails, Apple is expected to appeal to the Court of Appeals for the Federal Circuit, which has been skeptical of large damage awards.
Los Angeles-based Marathon’s Dynamic Advances unit has teamed up with Rensselaer Polytechnic Institute in an enforcement action against Apple in which they are seeking $429 million. The trial has now been scheduled for May 2.
On Thursday, Newport Beach, California-based Acacia’s Saint Lawrence Communication — part of its Voice Age marquee portfolio — filed an enforcement action against Apple, just six months after a judge threw out Acacia unit Adaptix’s enforcement action against Apple.
In addition, Apple succeeded in tossing out a $533 million award Smartflash won against Apple and defeated an enforcement action brought by WiLAN Inc. (WILN) that could have been worth up to $248 million to WiLAN.
“There has been a media push to brand patent licensing companies as ‘trolls,’ which probably has had an impact on both judges and juries across the country,” said Mark Gober, a director at 3LP Advisors in Silicon Valley. “Additionally, some jury members use Apple products, and it’s certainly possible that juries are inclined to be friendly towards the American company because of its brand.”
To be sure, Apple has a reputation for fighting cases vigorously both in and out of the courts. Indeed, Gober cited a recent Lex Machina report showing that Apple has filed 252 petitions for inter partes review and covered business method review before the Patent Trial and Appeal Board, which is more than another other company since these proceedings became available through the America Invents Act a few years ago. That’s almost 100 more than the second most prolific filer, Samsung.
“The arguments about the number of cases filed by NPEs against Apple and the amount of damages may be followed closely by the press and Congress, but not in the courts,” said Retired Federal Circuit Chief Judge Paul Michel in an interview.
“District Court judges are subject to the same psychology as every other individual and they read the newspaper, but they’re highly trained to deal with each case on its own merits,” he said. “And they control what goes to the jury, so the jury is insulated from those arguments as well.”
For his part, Judge Michel said the Federal Circuit has done a good job over the last five or six years in making damages law more clear. He cited cases including Uniloc USA v. Microsoft, which eliminated the 25% rule of them for damages, and ResQNet.com v. Lansa, which concerned the proper calculation of reasonable royalty rates, which he said required plaintiffs to show a clear connection between the value of the infringing product and the infringed technology.
The Federal Circuit’s rulings have “protected defendants from wildly inflated awards and protected plaintiffs who have strict proof of the value of the infringed technology from undersized awards.”
“I don’t think the number of cases filed by NPEs against Apple and the amount of damages they are seeking will affect the courts or the juries,” he said. “NPEs, if they have good proof, the awards will be granted and sustained.”
Judge Michel said attorneys making arguments for damages on behalf of NPEs would be wise to not make demands for excessive damages.
“It’s very easy for plaintiffs attorneys to have starry eyes when they allege damages,” he said. But NPEs can’t claim lost profits and must rely on reasonable royalties. And if the patent at issue is standard essential he said there are FRAND limits on damages.
Judge Michel’s views will no doubt cheer the investors and CEOs of VirnetX, Marathon, Acacia and others, though the issue of strict evidence of the value of the infringed patent as compared with the value of the infringing product remains a tricky one.
“There’s a real possibility that Apple will have to pay VirnetX something given that infringement and validity were already confirmed at the appellate court,” said 3LP Advisor’s Gober. “Now it’s primarily down to what the damages number is, which we’ll know once the VirnetX trial concludes in the next week or so.”
Not everyone agrees with Judge Michel and Gober however.
“I would not invest in VirnetX even though its market cap is less than half the damages it is seeking from Apple,” said Lee Cheng, general counsel of Newegg Ltd., the online computer retailer with a reputation for battling NPEs to the mat. “They will soon be like Acacia [Research Corp. (ACTG)]—trading below cash and walking dead zombies being operated for the benefit of largely unaccountable management teams collecting huge and undeserved salaries.”
The WARF case remains somewhat unique from the other NPE cases in that it’s a university and the trial was held on the university’s home court in front of a jury in Wisconsin.
Universities have had some success when going up against big tech companies – another example is Carnegie Mellon vs. Marvell where Carnegie Mellon has won at least $278 million and possibly more than $1 billion depending on additional court proceedings over damages.
“Perhaps RPI’s status as a university will help its chances in the upcoming trial against Apple,” Gober said. “Trial lawyers can create an emotionally appealing story to juries when describing how they believe a rich technology company improperly stole a university’s innovation.”
“Whether or not any of these small entities are able to sustain substantial awards against Apple will have significant implications for patent valuations across the board. “
Gober also noted that the Supreme Court will be examining the standard for willful infringement this year. If the Supreme Court makes the standard more lenient, Apple (and other defendants) will have to more seriously worry about facing enhanced damages.
“This is a hotly contested issue – so important that members of Congress recently filed an amicus brief arguing that the Supreme Court should not make it easier for patent holders to prove willful infringement.”
—To reach the reporter responsible for this story please contact Dan Lonkevich at 707 318-7899 or at firstname.lastname@example.org