Case 6:12-cv-00855-RWS Document 840 Filed 04/23/20 Page 1 of 17 PageID #: 57714
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE EASTERN DISTRICT OF TEXAS
`TYLER DIVISION
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`§
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`§
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`ORDER
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`VIRNETX INC., ET AL.,
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`v.
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`APPLE INC.,
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`Plaintiffs,
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`Defendant.
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`CIVIL ACTION NO. 6:12-CV-00855-RWS
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`SEALED
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`Before the Court is VirnetX’s Motion for Entry of Judgment. Docket No. 824. The Court
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`heard argument on April 15, 2020. For the following reasons, VirnetX’s motion is DENIED.
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`VirnetX’s requests for pre-judgment interest, post-judgment interest and a sunset royalty are
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`DENIED-AS-MOOT.
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`I. Background
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`For almost a decade, VirnetX and Apple have locked horns in a bitter patent dispute. In
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`the most recent bout, a jury found that Apple’s redesigned VPN on Demand and FaceTime features
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`infringed VirnetX’s patents1 and awarded VirnetX $502,567,709 in reasonable royalty damages—
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`approximately $1.20 per accused device. Docket No. 722 at 2. After trial, the Court denied
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`Apple’s post-trial motions, granted VirnetX’s requests for certain equitable relief and entered final
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`judgment. Docket No. 798 (order on post-trial motions); Docket No. 801 (Final Judgment).
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`Apple appealed. Docket No. 812. The Federal Circuit reversed this Court’s claim
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`construction, held that FaceTime did not infringe and remanded to this Court for a determination
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`on the necessity of a new damages trial. VirnetX Inc. v. Apple Inc., 792 F. App’x 796 (Fed. Cir.
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`1 U.S. Pat. Nos. 6,502,135 and 7,490,151 (asserted against VPN on Demand); U.S. Pat. Nos. 7,418,504 and 7,921,211
`(asserted against FaceTime).
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`Case 6:12-cv-00855-RWS Document 840 Filed 04/23/20 Page 2 of 17 PageID #: 57715
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`2019) (“VirnetX III”). As a first step in fulfilling that mandate, the Court sets forth the relevant
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`background: (a) the damages experts’ testimony, (b) the jury verdict form, (c) Apple’s
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`representations in post-trial briefing, (d) the Court’s order regarding ongoing royalties, (e) Apple’s
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`representation on appeal and (f) Apple’s representations during a related appeal.
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`a. Expert Testimony
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`Each party presented a damages expert at trial: Roy Weinstein for VirnetX and W.
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`Christopher Bakewell for Apple. On VirnetX’s behalf, Mr. Weinstein opined “that reasonable
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`royalties to be paid by Apple to VirnetX for use of the VirnetX patents in this case range from
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`$1.20 per accused unit sold, to $1.67 per accused unit sold with respect to FaceTime and VPN On
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`Demand.” Docket No. 753 at 26:13–16. He offered three specific royalty rates—$1.20, $1.41 or
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`$1.67 per accused unit—that averaged the per-unit royalty rate from six, five and four comparable
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`licenses, respectively. Id. at 48:23–55:4. Mr. Weinstein opined that these rates applied to each
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`infringing device regardless of whether the device contained FaceTime, VPN on Demand or both.
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`Id. 91:18–24, 127:5–8. In an example calculation, Mr. Weinstein multiplied the $1.20-per-device
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`rate by the number of accused units to arrive at $502,569,709 in damages. Id. at 90:7–91:19. He
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`performed the same calculation for the other rates. Rather than choosing a single rate, Mr.
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`Weinstein suggested all three rates would be appropriate, leaving the ultimate decision to the jury.
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`Id. at 55:5–7. But he did opine that $502,569,709 was his “conservative figure . . . for damages.”
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`Id. at 94:2–7.
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`On Apple’s behalf, Mr. Bakewell opined that “a reasonable royalty in this case [would be]
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`no more than $0.06 per unit.” Docket No. 758 at 223:16–17. To reach that figure, he divided the
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`royalty payment from a Microsoft-VirnetX license agreement—$223 million—“by the four billion
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`units that were licensed under that agreement.” Id. at 224:2–5. Unlike Mr. Weinstein, Mr.
