Showtime for $VHC

Even though I pray to the Lord every night for the proprietors of the website known as “SeekingAlpha” be vaporized into cosmic dust, there was a decent article posted today, summarizing the turn of events with regards to AAPL v VHC.

Here is an excerpt:

VirnetX (VHC) has taken on the largest technology giant in the world for infringing on their very valuable patents. Many investors believe that taking on a company so large and powerful could have serious repercussions to the strength of the company’s patents if they did not prove infringement in court, although, they did prove infringement to the tune of $368 million as a start.

This is not the first time VHC has been in court with a powerful technology company. In 2010, VHC secured a $200 million settlement from Microsoft (MSFT). At first, the jury in the Microsoft case awarded VHC $105.75 million on March 16, 2010. Soon after, on March 18, 2010, VHC filed a follow-up lawsuit against MSFT for patent infringement regarding Windows 7. Windows 7 was not included in the first lawsuit because it was released in 2009, while the first lawsuit was filed in June of 2008. Two months later, on May 17, 2010, Microsoft settled with VHC for $200 million to cover both legal suits. The Microsoft case is a near mirror image to the lawsuit with Apple (AAPL).

After securing a $368 million victory against AAPL on November 6, 2012, VHC announced a new lawsuit on November 9, 2012 which included the iPhone 5, iPod Touch 5th Generation, iPad 4th Generation, iPad Mini, and the latest Macintosh computers. These products were not included in the first lawsuit due to their release dates being after when the first lawsuit was filed. VHC is sighted to win the second lawsuit due to the fact that the same patent infringement that was argued in the first case is being argued in the second case – just against the newer products. Company press releases regarding the victory can be found here and the newly filed lawsuit can be found here.

On January 4, 2013 Judge Davis ordered AAPL to provide up-to-date sales figures for newly-released infringing products including the iPhone 5 by January 10, 2013 at the earliest, but no later than January 15, 2013. This would put to rest the argument of sunset damages. AAPL filed the sales information minutes before midnight on January 15, 2013 as shown in Pacer docket number 647 that can be viewed here. The Judge can more than see AAPL filing at the 11th hour, not a good idea to get on the bad side of a judge. The Judge can enact a permanent injunction if AAPL does not settle, and after the Maps dilemma in 2012, AAPL should seek to avoid negative press of having problems with Facetime and Imessage. Many intelligent posters on Investor Village believe the Judge already has his judgment formula ready, he just needs the new sales information to fill in the blanks. It is my opinion that the final judgment will be significantly higher than the first verdict and the second trial will be avoided due to settlement. On another note, the trial with Cisco (CSCO) is slated for March. VHC is seeking willful infringement with treble damages. This should be an easy win for McKool Smith again, since the willful infringement is described in Cisco’s product manuals. The case against Cisco also includes a much broader scope of product infringement and more accused products.

That only leaves one question–where is Kendall Larson’s opinion about negotiations with AAPL? It is hard to guess, but in my opinion Kendall Larson has, since early on, stated that the rate would be higher if the case went on to a trial. Say 1% before a trial and 1.5% if a trial had occurred, for example, in this case it has. Kendall Larson may also believe that arguing for an injunction, mixed with his belief that the rate will be higher since they did not settle pre-trial, will grant them an even higher rate than simply arguing for a compulsory rate to begin with. This is because Kendall Larson can negotiate a much higher rate and settlement amount when AAPL is faced with the inevitable threat of an injunction. AAPL claims they could comply with this in court to achieve a lower judgment, but in reality they cannot. AAPL argued that a workaround would be easy to comply with in court to diminish the value of VHC’s patents. Although, after losing the case, AAPL changed their stance saying an injunction would take 12-18 months and cost millions of dollars.

Full Article

Naturally I agree with everything that fine chap had to say in the article linked above. But that’s just me talking my book. You be the judge.