Case 6:12-cv-00855-RWS Document 468 Filed 03/22/16 Page 1 of 10 PageID #: 34624
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`VIRNETX INC. AND SCIENCE
`APPLICATIONS INTERNATIONAL
`CORPORATION,
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`Plaintiffs,
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`vs.
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`APPLE INC.,
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`Defendant.
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF TEXAS
`TYLER DIVISION
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`CASE NO. 6:12-CV-855
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`MEMORANDUM OPINION
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`On January 7, 2016, the Court heard oral argument on various motions. This document
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`provides the written opinion of the Court’s prior rulings on January 11, 2016. See Docket No.
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`362. This opinion addresses: (1) Defendant Apple Inc.’s (“Apple”) denied Motion for Partial
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`Summary Judgment of Noninfringement by FaceTime (Docket No. 315); (2) Plaintiff VirnetX
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`Inc.’s (“VirnetX”) granted-in-part and denied-in-part Motion for Partial Summary Judgment of
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`No Invalidity on Dependent Claims of Previously Tried Claims (Docket No. 320); (3) VirnetX’s
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`granted Motion for Summary Judgment of No Inequitable Conduct (Docket No. 322); and (4)
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`VirnetX’s granted Motion to Strike Portions of the Opinion and Testimony of Mr. Christopher
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`Bakewell (Docket No. 316).
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`1.
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`Apple’s Motion for Partial Summary Judgment of Noninfringement by
`FaceTime (Docket No. 315)
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`Summary judgment shall be rendered when there is no genuine issue of material fact and
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`the moving party is entitled to judgment as a matter of law. FED. R. CIV. P. 56(c); Celotex Corp.
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`v. Catrett, 477 U.S. 317, 322–25 (1986); Ragas v. Tenn. Gas Pipeline Co., 136 F.3d 455, 458
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`(5th Cir. 1998). An issue of material fact is genuine if the evidence could lead a reasonable jury
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`Case 6:12-cv-00855-RWS Document 468 Filed 03/22/16 Page 2 of 10 PageID #: 34625
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`to find for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). In
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`determining whether a genuine issue of fact exists, a court views all inferences drawn from the
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`factual record in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co.,
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`Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986).
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`In a summary judgment motion, Apple argued that the FaceTime feature does not
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`infringe because it is not anonymous as required by the claim term “secure communication link.”
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`Docket No. 352 at 1; see VirnetX, Inc. v. Cisco Sys., Inc., 767 F.3d 1308, 1319 (Fed. Cir. 2014)
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`(construing “secure communication link” as “a direct communication link that provides data
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`security and anonymity”). Apple first explained that, in the specifications of the patents asserted
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`against the FaceTime feature, the preferred embodiment requires “anonymity” by describing a
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`first layer of obfuscation for content and a second layer of obfuscation for source and destination
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`Internet Protocol (“IP”) addresses. Docket No. 352 at 1. Apple concluded that FaceTime is not
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`anonymous because it does not conceal IP addresses as described in the patent specifications.
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`Docket No. 315 at 1. Apple stated that VirnetX incorrectly interpreted “anonymity” as the
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`inability to “correlate” a person or machine to an IP address, instead of as “concealment of
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`source and designation IP addresses.” Docket No. 352 at 5.
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`Apple effectively asked the Court to further construe a “secure communication link” as
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`implementing a particular process of providing anonymity. See Docket No. 315 at 4–7. The
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`particular examples of providing anonymity to a communication link disclosed in the patent
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`specifications should not limit the claims. See VirnetX, 767 F.3d at 1319. Based on how the
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`FaceTime feature operates, a jury determined what degree of anonymity is sufficient to infringe
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`the claims. Therefore, a genuine issue of material fact existed as to whether the FaceTime
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`feature satisfied the “anonymity” requirement of the asserted claims.
