In March, U.S. District Judge for Eastern Texas Leonard Davis awarded patent holding firm VirnetX with an ongoing 0.98% royalty on iPhone and iPad revenues. Apple has been fighting vigorously to avoid that outcome, but its last-ditch efforts have been unsuccessful. On Friday, the U.S. Patent Trial and Appeal Board denied a creative strategy that Apple used to challenge the patents… 

Apple attempted to use a defensive patent aggregator called RPX to file an “inter partes review” against the VirnetX patents, related to FaceTime and VPN On Demand functions, that it was found to be infringing upon. The company is barred from filing an IPR itself, since it already had a chance to present its case to the court. Ultimately, the Appeals Board denied RPX’s petition because it was deemed to be acting as a proxy on behalf of Apple.

The decision puts VirnetX in a much greater position of winning the nearly 1% royalty on revenues for infringing iOS devices in the United States. Based on one estimate, that royalty could amount to over $341 million for the patent holding firm on an annual basis. The infringing iOS devices include the iPhone, iPhone 3G, iPhone 3GS, iPhone 4, iPhone 4S, iPad, iPad 2, iPad 3, and fourth- and fifth-generation iPod touch.

ipad 2 under iphone 4

VirnetX still has to prove its case in front of the Federal Circuit before it is awarded the royalty on infringing devices. You can bet that Apple and its legal team will be doing everything it can to avoid paying up, so this legal battle could be far from over.

Apple has good reason to put up a fight, too.

VirnetX is a non-practicing entity that conducts no other business outside of asserting its patents against other companies. These type of companies are often labeled as “patent trolls,” attempting to cash in big by fighting small and large corporations alike for patent infringement. In 2010, VirnetX collected a $200 million settlement from Microsoft. It has also reached licensing agreements with NEC, Siemens, and Avaya.

While I respect that the patent system puts measures in place to protect intellectual property, it is disappointing that patent trolls are able to assert their idle patents against companies like Apple and Microsoft. What makes it worse is that most patent trolls don’t even have any tangible products or services. That, coupled with patent trolls going after smaller companies, ones that simply cannot afford to pay the expensive legal fees required to defend themselves, is part of the reason why many critics think the patent system is broken.

We’ll be sure to keep you updated as we learn more. Meanwhile, the original report on Ars Technica provides deeper analysis and PDFs of the legal documents.

How do you feel about patent trolls?

  • Domodo

    If VirnetX is a patent troll, Apple is a patent ogre.

    • The reason why I can respect Apple filing lawsuits against Samsung or other companies for patent infringement is because those patents are based on intellectual property that the company actually uses in its products and services.

      Whether or not Samsung or anyone else is actually infringing upon the patents is a different story, and something that I leave the courts to decide. But at least Apple has products and services that can justify its patent assertion where it sees fit or necessary.

      Meanwhile, patent trolls like VirnetX simply have a stockpile of patents and no tangible products or services. From what I have gathered over the years, these shell companies simply use the patents they possess to earn as much money as possible.

      That is sometimes achieved through patent trolls licensing the patents, but more often through patent infringement lawsuits against large corporations like Apple and Microsoft. VirnetX has already proven that it can suck $200 million out of Microsoft, so why stop there?

      This is part of the reason why I can understand where people are coming from when they say the patent system is broken. Intellectual property is important, but this is pushing the limits. When patents are simply sitting unused, outside of the courtroom at least, I think it hurts innovation.

      That is especially true for the smaller companies that patent holding firms go after. There is no way that most independent developers or small companies have deep enough pockets to defend themselves against patent trolls like VirnetX, so they simply cave in to their demands.

      I’m interested in the opinions that others might have on the situation though. Maybe I’m placing too much blame on VirnetX, and overlooking something here that legitimizes their actions for going after companies for patent infringement on an endless basis.

      • @dongiuj

        Doesn’t virnetx have these patents to earn money through licensing?

      • Yeah, that is one half of what they do, and something I mentioned in my comment. Licensing patents and going after patent infringement is fine in my opinion, but I don’t think it’s fair when it involves a company that simply squats on patents like VirnetX.

      • @dongiuj

        So you think that a company shouldn’t run its business through licensing from ideas it thought of?

