VirnetX is a classic example of an NPE that does not qualify as a “patent troll.” How can you tell? Patent trolls leverage the litigation system to negotiate settlements for less than the cost of defending against a lawsuit. VirnetX, on the other hand, licenses its patents for eight and sometimes nine figures. Patent trolls normally prefer to keep their operations as confidential as possible, as I wrote about in connection with the District of Delaware. But VirnetX is a publicly traded company and is required to disclose information a patent troll wouldn’t dare make public. Their tactics are rather interesting and worth a discussion.
VirnetX owns patents directed to DNS and network communication technology. The licensees of these patents are typically large telecommunication companies who are ubiquitous in the electronics industry. All of this is quite common with large damages awards and licensing fees. But some would even argue VirnetX is not an NPE at all since it sells its own video conferencing product named “War Room”. Doesn’t that make it a practicing entity? Or is this all smoke and mirrors?
It is unlikely VirnetX derives a significant portion of their revenue from the software they offer. More likely, the War Room product is a tool used to support an injunction against their adversaries in the event of a successful infringement ruling. Paying a large license fee is one thing. But the leverage of an injunction could drive the cost of settlement even higher.
How can a competing product lead to an injunction? This is because an award of lost profits supports a finding of irreparable harm: “[A] jury award of lost profits may support a finding of irreparable harm because it necessarily results in a finding that the patentee lost sales and would continue to lose sales in the future.” Presidio Components, Inc. v. American Technical Ceramics Corp., 875 F.3d 1369, 1383 (2017). It appears VirnetX is using its “commercial product” as a way to push for an injunction due to potential lost sales from infringing—and competing—video conferencing products. Again, the leverage of such an injunction could push the settlement demand quite a bit higher.
Unfortunately for them, VirnetX’s latest campaign resulted in a classic death-by-PTAB ending, where the Board’s invalidity determination was upheld on appeal just last week. It was a good run though—media reports suggest VirnetX made several hundred million dollars off the now-worthless patents through the several years of the enforcement campaign.