Saturday, December 24, 2011

A huge play for EARLY 2012?

I'v already mentioned VirnetX before in my blog however I felt the need to reiterate my view of it and the large potential in it's price. VirnetX is an internet security software and technology company that boasts an EXTREMELY valuable patent portfolio including technology that will secure mobile devices on 4g networks. This last summer they ended a suit against Microsoft where they claimed Microsoft infringed on their networking patents (patent # 6,502,135 # 6,839,759 and # 7,188,180). Because it is vital for the judge to understand what exactly a patent describes (the wording of some patents can make it quite hard to discern what technology is really patented) before heading to trail, patent infringement cases go to something called a Markman hearing. A Markman hearing (otherwise known as a claim construction hearing) is a pretrial hearing where the judge examines the evidence that suggests the appropriate meanings of key words in the patents being disputed, you can think of it as the patent claims are broken down into "layman's terms" for the judge so he/she can understand exactly what the patent does and whether or not the defendant(s) infringed upon the patent. While this is only a pretrial hearing the decision of a Markman's hearing usually has a large if not definite influence on the outcome of the case as a whole. In February 2009 VirnetX faced Microsoft in the the U.S District Court for the Eastern District of Texas Tyler Division with Leonard Davis as judge of the case and won the Marksman hearing. It was determined that Microsoft had infringed on VirnetX's patents and in May of that year they settled for 200 million dollars. Now VHC faces CISCO SYSTEMS, INC., APPLE INC., AASTRA USA, INC., AASTRA TECHNOLOGIES LTD., NEC CORPORATION, AND NEC CORPORATION OF AMERICA claiming that they infringed on their patents as well. The Marksman hearing will be held in the same court with the same judge on the fifth of next month. While some could say this is a different story, there are several important reasons why I think there's no way VirnetX could lose. 

1) The win over Microsoft provides solid infrastructure that the patents VirnetX has are valid and that its legal team is fully capable of making that visible to the judge. 3 of the 6 patents VHC is claiming infringement on are the ones that won them the Microsoft case which strengthens that argument. Not to mention this case will be held at the same court with the same judge that was used in their case against Microsoft.  

2) Prior to the hearing Cisco had requested that the USPTO reexamine VHC's patent # 7,188,180. However, the USPTO rejected each of Cisco's ten proposed validity challenges to the '180 patent and found that Cisco had not shown that there is a reasonable likelihood that it will prevail with respect to any of the claims of the '180 patent and so rejected the request to reexamine immediately. This reinforces that the USPTO finds VirnetX's 180 patent valid and will aid VHC's argument in court.

3) Here you can find the Joint Claim Construction and Prehearing Statement that explains what terms the plaintif (VirnetX) and the defendants (mentioned above in caps) agree on, don't agree on and the evidence that supports both parties accusations.In the first column of exhibit B you'll see the claim term being related to a patent that VHC is saying the defendants infringed on as well as the patent the term refers to. In the second column is what VHC says the terms mean and in the third is what the defendants feel the terms mean. Without looking at the evidence from part C, it seems almost certain to me VHC has this case won already. For example the claim term virtual private network which relates to the 135, 759 and 180 patents is proposed by VirnetX to mean "a network of computers which privately communicate with each other by encrypting traffic on insecure communication paths between the computers " while the defendants interpret it as "a network of computers which privately and directly communicate with each other by encrypting traffic on insecure communication paths between the computers where the communication is both secure and anonymous". Now the term virtual private network plays a HUGE role in the patent claims of VHC so this is an important term for the judge to side with VHC on and while nothing in life is certain except taxes and death I can't see the judge siding with the defendants on this. Why? Because in their case against Microsoft the same term was challenged but VHC was able to persuade the judge that their construction was correct and resulted in the following direct statement. "In light of intrinsic and extrinsic evidence, the Court construes "“virtual private network"” as “a network of computers which privately communicate with each other by encrypting traffic on insecure communication paths between the computers". Sound familiar? Can't see how the court could rule against its own defintion, but like I said nothing is certain...  

4) Below that you'll see another claim term referring to the 135 patent that reads 
"determining whether the DNS request transmitted in step (1) is requesting access to a secure web site" and for VHC's proposed construction it says "[no construction necessary]" while the defendants say "determining on a DNS proxy server 
whether the DNS request transmitted in step (1) is requesting access to a secure 
web site ". Whoa, is VHC just throwing in the towel here and not giving any explanation to what this might mean? Absolutely not. In their case against Microsoft, they gave the same proposed construction and the court agreed. Now while this is a different court case altogether, it does clearly state in the Joint Claim Construction and Prehearing Statement when describing exhibit C that " VirnetX may also rely upon intrinsic and extrinsic evidence, including the prosecution history and/or  any re-examinations, to rebut  the constructions proposed by Defendants" which means the "prosecution history" they have with Microsoft can be used so any terms already defined from that case that have been accepted by the court already can be used again. That said, most of the proposed constructions of claims have already been accepted by the court leaving little room for the defendants to interpret it differently. 

5) In this case both the plaintiff and the defendants have experts to bring to the stand to aid their case or dispute something the other party said. Because these experts will provide their best interpretation of the disputed terms the evidence they provide is considered extrinsic evidence because it is not furnished by a document but by some external source (in this case, a person). However, the court can only assume some type of bias in these statements for each party and hence has stated " Generally, extrinsic evidence is “less reliable than the patent and its prosecution history in determining how to read claim terms.”"  To put it another way, if the plaintiff cites several textbooks or credible studies that the sky is blue, but the defendant has an expert claiming that in his/her opinion it can be considered green, the judge is going to go with the cited documentation and that the sky is blue.
(If you'd like to see the entire document regarding the claims of terms and outcome of the VirnetX vs Microsoft Case to see for yourself you can find it here. To get a summary of the outcomes of what the court found acceptable for the proposed constructions you can scroll to the bottom of the page to appendix B)

Now you'll also see that for several of the claim terms the defendants proposed constructions read "indefinite" while VHC's proposed constructions to these terms read  "No construction necessary, alternatively a construction that is consistent with the 
ordinary meaning of these terms". Here, the defendants are claiming the terms are too vague while VirnetX is essentially saying the opposite that the terms are obvious. An example of this is the term "allocating resources". Now I have no legal experience of any type so I can't be certain on this but honestly, I can't imagine there are too many ways to interpret the words "allocating resources", I can only assume the judge knows the definition of each word and will have the ability to put the definitions together to get a complete understanding. So while this may add a little fuel to the defendants fire, I don't see how they could present the words in a different manner to the judge and the defendants candle (if I may quote Robert De Niro from one of my favorite movies Limitless) "will have shed a brief but a lovely light".

The Marksman hearing is scheduled for January fifth, about 2 weeks away which gives you ample time to research and form your own educated opinion about possible outcomes. If you still feel VHC will not prevail, share why! I would love to hear someone's perspective from the other side of the fence or if you agree, are you taking a stake in VHC and if so, how much? Below you can find a link to VHC's website where you can find all their press releases and find out more about what they do. Merry Christmas!