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`Page 2 of 10
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`Case 6:12-cv-00855-RWS Document 468 Filed 03/22/16 Page 3 of 10 PageID #: 34626
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`Apple further stated that Network Address Translations (“NATs”), which were relied on
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`by VirnetX in one of its two “anonymity” theories, are not part of the FaceTime feature.1 Docket
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`No. 352 at 1–3. The only specific argument that Apple identified as support for NATs being
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`distinct from the FaceTime feature is third party control. Id. at 1–2. Apple described a NAT as a
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`“new device.” Id. at 2. However, the asserted claims are not directed to a single device. E.g.,
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`U.S. Patent No. 7,921,211 (“the ’211 Patent”) at claim 1 (claiming a system). In addition, Apple
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`did not provide support of its position that the introduction of another component, which is not
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`under Apple’s control, negates infringement of the FaceTime feature. See Docket No. 352 at 2.
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`Apple next argued that NATs do not provide the necessary “anonymity” because private
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`and public IP addresses are the same; however, Apple did not explain in what respects the IP
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`addresses are the same. Id. at 3. Further, Apple did not claim that the IP addresses are identical,
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`and a description of an IP address as public or private appears to provide some meaning as to
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`how it operates. See Docket No. 336 at 4.
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`Apple also stated that NATs do not provide anonymity because a communication link
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`contains a participant’s private IP address before it interacts with a NAT. Docket No. 352 at 3–
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`4. During this window before a communication reaches a NAT, the participant’s private IP
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`address is allegedly accessible by eavesdroppers. Id. VirnetX retorted that, when eavesdroppers
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`intercept packets of an ongoing FaceTime call between participating devices located behind
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`NATs (i.e., after the packets reach the NATs), eavesdroppers cannot correlate a device to a
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`participant. See Docket No. 336 at 4, n.1. A reasonable jury could have found that the IP
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`address conversion performed by a NAT early in the communication’s path is sufficient to
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`establish anonymity.
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`1 In addition, Apple disagreed with VirnetX’s characterization of anonymous because it would encompass NAT
`technology that was invented before the asserted patents. Docket No. 352 at 4. This is an invalidity position, which
`is unrelated to noninfringement.
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`Page 3 of 10
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`Case 6:12-cv-00855-RWS Document 468 Filed 03/22/16 Page 4 of 10 PageID #: 34627
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`Apple also shed doubt on VirnetX’s second basis for “anonymity” within the FaceTime
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`feature—the call setup process establishing “anonymity” of a communication. Apple stated that
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`any anonymity established during the call setup process is irrelevant because it is the secure
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`communication link that must be anonymous. Docket No. 352 at 4–5. VirnetX responded that
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`the call setup process creates a secure communication link for the remainder of the
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`communication. Id. Drawing all inferences in the light most favorable to VirnetX, a reasonable
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`jury could have found that the call setup process establishes anonymity.
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`Apple finally argued that the construction of “domain name service system” incorporates
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`the Court’s construction of “domain name service.” Docket No. 365 at 54:24–59:13; see also
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`Docket No. 369 (VirnetX filing an Emergency Motion to Clarify Under O2 Micro). Apple relied
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`on previous Court proceedings in attempting to infer that the construction of a “domain name
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`service system” was meant to include the construction of a “domain name service.” However,
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`the Court previously interpreted “domain name service” and “domain service system” as separate
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`terms with different constructions. Case No. 6:10-cv-417 (“Apple I”), Docket No. 266 at 15, 20.
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`These two separate terms generally appear in different contexts: the claim preamble versus the
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`body of the claim. Docket No. 369 at 8–10; e.g., ’211 Patent at claims 1, 36. Accordingly, the
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`original constructions of “domain name service system” and “domain name service” continue to
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`apply.
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`Apple did not demonstrate the absence of a genuine issue of material fact as to whether
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`the FaceTime feature infringed the asserted patents. Accordingly, the Court denied Apple’s
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`Motion for Partial Summary Judgment of Noninfringement by FaceTime (Docket No. 315).
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`Docket No. 362.
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`Page 4 of 10
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`Case 6:12-cv-00855-RWS Document 468 Filed 03/22/16 Page 5 of 10 PageID #: 34628
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`2.