      • That’s right. I think patents should be for protecting intellectual property that is being used or planned to be used. I don’t think the patent system was designed to be taken advantage of for monetary gains. That is a flawed and wrong business model in my opinion.

      • @dongiuj

        Ok. You said “planned to be used”. Let’s say this company gets all these patents with plans to use a patent/patents in a product but doesn’t actually produce that product. Then what?

      • quitcherbichinn

        Patent trolls like VirnetX don’t invent or create anything. They go around and buy patents and then sue for infringement. They are sleazy and it shouldn’t be legal. It would be different if they were a company like Apple, Samsung, Microsoft or whoever that actually INVENTS something…they created it and they are protecting their interests.

      • 空白

        Exactly. I think it’s total BS. Also, think of what the people working for these companies must be like. All I can envision is a bunch of gambling addicted, cigarette smoking, grease balls. Rubbing their hands together in some sunburnt office building down by the docks.

      • @dongiuj

        Fair enough. But what if some people see it as an investment. Like some people buy stock/shares/gold to profit from it in the future. Some people run their lives like that, buying and selling. In this case the selling is done through licensing.

      • Umut Bilgiç

        But holding shares or buying gold hurts no one. Patent trolling hurts everyone other then the troll.

      • @dongiuj

        That might depend on what company you buy the shares in and on how many shares you own.

      • Adrian C

        I don’t agree with patent trolls, such as VirnetX, as I don’t think it’s morally right to obtain patents for the sole purpose of suing. However, I also don’t agree with the statement that notes having patents, that are not used actively in products/services, is a bad thing. What about R&D companies? Universities and the like? They may not have the means, or even intention, to pursue a product or service, but they sure are helping advance technology.

      • I agree with you. I should have clarified that my comment applies mainly to patent trolls. There are definitely exceptions like R&D companies and universities that are trying to achieve good things through the patent system.

      • quitcherbichinn

        Those aren’t patent trolls. Apples and oranges. I agree with your view on R&D companies, Universities and that type of situation….I don’t see that as patent trolls. VirnetX is skeezy, sleazy, slimy, evil….you get the idea.

      • Renwar Whitterib

        An interesting parallel is between the guy who invented the “blink” in windshield wipers and VirnetX. In both cases the inventors patented IP that represented a large advance in technology. I use “inventors” advisedly. As you are surely aware the individuals in VirnetX invented the patented IP to insure secure communications for the US military while at SIAC and then, with SIAC’s blessing and ongoing participation, left SIAC with these patents. VirnetX adheres to FRAND (Fair, reasonable and non-discriminatory) in seeking to license it’s IP.

        So to return to my parallel… do you feel the inventor of the blink in windshield wipers was wrong to seek payment for his IP? Were the courts wrong in awarding him royalties? Was this inventor also a “patent troll”?

      • mmccullo

        I have a problem with military contractors, and contractors in general that are primarily funded by the government, filing patents for work that was paid for by tax dollars. Such IP should belong to the public.

      • Renwar Whitterib

        You should write to your representative in Congress on that. When the military signs a contract, they could specify that the IP will be for their exclusive use. Of course, if the contract doesn’t specify that, it’s not.

    • Liam Mulcahy

      Yes but at least apple makes products and doesn’t do anything expect sue people and collect money from lawsuits

      • @dongiuj

        But I’m sure they have plenty of patents that haven’t been used and could sue anyone at any time. I’m sure apple would not waste any time doing so.

    • jimmy little

      Think what you will about Apple suing over things like a black rounded rectangle phone. The difference is Apple actually produces a black rounded rectangle phone.

      These patent trolls exist to sue people, not to innovate.

  • 空白

    On a unrelated note: if Adblocker has been blocking some of iDB’s articles. Add http:// www idownloadblog com/ to your ‘manual whitelist’ in Adblocker’s settings panel.

    • Saudor

      and deal with all the ads/flash ads? I’ll pass lol

      • Umut Bilgiç

        You dont understand do you..

  • utsav koju

    finally there is someone to whom apple owe something :D.

  • Robert Clary

    Couldn’t happen to a trollier company.

  • mmccullo

    How do I feel about patent trolls? It is legalized extortion is what I think, especially for small business owners.