Wednesday, September 17, 2014

VHC CAFC Notes and Commentary

VHC CAFC Opinion

Validity was not an issue and should not be going forward.  Apple is precluded from arguing invalidity in the 2nd trial in late 2015 for the claims at the first trial.  VHC is also pursuing the same for the Microsoft trial as well.  There are no pending Inter Partes Reviews at the USPTO/PTAB for the ‘135.

Anonymity is being added to the “secure communication link” claims construction in the ‘504 and ‘211 patents.

The reexaminations not being entered into court was ruled as being proper.  This is a good development and we should start seeing some of the reexaminations dismissed at the USPTO.  VHC has filed motions on the Cisco reexaminations, but I haven’t seen any decisions yet.

Infringement on the ‘135 and VPNoD was affirmed, which was a very good development.  The CAFC also affirmed infringement of claim 13 on the ‘151 patent for VPNoD.  The CAFC reversed the JMOL of infringement of claim 1 of the ‘151 under the doctrine of equivalents. 

Damages were completely ripped apart and will have to be tried again back at District Court.  I believe VHC will have to apportion off the infringing technology from the entire device.  I am still trying to get more feedback on this issue.

My commentary/questions on the development:

Does Apple still infringe on the ‘504 and ‘211 with Facetime under the new secure communication link language?  I don’t think we will know until evidence is presented at trial.

With $25M in cash what does VHC do?  A cash raise has to be put on the table.  It is difficult to tell when and how much they will need to carry out the business plan.

VHC should get money regardless from Apple with the infringement of the ‘135 patent using VPNoD.  What the dollar amount will be won’t be known until further briefs are filed (if they aren’t sealed) or at trial.

I anticipate the next trial to be in a 4-9 month window back in District Court.  Will HJD accelerate the timeline?  I am not sure.  He is supposed to be retiring at the end of May 2015.

LTE-A still is not using the Release 10 security specifications at least that I can find.  The two technologies that are being adopted are Carrier Aggregation and MIMO, which involve getting the speeds higher.  The big question now with VHC and LTE-A is what is it now worth (if anything) and will there be another delay for VHC to sign deals to support the standards.  My guess is they will wait.

For VHC to be involved with LTE-A they need to partner with a systems integrator, IE Ericsson or Alcatel.

Next day commentary
I believe there is an error in regards to the CAFC’s new construction of “secure communication link” and the company should file an En Banc petition.  From Virnetx’s brief filed 12/3/2014:

b. Construction of “Secure Communication Link”

The parties also disputed the meaning of “secure communication link.”
Apple initially asserted that it required communications to be secure and
anonymous, even though the claim says nothing about anonymity. A6297-98. For
support, Apple cited statements in the specification indicating the secure
communication link can be a VPN3 and the ’181 patent prosecution history
(discussed supra 11-13). Id.

The court again rejected Apple’s attempt to read limitations into the claims.
The court noted that, while the specification indicates the “secure communication
link is a virtual private network communication link” (A361(6:61-62)), the
statement concerned a preferred embodiment; it was not intended to limit the
meaning of the broad term “secure communication link” in the context of all
embodiments (A12-13). 

Turning to the ’181 patent prosecution history, the court found that “secure
communication link,” like VPN, requires direct communication between its nodes.
A12. Although it recognized that VirnetX distinguished the Aventail prior art from
a “secure communication link” for reasons nearly identical to those used to
distinguish a VPN, the court did not construe the terms as synonyms. A11-12.
Indeed, VirnetX’s arguments in both instances focused on whether the
communication was direct. Accordingly, the court construed “secure
communication link” as “a direct communication link that provides data security.” 

Subsequently, Apple moved for another construction of “secure
communication link” as requiring “a direct communication link that provides data
security through encryption.” A7638. VirnetX did not oppose. A10001.
Accordingly, the court adopted Apple’s proposed construction. A7992. Despite
this, Apple seeks a different construction on appeal.

3. The District Court Properly Construed “Secure
Communication Link” 

a. Apple Waived Its Construction Argument
Apple successfully pursued its construction of “secure communication link”
as a direct link requiring encryption before the district court (A7992; see supra 26)
and is now precluded from pursuing a different construction. See Digital-Vending
Servs. Int’l, LLC v. Univ. of Phoenix, Inc., 672 F.3d 1270, 1278 (Fed. Cir. 2012)(party waives new construction after lower court adopts parties’ agreed construction).

Next, the Federal Circuit rejected Digital-Vending’s challenge of the district court’s construction of the term “registered user” because Digital Vending had stipulated to the term’s construction. Thus, the Court found that “[b]y stipulating to the construction that the district court adopted, Digital-Vending waived its right to challenge this construction on appeal.” Id. at 14 (citation omitted). The Court also noted that Digital-Vending did not challenge the district court’s denial of its motion for reconsideration as another basis for finding waiver. 

I believe the affirmation in regards to the secure domain name / domain name language will be important for the company in regards to the LTE-A specifications and SDNI.  The company should be actively looking to partner on the security specifications they have declared for related to IMS security.

The company should repursue injunctive relief in regards to VPNoD and the ‘135.  The company should hopefully be launching Gabriel in early 2015 per the ASM demonstration.

A new damages theory will have to be proposed as the theories combined VPNoD and Facetime.  How this will be done is still not clear to me.  My initial thought is VHC will somehow have to strip down the devices and locate the parts to make Facetime and VPNoD work at the lowest level.


  1. Thanks Flyers and as always.....Greatly Appreciated! take care, RSD (KH)

  2. So what is the bottom line? Would you double down here? Or is the timeline too murky to gain any traction on the stock?