IN THE UNITED STATES DISTRICT COURT 

FOR THE EASTERN DISTRICT OF TEXAS 

TYLER DIVISION 

VIRNETX INC. 

 Plaintiff, 

vs. 

APPLE INC. 

 Defendant. 

 

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§ CASE NO. 6:13-CV-211 

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§ REDACTED

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ORDER 

Before the Court is VirnetX Inc.’s (“VirnetX”) Motion for an Ongoing Royalty (Docket 

No. 10). For the reasons stated below, the Court GRANTS IN PART and DENIES IN PART

VirnetX’s Motion. Apple Inc. (“Apple”) is ORDERED to pay VirnetX an ongoing royalty rate 

of 0.98% on adjudicated products and products not colorably different from those adjudicated at 

trial that incorporate any of the FaceTime or VPN On Demand features found to infringe at trial. 

BACKGROUND 

On August 11, 2010, VirnetX filed suit alleging that Apple and several other defendants 

infringed U.S. Patent Nos. 6,502,135 (“the ’135 Patent”), 7,418,504 (“the ’504 Patent), 

7,490,151 (“the ’151 Patent), and 7,921,211 (“the ’211 Patent) (collectively, “the patents-insuit”). See VirnetX, Inc. v. Cisco Systems, Inc. et al., No. 6:10–cv–417, Docket No. 1 (“Apple 

I”). The ’135 and ’151 Patents generally describe a method for transparently creating a virtual 

private network (“VPN”) between a client computer and a target computer, while the ’504 and 

’211 Patents disclose a secure domain name service. 

 

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Specifically, VirnetX accused Apple’s VPN On Demand and FaceTime of infringement. 

Both features establish secure communications, with Apple’s FaceTime providing a secure 

communication link for users when video-chatting. Apple’s VPN On Demand seamlessly 

creates a VPN when a user requests access to a secure website or server. 

A jury trial regarding the instant suit commenced on October 31, 2012. At trial, VirnetX 

contended that Apple infringed claims 1, 3, 7, 8 of the ’135 Patent; claims 1 and 13 of the ’151 

Patent; claims 1, 2, 5, 16, 21, and 27 of the ’504 Patent; and claims 36, 37, 47 and 51 of the ’211 

Patent. Apple responded that its FaceTime and VPN On Demand features did not infringe the 

patents-in-suit, and that the asserted claims were invalid. Following a five-day trial, the jury 

returned a verdict that the ’135, ’151, ’211, and ’504 Patents were not invalid, and that Apple 

infringed the asserted claims. To compensate VirnetX for Apple’s infringement, the jury 

awarded VirnetX $368,160,000 in damages. 

To prevent Apple’s continuing infringement of the patents-in-suit, VirnetX then 

requested a permanent injunction, or in the alternative, that the Court set an ongoing royalty rate. 

Apple I, Docket No. 621. The Court denied VirnetX’s request for a permanent injunction; 

however, the Court gave the parties an opportunity to negotiate a license before setting an 

ongoing royalty rate. See Apple I, Docket No. 732 at 42. Unable to reach an agreement with 

Apple, VirnetX again requested the Court set an ongoing royalty rate enhancing the implied 

royalty rate of .52% found by the jury to 1.52%. Docket No. 10 at 1.1

 

APPLICABLE LAW 

“Under some circumstances, awarding an ongoing royalty for patent infringement in lieu 

of an injunction may be appropriate.” Paice LLC v. Toyota Motor Corp., 504 F.3d 1293, 1314 

 

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 The Court severed the ongoing royalty rate issue into Cause No. 6:13-cv-211 to bring finality to the original case, 

VirnetX Inc. v. Cisco Sys., Inc. et al., Cause No. 6:10-cv-417. 

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(Fed. Cir. 2007). When determining the amount of an ongoing royalty, the Court must consider 

the change in the legal relationship between the parties to avoid incentivizing defendants “to 

fight each patent infringement case to the bitter end because without consideration of the 

changed legal status, there is essentially no downside to losing.” Id. at 628. Accordingly, 

“[t]here is a fundamental difference . . . between a reasonable royalty for pre-verdict 

infringement and damages for post-verdict infringement.” Amado v. Microsoft Corp., 517 F.3d 

1353, 1361–62 (Fed. Cir. 2008). Therefore, an ongoing post-verdict royalty may appropriately 

be higher than the jury’s pre-verdict reasonable royalty. 

ANALYSIS 

Ongoing Royalty Rate 

VirnetX argues the implied royalty rate should be trebled because of changed 

circumstances in light of the Georgia-Pacific factors and Apple’s now willful infringement. 