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`VirnetX’s Motion for Partial Summary Judgment of No Invalidity on Dependent
`Claims of Previously Tried Claims (Docket No. 320)
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`VirnetX filed a motion for partial summary judgment based upon the Apple I jury finding
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`of no invalidity of the asserted claims. Docket No. 320. VirnetX argued that, because the
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`independent claims in U.S. Patent No. 7,418,504 (“the ’504 Patent”) and the ’211 Patent were
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`found not invalid in Apple I, the five newly asserted claims that depend from the previously tried
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`claims must also be not invalid. Id. at 4–6. VirnetX submitted that, if a claim is not invalid, a
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`claim that depends from it also cannot be invalid because it is narrower in scope. Id. at 5–6.
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`More specifically, VirnetX alleged that the five newly asserted dependent claims are not invalid
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`under (1) anticipation; (2) obviousness; (3) derivation; or (4) nonjoinder. Docket No. 359 at 1.
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`The newly asserted dependent claims are not captured by issue preclusion, because
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`“[e]ach claim of a patent . . . shall be presumed valid independently of the validity of other
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`claims.” See 35 U.S.C. § 282(a). Although issue preclusion does not dictate that the newly
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`asserted dependent claims are not invalid as anticipated and obvious, the relationship between
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`the scope of independent claims and that of dependent claims does.
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`A dependent claim further defines an independent claim. See 35 U.S.C. § 112(d); 37
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`C.F.R. § 1.75(c). In other words, the scope of subject matter captured by an independent claim is
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`broader than a claim that depends from it. See 35 U.S.C. § 112(d); 37 C.F.R. § 1.75(c). In the
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`context of anticipation, if a reference does not read on the limitations of an independent claim, it
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`cannot read on the limitations of a dependent claim that includes additional requirements. See
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`Aspex Eyewear, Inc. v. Zenni Optical, Inc., 713 F.3d 1377, 1381 (Fed. Cir. 2013). This is also
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`true of obviousness. See id. If an independent claim is nonobvious, then a claim that depends
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`from it is also nonobvious. See id.
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`Case 6:12-cv-00855-RWS Document 468 Filed 03/22/16 Page 6 of 10 PageID #: 34629
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`In contrast to anticipation and obviousness, invalidity based upon derivation from another
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`and nonjoinder of all inventors is not similarly limited by the relationship between independent
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`and dependent claims. If the inventive entity of an independent claim is accurate, a claim that
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`depends from it may not have the same inventive entity. See 25 U.S.C. § 116(a). For instance,
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`an inventor may contribute to a patent by conceiving a limitation that is only present in a
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`dependent claim. See id. A particular limitation in a dependent claim could be derived from
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`another or cause an inventor to be excluded from a patent, while the inventive entity may
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`accurately reflect the inventors of an independent claim. See id.
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`Accordingly, this motion (Docket No. 320) was granted with respect to Apple’s
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`anticipation and obviousness defenses and denied as to its derivation and nonjoinder defenses.
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`Docket No. 362.
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`3.
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`Granting VirnetX’s Motion for Summary Judgment of No Inequitable Conduct
`(Docket No. 322)
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`“Inequitable conduct resides in failure to disclose material information, or submission of
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`false material information, with an intent to deceive, and those two elements, materiality and
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`intent, must be proven by clear and convincing evidence.” Kingsdown Med. Consultants, Ltd. v.
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`Hollister Inc., 863 F.2d 867, 872 (Fed. Cir. 1988). “Intent and materiality are separate
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`requirements.” See Therasense, Inc. v. Becton, Dickinson & Co., 649 F.3d 1276, 1290 (Fed. Cir.
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`2011) (en banc). But-for materiality is required to establish inequitable conduct. Id. at 1291.
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`“When an applicant fails to disclose prior art to the [U.S. Patent and Trademark Office
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`(“Patent Office”)], that prior art is but-for material if the [Patent Office] would not have allowed
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`a claim had it been aware of the undisclosed prior art.” Id. “Hence, in assessing the materiality
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`of a withheld reference, a court must determine whether the [Patent Office] would have allowed
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`the claim if it had been aware of the undisclosed reference.” Id.
