Last week, a federal court jury handed down a $302 million damage award against Apple for infringing VirnetX’s secure “Jason Bourne” communications technology with its Facetime and VPN on Demand services. What’s more, Judge Robert Schroeder will soon hold a hearing to determine if Apple willfully infringed VirnetX’s technology, and if he rules that Apple did so, he could enhance the $302 million damage award.
This was the third federal trial in six years to find Apple guilty of infringing VirnetX’s patents. A fourth trial will be held soon to determine if Apple’s iMessage service also infringed VirnetX’s patents. But already, by setting a base royalty price of $1.20 per each infringing device that Apple sold, the ruling is likely to bolster VirnetX’s licensing efforts and speed consumer adoption of its innovative encrypted communications technology.
That’s because communications and messaging companies finally know the price per phone of VirnetX’s advanced technology, which is device and operating system agnostic. Among those likely to be interested are smartphone device makers and carriers that do not have secure encrypted communications capabilities — as well as popular messaging services that also do not yet offer end-to-end encryption for their customers.
An added incentive for potential licensees is the threat that Apple or another firm may try to buy VirnetX in order to lock up its “Jason Bourne” communications technology.
Why do I call it “Jason Bourne” tech? Four months ago, I told the story of tiny VirnetX, a spin-off from the $4 billion defense contractor SAIC, which was asked by the CIA to develop technology that would enable agents in the field to make secure phone calls to CIA headquarters in Langley. Out of this project came zero-click secure encrypted calling. This is the kind of technology depicted in the movie The Bourne Identity that allowed Jason Bourne (Matt Damon) to make a secure, zero-click encrypted call to CIA headquarters from his French countryside hideout.
Ironically, the technology to do this didn’t exist when the movie was filmed. Back then, real-time communications between CIA agents in the field and headquarters were cumbersome, typically requiring 150-200 keystrokes and a lot of IT handshaking on both ends. So at the CIA’s request, the scientists who later went on to form VirnetX invented a secure end-to-end encrypted communications system. Now called the Gabriel Collaboration Suite, the app is available from Apple’s App Store, Google’s Play Store, or from www.gabrielsecure.com.
As I noted in that first article, the journey of this “Jason Bourne” tech innovation from CIA skunkworks to commercial product was a long and tortuous one. While the litigation was in progress these past six years, only a few technology companies — Microsoft, Aastra, Mitel, NEC, Siemens and Avaya — licensed VirnetX’s technology and deployed it in their products. That’s because the legal rights to the technology were still in dispute, as was its market value.
By way of analogy, would you buy a house for which the title and sale price were subject to a lawsuit? Of course not. A similar logic applies to the licensing of rights to innovative new technologies — litigation puts everything on hold until the case is settled. And it’s a more common occurrence in the technology business than you might imagine.
The Android smartphone operating system offered by Google, for example, was the subject of litigation for many years during the “smartphone patent wars.” Those patent wars are now for the most part settled, and Android use has spread around the globe.
Similarly, in the 19th century, Charles Goodyear and Elias Howe were only able to broadly diffuse vulcanized rubber and sewing machine technology after an intense period of patent litigation. In Thomas Edison’s day as well, electrical innovations were four times more likely than other inventions to be the subject of patent litigation, and the technology only became widely deployed in business and consumer products after much of the litigation was settled.
Last week’s jury verdict appears to end any further uncertainty about the legal rights or value of VirnetX technology — except, that is, for one wrinkle. In early September, the Patent Office’s Patent Trial and Appeal Board (PTAB) — often called a patent “death squad” — ruled VirnetX’s patents not patentable. But the PTAB uses a different standard of validity than the federal courts, and its decision is likely to be overturned by the U.S. Court of Appeals for the Federal Circuit, which has already determined that VirnetX’s patents are not invalid.
As for the factors that Judge Schroeder will use in deciding whether Apple willfully infringed VirnetX’s patents, two recent Supreme Court rulings that make it harder for companies to get away with willfully infringing another company’s patents are likely to play a role in whether or not he decides to enhance damages in last week’s verdict.
In these two closely-related decisions — Halo Electronics, Inc. v. Pulse Electronics, Inc., and Stryker Corp. v Zimmer, Inc. — the court ruled unanimously that where the “preponderance of the evidence” indicates that a company had engaged in “egregious conduct” and willfully infringed another’s patent, the infringer may be subject to enhanced damages.
With these decisions, the high court threw out the old standard requiring injured parties to prove that the infringer had acted with “objective recklessness” before enhanced damages could be awarded. Writing for the Supreme Court, Chief Justice John Roberts said that old test “excludes from discretionary punishment many of the most culpable offenders.” Now, plaintiffs need only show that the infringer engaged in “egregious conduct” in willfully infringing a patent.
Amen to that.
With secure end-to-end encryption of communications of growing interest not only to consumers, but to law enforcement and policy makers alike, it’ll be interesting to see how rapidly the VirnetX technology gains acceptance in the marketplace.
To view the original version on Forbes, visit: http://www.forbes.com/sites/marshallphelps/2016/10/05/302-million-verdict-on-jason-bourne-encryption-tech-may-speed-consumer-adoption/2/#39eabaf363f8