Another case we’re following from the Federal Circuit’s October sitting is VirnetX Inc. v. Apple Inc., which involves review of a judgment of $502 million in damages for patent infringement. Here is a recap of the oral argument, which was held last Friday before Judges Lourie, Mayer, and Taranto.
As we previewed on this blog, this appeal follows a jury finding of infringement by Apple, and in the appeal Apple makes a number of non-infringement arguments. But Apple also contends that collateral estoppel might be applied here because of the Federal Circuit’s recent decisions in appeals of USPTO reviews of VirnetX’s patents.
In his opening argument for Apple, Bill Lee of WilmerHale argued that Apple redesigned its products specifically to avoid infringing VirnetX’s patents and that the district court misinterpreted the claims, resulting in a finding of infringement despite the redesign. In particular, the claim language as correctly construed requires the return of an IP address, says Lee, something that the redesigned products intentionally don’t include.
Regarding issue preclusion, Lee first argued that the assertion of a novelty defense in a prior litigation does not preclude Apple from arguing other invalidity defenses in this litigation. If you have not tried the defense, he argued, you should not be precluded. Judge Lourie, however, pushed back, saying that not trying the defense was a strategic decision, implying that Apple should now have to live with the consequences of that decision.
The other issue preclusion argument related to the fact that, with apparently one exception, all of the asserted claims have been determined to be not patentable as a result of final decisions of the Federal Circuit. Lee argued that the remaining claim is clearly unpatentable because it is not patentably distinct from the adjudicated claims.
In his responsive argument for VirnetX, Jeff Lamken of MoloLamken argued that the broadest asserted claims make clear that an IP address need not be returned. Instead of returning an IP address, he explained, the system gives an indication that it supports a secure communication link. In short, Lamken said, the inventors took the conventional domain name server service and, importantly, changed it to support a modified communication mechanism, such that an IP address need not be returned even when requested.
Regarding the first issue preclusion question, Lamken argued Apple is estopped from relitigating obviousness in this case because obviousness was actually litigated in the first trial. According to Lamken, Apple tried to withdraw its obviousness defense, but the district court denied its request. Beyond that, Lamken contended, obviousness is not a distinct issue from novelty, which Apple concedes was litigated in the first trial, for example because of the degree of evidentiary overlap in terms of using the same or overlapping prior art.
Regarding the second issue preclusion issue, Lamken argued that the Federal Circuit has twice reversed the PTO’s attempt to invalidate the remaining claim. According to Lamken, Apple is asking the court to use a PTO decision on a different patent adjudicated under a lower standard and burden of proof, and apply that to collaterally estop a case in federal court, which uses a higher burden of proof, on a different claim of a different patent. Lamken said “hornbook collateral estoppel law” prohibits this. Lamken then attempted to show how the court could trim the damages to reflect the invalidity of all but one of the claims litigated in this case. Near the end of his argument, Lamken concluded: “At some point Article III court . . . decisions have to have meaning. At some point they have to become final. We can’t constantly wait for the next IPR. . . . And after nine years and four trials, now is that time.”
In reply, Bill Lee made a claim construction argument, argued the district court did not enter judgment on obviousness because it had never been presented to the jury, contended the different burden of proof does not make a difference for issue preclusion, and argued that recalculating damages is not a ministerial act because there is a different royalty rate based on the number of claims infringed.
Given all these disputes at the oral argument, it would appear that the Federal Circuit has its hands full resolving this appeal. As we indicated in our preview of the argument, the court’s ruling on the questions of collateral estoppel may prove to be the most important aspects of this case. But of course whether the $502 million judgment is sustained, vacated, or modified is very important to the parties and, no doubt, their investors.