Docket No. 10 at 2, 9.2 VirnetX contends that because Apple is now an adjudged infringer, the 

 

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 The most common approach to determine a reasonable royalty is using the Georgia-Pacific factors to consider 

what the accused infringer and patent owner would have contemplated if the parties had negotiated a license to the 

asserted patent(s) before the infringement took place. The factors include: (1) “[t]he royalties received by the 

patentee for licensing of the patent-in-suit”; (2) royalties paid for other patents comparable to the asserted patents; 

(3) “[t]he nature and scope of the license, as exclusive or non-exclusive; or as restricted or non-restricted in terms of 

territory or with respect to whom the manufactured product may be sold; (4) [t]he licensor's established policy and 

marketing program to maintain his patent monopoly by not licensing others to use the invention or by granting 

licenses under special conditions designed to preserve that monopoly; (5) [t]he commercial relationship between the 

licensor and licensee, such as, whether they are competitors in the same territory in the same line of business; or 

whether they are inventor and promoter; (6) [t]he effect of selling the patented specialty in promoting sales of other 

products of the licensee; the existing value of the invention to the licensor as a generator of sales of his nonpatented items; and the extent of such derivative or convoyed sales; (7) [t]he duration of the patent and the term of 

the license; (8) [t]he established profitability of the product made under the patent; its commercial success; and its 

current popularity; (9) [t]he utility and advantages of the [patented invention] over the old modes or devices, if 

many, that had been used for working out similar results; (10) [t]he nature of the patented invention; the character of 

the commercial embodiment of it as owned and produced by the licensor; and the benefits to those who have used 

the invention”; (11) the extent of the licensee’s use of the patented invention “and any evidence probative of the 

value of that use; (12) [t]he portion of the profit or of the selling price that may be customary in the particular 

business or in comparable businesses to allow for the use of the invention or analogous inventions; (13) [t]he 

portion of the realizable profit that should be credited to the invention as distinguished from non-patented elements, 

the manufacturing process, business risks, or significant features or improvements added by the infringer; (14) [t]he 

opinion testimony of qualified experts; and (15) [t]he amount that a licensor (such as the patentee) and a licensee 

(such as the infringer) would have agreed upon (at the time the infringement began) if both had been reasonably 

and voluntarily trying to reach an agreement; that is, the amount which a prudent licensee -- who desired, as a 

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bargaining positions of the parties would have dramatically shifted in favor of VirnetX. Docket 

No. 10 at 5. Apple’s continuing infringement post-trial, and its inability to easily implement the 

non-infringing alternatives discussed at trial, also favor increasing the implied royalty rate. Id. at 

6–8. Additionally, VirnetX argues its licenses to the patents-in-suit support enhancing the 

royalty rate. Id. at 4. VirnetX’s licenses were negotiated when the validity and infringement of 

the patents were disputed, therefore the royalty rates were slightly discounted to account for the 

uncertainty. Since validity and infringement are no longer an issue following the Court’s 

judgment in this case, VirnetX contends that a higher royalty rate than VirnetX’s prior licenses 

would have been negotiated between the parties. Id. at 4-5. VirnetX concedes that the patentsin-suit have a shorter term now, but argues this only slightly favors decreasing the royalty rate. 

Id. at 5. 

VirnetX also contends the implied royalty rate should be enhanced in light of the Read

factors because Apple’s post-judgment infringement is willful. Docket No. 10 at 9. VirnetX 

argues that six of the nine Read factors support increasing the implied royalty rate. Specifically, 

VirnetX argues the rate should be enhanced because Apple is an adjudged infringer and the 

patents are valid; Apple cannot maintain a good faith belief that the patents are not invalid or not 

infringed; Apple engaged in litigation misconduct; Apple is a large and profitable company; and 

Apple has failed to implement a non-infringing alternative. Id. at 9–11. 

Apple counters that neither the Read nor Georgia Pacific factors support increasing the 

implied royalty rate. Apple argues the only change in circumstances is the jury’s verdict, which 

 

business proposition, to obtain a license to manufacture and sell a particular article embodying the patented 

invention -- would have been willing to pay as a royalty and yet be able to make a reasonable profit and which 

amount would have been acceptable by a prudent patentee who was willing to grant a license.” Georgia-Pacific 

Corp. v. U.S. Plywood Corp., 318 F. Supp. 1116 (S.D.N.Y. 1970). To determine an ongoing royalty, a modified 

Georgia-Pacific analysis can be conducted, which focuses on the changed circumstances from the original 

hypothetical negotiation and the negotiation that would occur post-judgment. See Mondis Tech. Ltd. v. Chimei 

Innolux Corp., 822 F. Supp. 2d 639, 647 (E.D. Tex. 2011). 

