Apple breathed a momentary sigh of relief after the Federal Circuit vacated damages of about $368 million awarded to VirnetX. VirnetX, Inc. v. Cisco Sys., Inc., No. 2013-1489 (Fed. Cir. Sept. 16, 2014). The court affirmed the validity of the asserted claims and infringement of VirnetX's patents by Apple's VPN On Demand product, reversed infringement of an asserted claim based on the doctrine of equivalents, reversed claim construction of a claim term, and vacated the jury's damages award.
VirnetX is the owner of the asserted patents that are directed to a domain name service (DNS) system that resolves domain names and helps establish secure communication links. VirnetX sued Apple alleging that Apple's VPN On Demand feature in iPhone, iPad and iPod infringe VirentX's patents. At trial, VirnetX's damages expert gave three reasonable royalty theories: (1) 1% royalty rate based on comparable licenses applied to lowest sale price of each accused product yielding $708 million; (2) Nash bargaining theory for FaceTime, modifying the 50/50 split of profits by 10% due to VirnetX's poor bargaining position, yielding $588 million; and (3) Nash bargaining theory for FaceTime, using customer surveys to assert 18% of sales of iOS devices attributable to FaceTime and apportioning 45% of profits to VirnetX thereby yielding $606 million. The jury found the asserted patents valid and awarded $368 million to VirnetX.
In her opinion, Chief Judge Prost reasoned that the jury's damages award cannot stand for the following reasons: (1) the district court's jury instruction regarding the entire market value (EMV) rule was erroneous as it allowed the patentee to rely on EMV of a multi-component product as the smallest saleable unit without apportioning the value attributable to the patented feature; (2) in calculating the royalty base, the expert failed to link the demand for the accused device to the patented feature, and to apportion the value of the patented feature in the accused products; and (3) the invocation of a 50/50 split of incremental profits as a starting point based on the Nash Bargaining Solution is an inappropriate "rule of thumb" that is insufficiently tied to the facts of the case.
Full text of the opinion is available here.
VirnetX is the owner of the asserted patents that are directed to a domain name service (DNS) system that resolves domain names and helps establish secure communication links. VirnetX sued Apple alleging that Apple's VPN On Demand feature in iPhone, iPad and iPod infringe VirentX's patents. At trial, VirnetX's damages expert gave three reasonable royalty theories: (1) 1% royalty rate based on comparable licenses applied to lowest sale price of each accused product yielding $708 million; (2) Nash bargaining theory for FaceTime, modifying the 50/50 split of profits by 10% due to VirnetX's poor bargaining position, yielding $588 million; and (3) Nash bargaining theory for FaceTime, using customer surveys to assert 18% of sales of iOS devices attributable to FaceTime and apportioning 45% of profits to VirnetX thereby yielding $606 million. The jury found the asserted patents valid and awarded $368 million to VirnetX.
In her opinion, Chief Judge Prost reasoned that the jury's damages award cannot stand for the following reasons: (1) the district court's jury instruction regarding the entire market value (EMV) rule was erroneous as it allowed the patentee to rely on EMV of a multi-component product as the smallest saleable unit without apportioning the value attributable to the patented feature; (2) in calculating the royalty base, the expert failed to link the demand for the accused device to the patented feature, and to apportion the value of the patented feature in the accused products; and (3) the invocation of a 50/50 split of incremental profits as a starting point based on the Nash Bargaining Solution is an inappropriate "rule of thumb" that is insufficiently tied to the facts of the case.
Full text of the opinion is available here.
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