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`Page 6 of 10
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`Case 6:12-cv-00855-RWS Document 468 Filed 03/22/16 Page 7 of 10 PageID #: 34630
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`When examining the intent to deceive requirement, the alleged conduct must be “viewed
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`in light of all the evidence, including evidence indicative of good faith.” Kingsdown, 863 F.2d at
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`876. To demonstrate the intent requirement of inequitable conduct, “the single most reasonable
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`inference able to be drawn from the evidence” must be a specific intent to deceive the Patent
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`Office. Therasense, 649 F.3d at 1290. This standard applies at the summary judgment stage.
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`ROY-G-BIV Corp. v. ABB, Ltd., 63 F. Supp. 3d 690, 695 (E.D. Tex. 2014). Intent may be shown
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`from indirect and circumstantial evidence. Therasense, 649 F.3d at 1290.
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`In its motion, VirnetX addressed a number of issues, including an explanation of why the
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`single most reasonable inference is not that VirnetX’s prosecuting attorney, Mr. Toby Kusmer,
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`had an intent to deceive the Patent Office. Docket No. 322 at 7–8. VirnetX explained that there
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`was no intent to deceive the Patent Office when Mr. Kusmer allegedly: (1) disclosed too much
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`information to the Patent Office; (2) failed to disclose evidence from related patents in Case No.
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`6:07-cv-80 (“the Microsoft litigation”) and reexamination proceedings initiated by Apple; and
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`(3) made misleading statements during prosecution regarding the publication date of a prior art
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`reference by Aventail (“the Aventail reference”). Id. at 7–21.
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`Apple responded by stating, among other things, that the intent requirement for
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`inequitable conduct was well-supported by the evidence. Docket No. 339 at 20. Apple
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`identified evidence that it believed supported inferring an intent to deceive the Patent Office. Id.
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`at 20–21. Apple’s alleged evidence was the following: (1) Mr. Kusmer incorrectly told the
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`Patent Office that the publication date of the Aventail reference was not discussed during the
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`Microsoft litigation; (2) Mr. Kusmer withheld testimony from the Microsoft litigation during
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`prosecution of U.S. Patent Nos. 8,051,181 and 8,504,697 (“the ’181 Patent” and “the ’697
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`Patent,” respectively); (3) Mr. Kusmer misled the Patent Office by inundating it with
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`Case 6:12-cv-00855-RWS Document 468 Filed 03/22/16 Page 8 of 10 PageID #: 34631
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`approximately 132,500 pages of documents, which were listed on information disclosure
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`statements; (4) Mr. Kusmer admitted he did not review all of the documents listed on the
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`information disclosure statements before submitting them to the Patent Office; (5) Mr. Kusmer
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`lulled the Patent Office into a false sense of complacency by promising to notify it of any
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`evidence of the Aventail reference publication date, but then failed to do so; (6) Mr. Kusmer
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`withheld the three reexamination declarations during prosecution of the ’181 Patent; and (7) Mr.
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`Kusmer described the three reexamination declarations related to the publication date of the
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`Aventail reference as “insufficient” during prosecution of the ’697 Patent. Id. at 20–21.
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`During the Microsoft litigation, the publication date of the Aventail reference was
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`discussed in the context of a confidential deposition transcript. See Docket No. 322 at 10–11.
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`Mr. Kusmer had no obligation to disclose documents under the protection of a protective order to
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`the Patent Office. See id. With respect to the documents listed on the information disclosure
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`statements, Apple did not indicate how Mr. Kusmer intended to deceive the Patent Office other
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`than by filing information disclosure statements that totaled many pages and were not reviewed
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`by him personally before being filed.2 See Docket No. 339 at 20. Further, the examiner rejected
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`the pending claims using the Aventail reference during prosecution of the ’697 Patent, which
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`indicates that the Aventail reference was not hidden from the Patent Office. See id. at 11.
