Bloomberg News

VirnetX Says Cisco Should Pay $258 Million Over Patents

March 04, 2013

Cisco Systems Inc. (CSCO:US) should pay $258 million for infringing patents over secure private communications technology, a lawyer for VirnetX Holding Corp. (VHC:US) told a federal jury today.

Cisco began using a VirnetX invention to improve security in 2005 and has made more than $1 billion of revenue related to the technology, VirnetX lawyer Doug Cawley, of McKool Smith, said during opening arguments at a trial in Tyler, Texas.

The dispute is over virtual private networks, through which a website owner can securely interact with a customer or an employee can work at home and have protected access to a company’s electronic files. VirnetX won a $368.2 million verdict against Apple Inc. (AAPL:US) in November over the same technology before a different Tyler jury. Cisco denies infringing the four patents, contends they are invalid, and argues VirnetX isn’t entitled to any damages.

“VirnetX did not invent secure communication over the Internet,” said John Desmarais of Desmarais LLP in New York, representing Cisco. San Jose, California-based Cisco “uses industry standard parts” and doesn’t violate VirnetX’s patent rights, he said.

Two of the patents in the Cisco case also were asserted against Apple in the trial last year. VirnetX is asking the jury to award it a “reasonable royalty,” while Cisco argued in court documents that any damages should be limited or excluded altogether because Zephyr Cove, Nevada-based VirnetX took too long to file suit.

Networking Functions

The case targets Cisco routers, software and phones that have virtual-private-networking functions including its Unified Communications Manager product, Telepresence or AnyConnect. Cisco, whose products handle traffic over the Internet, reported sales of $12.1 billion in the quarter ended Jan. 26.

VirnetX, which reported in its annual report that it has an accumulated deficit of $62.9 million, relies on patent licensing for its revenue. It is beta testing its Gabriel Connection Technology to create secure communications links, it said in the annual report. The company received $200 million from Microsoft Corp. from a settlement in 2010.

U.S. District Judge Leonard Davis, who is presiding over both the Apple and Cisco cases, on Feb. 26 upheld the jury verdict against Apple. Davis denied a VirnetX request for an order that would have limited Apple’s ability to provide virtual private networks on its products.

In rejecting the request, Davis said that VirnetX’s Gabriel software isn’t commercially available, so Apple hadn’t damaged the company’s business. He also said that cash would be sufficient to compensate VirnetX for the infringement. In that ruling, the judge ordered the two sides to confer to try to work out a license for future royalties.

The case is VirnetX Inc. v. Cisco Systems Inc., 10cv417, U.S. District Court for the Eastern District of Texas (Tyler).

To contact the reporters on this story: Susan Decker in Washington at sdecker1@bloomberg.net; Dennis Robertson in Tyler, Texas.

To contact the editor responsible for this story: Bernard Kohn at bkohn2@bloomberg.net


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Companies Mentioned

  • CSCO
    (Cisco Systems Inc)
    • $28.35 USD
    • 0.05
    • 0.18%
  • VHC
    (VirnetX Holding Corp)
    • $5.8 USD
    • -0.18
    • -3.1%
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