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is insufficient itself to modify the implied royalty rate. Docket No. 18 at 7. Apple notes the jury 

already considered related licenses, and VirnetX’s latest license with Siemens is no different 

from those presented at trial. Id. at 8–9. Apple also argues the verdict does not significantly 

change the parties’ respective bargaining positions because the prior hypothetical negotiation 

already assumed the patents were valid, infringed, and enforceable. Id. at 9. Apple further 

asserts it is not a willful infringer because it continues to have a reasonable and good faith belief 

that the patents-in-suit are invalid, as evidenced by its efforts to invalidate the patents-in-suit at 

the United States Patent and Trademark Office (“PTO”). Id. at 11-12. Apple argues its efforts at 

the PTO also demonstrate that the case in this Court was close. Id. at 12. Accordingly, Apple 

urges the Court to reduce the implied royalty rate, because it has successfully implemented a 

non-infringing FaceTime feature and it is currently working on a design-around for the VPN On 

Demand feature. Id. at 3–5, 13. 

 Both parties agree the Court should first consider the jury’s implied royalty rate. 

08/15/13 Hr’g Tr. at 7:11–17. VirnetX requests the Court to treble the jury’s implied royalty rate 

based on changed circumstances between the original hypothetical negotiation in 2009 and the 

hypothetical negotiation that would occur post-judgment in 2013. Because the Court is using the 

implied royalty rate as a starting point for determining the ongoing royalty rate, “the Court 

focuses on any new evidence that was not before the jury.” Mondis Tech., Ltd. v. Chimei Innolux 

Corp., 822 F. Supp. 2d 639, 647 (E.D. Tex. 2011). 

 VirnetX’s primary argument for increasing the rate involves its licenses for the patentsin-suit with other companies. While VirnetX concedes its license with Siemens was the only 

license not considered by the jury, VirnetX argues that all of its licenses would have been 

weighed differently at a negotiation post-judgment. Docket No. 10 at 4–6. Additionally, 

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VirnetX alleges these licenses, including its new license with Siemens, demonstrates its 

continued success in licensing its patents and companies’ willingness to license its patented 

technology. Id. While the jury has considered most of these licenses, VirnetX’s licensing efforts 

up to 2009 were not nearly as successful as its efforts up to 2013. See Mondis, 822 F. Supp. 2d 

at 648 (finding an improvement in licensing success warranted “an increase [in the royalty rate] 

from the jury’s determination”). Accordingly, VirnetX’s increased commercial success supports 

increasing the implied royalty rate. 

 The only other major circumstance that has changed—aside from willfulness which the 

Court will address next—is Apple’s non-infringing alternatives. Apple argues the royalty rate 

should be decreased to account for Apple’s FaceTime design around. Docket No. 18 at 3. 

However, the cost of implementing a non-infringing alternative instead of licensing the patentsin-suit was presented to the jury. At trial, Apple’s corporate representative, Mr. Gates, stated 

that it would cost Apple only $3.6 million to route all its FaceTime calls via relay servers, which 

VirnetX admits is non-infringing. Apple I, 11/2/12 a.m. Tr. 68:3–17. Mr. Gates further stated 

that it would be “a very simple change to make to route all the traffic through the relay,” noting it 

would only take about two weeks to implement the changes. Id. at 71:20–21; Id. at 109:19–

110:16. Thus, while the jury already considered some of this evidence, it did not hear the whole 

story. 

When VirnetX sought a permanent injunction post-trial, Apple dramatically reversed 

course, estimating it would cost at least 

 

Apple I, Docket No. 653, Ex. 2 at 2; id. Ex. 3 at 3; see Apple I, Docket No. 732 at 41. Apple also 

argued it required 

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 Apple I, Docket No. 653 at 3, 5. Apple’s 

miscalculations were even more apparent at the August 2013 ongoing royalty hearing, when 

Apple stated it paid to route FaceTime calls though relay servers for just 

and it had yet to implement a non-infringing VPN On Demand feature. 08/15/13 Hr’g Tr. at 

48:25–49:4; id. at 49:12–22 (“And again, Apple is working toward its VPN On Demand designaround this fall.”). While Apple has taken steps to mitigate its infringement, Apple grossly 

misrepresented its ability to implement a non-infringing alternative to the jury. The huge 

disparity between Apple’s position at trial and Apple’s position post-judgment also warrants 

increasing the implied royalty rate. 

In light of the changed circumstances, the reasonable royalty rate should be increased by 

25% to 0.65%. However, Apple’s ongoing willful infringement must also be considered. See

Internet Machines LLC v. Alienware Corp., No. 6:10-cv-23, 2013 U.S. Dist. LEXIS 115723, at 

*64–67 (E.D. Tex. June 19, 2013); Soverain v. J.C. Penney, 899 F. Supp. 2d 574, 589 (E.D. Tex. 

