VIRNETX INC. V. APPLE INC.

VIRNETX INC. V. APPLE INC.

FACTS OF THE CASE

In 2010, VirnetX had alleged in District court that Apple infringed four of its patents and VirnetX asserted claims of the ’504 and ’211 patent. In October 2011, Apple filed for inter partes re-examination before the US Patent and Trademark Office (PTO), of two of the patents in issue . It challenged the claims of the asserted patents as anticipated or obvious over prior art. The Court’s action proceeded to trial in 2012.

A jury in the district court proceedings found that the asserted claims were infringed and not invalid, before the PTO examiner could reach a decision. VirnetX was awarded $386 million in damages. The district court denied Apple’s motion for judgment as a matter of law or a new trial on these issues.  Apple appealed to the Federal Circuit in December 2014, however, the Court reaffirmed the jury’s finding of no invalidity for all four patents along with infringement for many of the claims which were not related to the instant appeal.

The Federal Circuit reversed the district court’s “secure communication link” claim term, vacated the related infringement finding and the  damages  award. It then remanded for further proceedings. Apple did not file a request for rehearing on the invalidity  or  infringement  issues  affirmed in VirnetX I and did not seek Supreme Court review.

In the PTO  reexamination, all claims of the patents were found to be unpatentable.  A Right of Appeal Notices was issued in May 2014. VirnetX  appealed  to the Board and also petitioned the PTO to terminate Apple re-exams based on the estoppel provision which was ultimately denied in 2015. In February 2016 an East Texas jury unanimously ruled that Apple had willfully violated VirnetX patents and issued an order for Apple to pay $625.6 million to VirnetX for infringing four of the patents.

U.S. District Court for the Eastern District of Texas increased the amount of damages to be paid from $302.4 million in a to nearly $440 million for Apple’s infringement of patents covering secure communications in applications like FaceTime in 2017.

Apple appealed to the Federal Circuit, which affirmed the ruling of the district court. In October the Court denied subsequent motions to vacate the order and stay issuance of the mandate in the case. The formal mandate issued on October 8, making the Rule 36 judgment final, and Apple petitioned the Supreme Court on December 27, 2019.

Meanwhile, in 2010, VirnetX had also sued Cisco, alleging that it infringed VirnetX’s patents. Cisco responded by filing for inter partes re-examination in December 2011 and a right to appeal notices was issued in January 2015, rejecting certain claims as anticipated or obvious. Again VirnetX appealed to the Board which affirmed the examiner. The motion for rehearing by VirnetX was denied, and it appealed.

 

ARGUMENTS ADVANCED

VirnetX

  1. It was advanced that Apple was estopped from maintaining its re-exams, and challenged the merits of the Patent Trial and Appeal Board’s conclusion in the Apple and Cisco re-exams that the patents were invalid.
  1. Concerning the estoppel issue, it advanced the argument that the PTO erred in refusing to terminate the Apple and Cisco re-exams and in concluding that Section 317(b) did not apply.
  2. It also argued that the Federal Circuit’s 2014 decision is to be regarded as a final decision under section 317(b), which estoppels the attempts by Apple to prove invalidity any further.

Apple

  1. Apple stated that the issues vacated and remanded by the Court in VirnetX I may be reviewed on an appeal, and Apple may choose to file for certiorari, for the Supreme Court to look at issues, including those decided in VirnetX I.
  2. Since the Supreme Court has authority to consider questions determined in earlier stages of any litigation where certiorari is sought, Apple argued that the decision on invalidity is final only when there exists no potential for Supreme Court to review it.

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DECISION

The burden of proving the invalidity of the patent claims in suit was on Apple. The Federal Circuit noted that Apple’s invalidity defenses was presented to a jury in a week-long trial in 2012. The jury concluded that Apple failed to sustain its burden of proving the invalidity, and that the district court was presented with enough to support the jury’s finding and enter final judgment. Similarly, the Federal Circuit noted that district court’s judgment was affirmed by this Court in VirnetX I.

The Federal Circuit reiterated its 2017 decision in Fairchild and explained that if a finding of no invalidity has been affirmed on appeal, a remand of other issues will have no effect on validity and the decision is regarded as final once the 90-day deadline for certiorari has expired. The Court also referenced its 2011 decision in Bettcher that estoppel applies when all appeals have terminated. Therefore, section 317(b) applies here even though issues unrelated to invalidity were remanded.

The Federal Circuit further explained that even if Fairchild is not taken into consideration, the statutory text and purpose of section 317(b) itself compelled the rejection of Apple’s theory that the entire case must be resolved in a final judgement in order to set off estoppel. Explaining the plain language of the statute (and its legislative intent) ,it is stated that the statute demands that a party ceases any duplicative invalidity challenges via re-exams in the PTO once a final decision has been reached on a challenge regarding invalidity in a civil action.

The Federal Circuit vacated the Patent Trial and Appeal Board’s decision and remanded the case to terminate the re-exams of Apple with respect to certain claims. Referring to the “raised” or “could have raised” language in section 317(b), the Court noted that since no new prior art was added in Apple’s re-exam requests, Apple did not debate that estoppel extended to the dependent claims.

Judge Reyna dissented in part, disagreeing that applying Fairchild prevented re-examination. In his view, there is no final decision that triggers a bar under Section 317(b). A “single appeal” is preferable to step by step litigation, and the Federal Circuit should defer to Apple’s right to petition for certiorari and not concern itself over the finality of the invalidity issue.

In the final order, the District Court affirmed the verdict of the jury of $502.8 million and granted VirnetX's motions for costs, and ongoing royalty of a rate set at $0.84 per infringing iPhone, iPad and Mac products as well as pre-trial and post-trial interest, supplemental damages etc.

 

 

BY- SHRIJA VERMA