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`Mr. Kusmer promised to update the Patent Office with information relevant to the
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`publication date of the Aventail reference, and did so. See id. at 11–12. Apple’s main complaint
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`appears to be the speed with which he updated the Patent Office. See id. Mr. Kusmer received
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`the three declarations from Apple’s reexamination filings a few days before a notice of
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`allowance was mailed for the ’181 Patent. See Docket No. 322 at 13. However, Mr. Kusmer
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`2 The Aventail reference was listed on a supplemental information disclosure statement with twenty-seven other
`references. See Docket No. 322 at 3 n.1.
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`Case 6:12-cv-00855-RWS Document 468 Filed 03/22/16 Page 9 of 10 PageID #: 34632
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`brought the three declarations addressing the publication date of the Aventail reference to the
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`examiner’s attention during prosecution of the ’697 Patent, which issued after the ’181 Patent.
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`See Docket No. 339 at 11–12. Additionally, the parties continue to dispute the Aventail
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`reference publication date. See Docket No. 322 at 17.
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`In view of the foregoing, the single most reasonable inference was not that Mr. Kusmer
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`had an intent to deceive the Patent Office by not disclosing the declarations. Therefore, the
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`Court granted VirnetX’s Motion for Summary Judgment of No Inequitable Conduct (Docket No.
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`322). Docket No. 362.
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`4.
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`Granting VirnetX’s Motion to Strike Portions of the Opinion and Testimony of
`Mr. Christopher Bakewell (Docket No. 316)
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`In the consolidation order, the Court warned that “while there is substantial overlap
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`between the two cases, incorporating the issues remanded in Apple I may require limited and
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`focused fact discovery, as well as supplemental expert reports.” Docket No. 220 at 1–2. As a
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`result, Apple served several interrogatories and requests for admission on VirnetX. Docket No.
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`333 at 4. Apple then supplemented the report of its damages expert, Mr. Christopher Bakewell.
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`Id.
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`In its motion to strike, VirnetX stated that Mr. Bakewell improperly supplemented his
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`report under the ruse that it was related to the Court’s consolidation of Apple I and Case No.
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`6:12-cv-855 (“Apple II”). Docket No. 316 at 5. As VirnetX described it, Mr. Bakewell’s
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`supplemental expert report introduced a new damages model based on a per-feature-per-product
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`amount, or “a reasonable royalty rate that applies to each of the three accused features [was]
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`$0.017 per unit (i.e., each worth one-third of $0.05 per unit).” Id. at 3. Apple responded by
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`explaining that the supplemental report accounts for the multiple versions of Virtual Private
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`Network (“VPN”) On Demand and FaceTime that would be at issue in the newly consolidated
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`Case 6:12-cv-00855-RWS Document 468 Filed 03/22/16 Page 10 of 10 PageID #: 34633
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`case. Docket No. 333 at 5–6. According to Apple, because the cases were consolidated, a
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`distinction needed to be made between the value of various versions of VPN On Demand and
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`FaceTime and this somehow also affected the reasonable royalty if less than three infringing
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`features were on a product. Id.
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`If Mr. Bakewell intended to present information about the relative value of the accused
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`features (i.e., VPN On Demand, FaceTime, or iMessage), that information should have already
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`been included in an earlier expert report. Before the cases were consolidated, Mr. Bakewell’s
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`expert report addressed all three accused features. See Docket No. 316 at 2. Further, the post-
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`consolidation discovery collected by Apple does not justify a shift to determining a royalty rate
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`based on the number of infringing features on a product. See Docket No. 333 at 4.
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`Mr. Bakewell’s new method of calculating damages did not sufficiently relate to the
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`consolidation of Apple I and Apple II. Accordingly, the Court granted VirnetX’s motion (Docket
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`No. 316). Docket No. 362.
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`Page 10 of 10
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`.
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`____________________________________
`ROBERT W. SCHROEDER III
`UNITED STATES DISTRICT JUDGE
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`SIGNED this 22nd day of March, 2016.