Ravicher: Is VirnetX Really A “Fairytale”? $VHC

At the end of last week VirnetX (VHC) dropped roughly 20% after the publication of an article titled, VirnetX: Do You Believe In Fairytales? Part 1, in which an anonymous author discussed the company’s prospects for asserting its patents relating to securing real-time communications over the Internet against Apple (AAPL), Cisco (CSCO) and other tech firms. Without debating the legitimacy and reliability of anonymous sources, here I provide my comments on some of the substantive points made in the article, including the probative value of VirnetX’s past settlement with Microsoft and more recent settlements with Aastra and Mitel to future expectations, as well as the arguments that, regarding VirnetX’s current patent actions, “VirnetX may lose,” “VirnetX may win, but be awarded a comparatively small amount of damages,” and “VirnetX may win a substantial award, but it will be subject to appeal.”

INTRODUCTION

VHC currently has three lawsuits in Federal Court (all in Texas) and one action at the International Trade Commission asserting its patents. ITC cases are different from Federal Court cases in that the ITC can only offer a patent holder the remedy of forbidding the importation of infringing articles, not any monetary compensation for past infringement. Federal Courts, on the other hand, offer patent holders the ability to recover monetary damages for past infringement and receive an injunction against any future infringement.

Amongst its four current patent infringement actions, VirnetX is asserting seven different patents, as summarized in the table below. In the first current Federal Court case filed in August 2010, VirnetX is asserting six patents against Aastra, Apple, Cisco and NEC. In the second current Federal Court case filed in January 2011, VirnetX is asserting three of those same patents against Mitel Networks, Siemens Enterprise Communications, and Avaya. In the third current Federal Court case and the ITC action, both of which were initiated in November 2011, VirnetX is asserting one additional patent against just Apple.

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