2012). As an initial matter, Apple argues VirnetX impermissibly presumed Apple was a willful 

infringer. Docket No. 18 at 5. However, “[f]ollowing a jury verdict and entry of judgment of 

infringement and no invalidity, a defendant’s continued infringement will be willful absent very 

unusual circumstances.” Affinity Labs. Of Tex., LLC v. BMW N. Am., LLC, 783 F. Supp. 2d 891, 

899 (E.D. Tex. 2011). As there are no such circumstances present, the Court must determine 

how much the implied royalty rate should be enhanced to account for Apple’s ongoing willful 

infringement. 

The Read factors provide guidance in determining whether and how much damages 

should be enhanced in light of Apple’s ongoing willful infringement. These factors include: (1) 

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whether the infringer deliberately copied the ideas or design of another; (2) whether the 

infringer, when he knew of the other’s patent protection, investigated the scope of the patent and 

formed a good-faith belief that it was invalid or that it was not infringed; (3) the infringer’s 

behavior as a party to the litigation; (4) the infringer’s size and financial condition; (5) the 

closeness of the case; (6) the duration of the infringer’s misconduct; (7) any remedial action 

taken by the infringer; (8) the infringer’s motivation for harm; and (9) whether the infringer 

attempted to conceal its misconduct. Read Corp. v. Portec, Inc., 970 F.2d 816, 827 (Fed. Cir. 

1992). 

Both parties agree factor one, eight, and nine are neutral. Docket No. 10 at 9, 11; Docket 

No. 18 at 11. Factors three and six are also neutral as there was no evidence Apple engaged in 

any litigation misconduct and it is unclear how long Apple will continue to willfully infringe. 

See Apple I, Docket No. 732 at 44 (declining to award attorney’s fees because Apple did not 

appear to act in bad faith). The remaining four factors support enhancing the implied royalty 

rate. 

Apple concedes factor four supports slightly enhancing the implied royalty rate in light of 

Apple’s size and finances. Docket No. 18 at 12. Additionally, factors two and five strongly 

favor enhancement. While Apple contends it is not a willful infringer because it has a good faith 

belief that the patents-in-suit are invalid and that it does not infringe, the jury’s verdict and this 

Court’s judgment do not support Apple’s belief. See Soverain, 899 F. Supp. 2d at 589 (finding a 

Defendant could no longer assert a good faith belief of non-infringement or invalidity after the 

jury’s verdict); see also Affinity Labs., 783 F. Supp. 2d at 902 (rejecting Defendants’ argument 

that its continued infringement post-judgment was not willful because the asserted claims of the 

patents-in-suit were rejected in a pending reexamination). Finally, factor seven also slightly 

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favors enhancement. While Apple has taken steps to implement non-infringing alternatives, 

Apple has not ceased all infringement. Considering four factors favor enhancing the implied 

royalty rate, the ongoing royalty rate is increased 50% to 0.98%. 

Products 

VirnetX also asks the Court to apply the ongoing royalty to all Apple devices running 

iOS 3.0 or later and Apple Mac computers running Apple’s Mountain Lion OS or later, including 

unadjudicated products, that incorporate FaceTime and VPN On Demand. Id. at 14. VirnetX 

argues that the accused FaceTime and VPN ON Demand features remain unchanged in all Apple 

products, therefore the Court should apply the ongoing royalty to all of Apple’s products that 

incorporate the infringing functionalities. Apple did not contest VirnetX’s characterization of 

the features. See Docket Nos. 18, 23. Accordingly, the Court sees no reason not to include 

unadjudicated products that incorporate any of the FaceTime or VPN On Demand features found 

to infringe at trial in the ongoing royalty base. Cf. Fractus, S.A. v. Samsung Elecs. Co., No. 

6:09-cv-203, 2013 U.S. Dist. LEXIS 37275, at *15–16 (E.D. Tex. Mar. 15, 2013) (not including 

unadjudicated models in the ongoing royalty base where it was unclear whether the models were 

colorably different from the adjudicated models, and the potential number of products was 

unknown and could have increased after more discovery). However, to ensure the ongoing 

royalty is not overly broad, the royalty shall only apply to adjudicated products and products not 

colorably different from those adjudicated at trial, including but not limited to the iPhone 5, iPod 

Touch 5th Generation, iPad 4th Generation, and the iPad Mini. 

CONCLUSION

Accordingly, for the foregoing reasons, VirnetX’s Motion to Set an Ongoing Royalty 

Rate is GRANTED IN PART and DENIED IN PART. Apple shall pay VirnetX an ongoing 

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royalty of 0.98% on adjudicated products and products not colorably different from those 

adjudicated at trial that incorporate any of the FaceTime or VPN On Demand features found to 

infringe at trial. The Clerk is directed to close Cause No. 6:13-cv-211. 

__________________________________

LEONARD DAVIS

UNITED STATES DISTRICT JUDGE So ORDERED and SIGNED this 25th day of February, 2014.

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