Virnetx, Inc. v. Cisco Systems, Inc.
767 F.3d 1308
Fed. Cir.2014Background
- VirnetX (assignee of SAIC patents) sued Apple for infringing four patents covering DNS-based establishment of secure communication links, TARP two-layer encryption (anonymity + security), and DNS-proxied VPN initiation; jury found all asserted claims valid and infringed and awarded $368,160,000.
- VirnetX accused Apple’s FaceTime of infringing claims of the ’504 and ’211 patents (DNS that indicates support for establishing a secure communication link) and Apple’s VPN On Demand of infringing claims of the ’135 and ’151 patents (transparent DNS-triggered VPN/secure/encrypted channel creation).
- District court construed key terms (e.g., “domain name,” “secure communication link,” and VPN) and after a five-day jury trial denied Apple’s JMOL/new-trial motions; Apple appealed.
- On appeal the Federal Circuit: affirmed validity findings and many infringement findings as supported by substantial evidence; reversed the district court’s construction of “secure communication link” (to require anonymity) and reversed DOE infringement of claim 1 of the ’151 patent; remanded FaceTime infringement under the corrected construction; vacated damages and remanded for a new damages proceeding.
- The court excluded Apple’s proffer of non-final PTO reexamination rejections as too prejudicial under Rule 403; it found the district court did not abuse discretion in that exclusion.
Issues
| Issue | Plaintiff's Argument (VirnetX) | Defendant's Argument (Apple) | Held |
|---|---|---|---|
| Construction of “domain name” | Term means a name corresponding to an IP address (not limited to DNS hierarchy) | Apple: require hierarchical format (e.g., host.second-level.top-level) | Affirmed district court: “domain name” = a name corresponding to an IP address |
| Construction of “secure communication link” | Broadly: a direct communication link that provides data security | Apple: must read to require anonymity (consistent with VPN construction) | Reversed district court: term requires both data security and anonymity; construed to include anonymity |
| FaceTime infringement of ’504/’211 (secure link / directness) | FaceTime servers practice claimed DNS service and establish direct secure links | Apple: FaceTime lacks anonymity and communications go through NATs (not direct) | Remanded re: anonymity (jury was not instructed under anonymity construction); affirmed that NATs do not preclude “direct” communication on the record |
| VPN On Demand: “determining whether” limitation | VPN On Demand checks a config list and is intended to be used for secure/private networks | Apple: it merely checks a user list and may connect to non-secure sites | Affirmed substantial evidence that VPN On Demand, in normal configuration, determines whether a request is for a secure site (matches list) |
| VPN On Demand: “between” / extending from client to target (’135 and ’151) | The VPN extends end‑to‑end because internal corporate networks provide security/ anonymity beyond VPN server | Apple: VPN only secures client↔VPN server, not VPN server↔target | Affirmed substantial evidence that VPN On Demand creates a VPN/secure channel extending from client to target (jury could infer private network security) |
| Doctrine of equivalents for “encrypted channel” (claim 1, ’151) | VPN On Demand functionally equivalents encrypted channel because overall path is secured | Apple: DOE would vitiate the “encrypted” limitation | Reversed: no reasonable jury could find VPN On Demand insubstantially different from a claim requiring an encrypted channel end-to-end; DOE finding vacated |
| Anticipation (Kiuchi reference) | Kiuchi anticipates asserted claims | Apple: Kiuchi discloses the claimed features | Affirmed denial of JMOL on anticipation: substantial evidence that Kiuchi lacked at least one claim element (e.g., direct communication; client-sent DNS request) |
| Exclusion of PTO reexamination rejections | Apple: reexamination rejections show good-faith belief of invalidity (relevant to inducement intent) | VirnetX: reexamination evidence is prejudicial and misleading | Affirmed exclusion under Rule 403: district court did not abuse discretion in excluding non-final PTO rejections |
| Damages: royalty base and rate; use of Nash bargaining | VirnetX: used smallest salable unit (entire iOS devices) and three royalty theories (1% of device price; Nash-based splits on incremental profits; customer-survey-driven profits) | Apple: expert testimony failed apportionment, misapplied entire market value rule, and Nash invocation is an unjustified 50/50 rule of thumb | Damages vacated and remanded: jury instruction misstated law on entire‑market‑value/smallest salable unit; Weinstein’s first approach (entire device base) inadmissible for failing to apportion; Nash-based approaches unreliable and inadmissible as applied here |
Key Cases Cited
- Phillips v. AWH Corp., 415 F.3d 1303 (Fed. Cir.) (claim construction principles; look to intrinsic evidence)
- Vitronics Corp. v. Conceptronic, Inc., 90 F.3d 1576 (Fed. Cir.) (claim construction starts with claim language and intrinsic evidence)
- Graver Tank & Mfg. Co. v. Linde Air Prods. Co., 339 U.S. 605 (U.S.) (doctrine of equivalents framework)
- Lucent Techs., Inc. v. Gateway, Inc., 580 F.3d 1301 (Fed. Cir.) (reasonable royalty/hypothetical negotiation guidance)
- Uniloc USA, Inc. v. Microsoft Corp., 632 F.3d 1292 (Fed. Cir.) (rejection of 25% rule and apportionment requirement)
- LaserDynamics, Inc. v. Quanta Computer, Inc., 694 F.3d 51 (Fed. Cir.) (entire market value rule; apportionment required)
- ResQNet.com, Inc. v. Lansa, Inc., 594 F.3d 860 (Fed. Cir.) (tie damages proof to claimed invention’s footprint)
- Crown Packaging Tech., Inc. v. Rexam Beverage Can Co., 559 F.3d 1308 (Fed. Cir.) (DOE/function-way-result test)
- SynQor, Inc. v. Artesyn Techs., Inc., 709 F.3d 1365 (Fed. Cir.) (exclusion of confusing/non-final reexamination evidence)
- Commil USA, LLC v. Cisco Sys., Inc., 720 F.3d 1361 (Fed. Cir.) (good-faith belief of invalidity and inducement discussion)
- i4i Ltd. P’ship v. Microsoft Corp., 598 F.3d 831 (Fed. Cir.) (admissibility of expert testimony on damages; jury evaluates license comparability)
- Gen. Elec. Co. v. Joiner, 522 U.S. 136 (U.S.) (court gatekeeping; analytical gap between data and expert's conclusions)