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`Bakewell testified that different royalty rates should apply to devices containing different accused
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`Case 6:12-cv-00855-RWS Document 840 Filed 04/23/20 Page 3 of 17 PageID #: 57716
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`features: $0.06 for devices with both FaceTime and VPN on Demand, $0.01 for devices with
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`FaceTime alone and something less than $0.06 for devices with VPN on Demand alone. Id. at
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`262:23–64:1. To arrive at the $0.01 rate for devices with FaceTime alone, Mr. Bakewell relied on
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`an income approach based on Apple’s sales, rather than a market approach based on prior licenses.
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`Id. at 260:1–9. Before Apple included FaceTime as a default feature on its devices, users were
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`able to purchase a FaceTime application for $0.99. Id. at 260:10–12. Relying on opinions from
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`Apple’s other witnesses, Mr. Bakewell claimed the patented technology accounted for 1% of that
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`$0.99 sale price—approximately $0.01. Id. at 260:23–61:19.
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`b. Verdict Form
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`In trial briefing, the parties proposed alternative damages questions, but neither requested
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`a per-patent or per-feature question:
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`VIRNETX’S PROPOSAL
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`APPLE’S PROPOSAL
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`a
`find, by
`royalty do you
`What
`preponderance of the evidence, would fairly
`and reasonably compensate VirnetX for any
`infringement that you have found? Express
`your answer as a dollar amount per
`infringing device.
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`royalty did
`reasonable
`What
`VirnetX prove by a preponderance
`of the evidence would be adequate
`to compensate
`it for Apple’s
`infringement?
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`Docket Nos. 704-2 (VirnetX’s Proposal), 704-3 (Apple’s proposal). Apple did, however, argue
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`that VirnetX’s proposal was biased because it assumed a single royalty rate for every accused
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`device regardless of that device’s features. Docket No. 704 at 2. VirnetX argued Mr. Bakewell
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`chose not to present a feature-dependent damages theory, so Apple’s concerns had been waived.
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`Docket No. 709 at 2.
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`The Court adopted a compromise position, using VirnetX’s basic wording but declining to
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`request damages on a per-unit basis:
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`Case 6:12-cv-00855-RWS Document 840 Filed 04/23/20 Page 4 of 17 PageID #: 57717
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`What royalty do you find, by a preponderance of the evidence, would fairly and
`reasonably compensate VirnetX for any infringement that you have found?
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`Docket No. 722 at 2 (Final Verdict Form). The jury was never asked to calculate a reasonable
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`royalty specific to FaceTime’s infringement or VPN on Demand’s infringement.
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`c. Apple’s Post-Trial Representations
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`During post-trial briefing, Apple sought judgment as a matter of law on damages
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`“[b]ecause the jury’s damages award [had been] predicated on legally insufficient grounds.”
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`Docket No. 775 at 26. It argued Mr. Weinstein had failed to apportion damages, failed to account
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`for various licenses’ circumstances, advocated a royalty beyond the footprint of the invention and
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`violated the entire-market-value rule (EMVR). Id. at 26–33. Apple also argued the jury’s award
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`was duplicative and excessive. Id. at 33–35. In its reply brief, Apple asserted that “the jury [had]
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`adopted Mr. Weinstein’s theory,” so its arguments against Mr. Weinstein’s opinions applied with
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`equal force to the jury’s verdict. Docket No. 783 at 8. Apple made similar arguments in a related
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`case. See, e.g., Apple’s Omnibus Motion at 16–18, 20, 22, VirnetX v. Apple, Case No. 6:10-cv-
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`417 (E.D. Tex. 2016) (Docket No. 1062) (“-417 case”).
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`In the alternative, Apple moved for a new trial on damages for five reasons, four of which
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`related to damages. First, Apple argued a new damages trial would be necessary if the Court
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`granted JMOL of noninfringement for FaceTime or VPN on Demand. Docket No. 775 at 46.
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`Second, Apple argued Mr. Weinstein’s unreliable testimony should have been excluded. Id.
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`Third, Apple claimed the Court should have instructed the jury on the EMVR and had incorrectly
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`instructed the jury regarding the hypothetical negotiation. Id. Finally, Apple argued the jury’s
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`verdict was excessive. Id.
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`Case 6:12-cv-00855-RWS Document 840 Filed 04/23/20 Page 5 of 17 PageID #: 57718
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`d. VirnetX’s Sunset Royalty
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`To remedy ongoing harm, VirnetX requested a permanent injunction or a sunset royalty.
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`See Docket No. 774. In response to VirnetX’s sunset-royalty request, Apple argued that any
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`ongoing royalty should be capped at $0.08 per device. Docket No. 778 at 50–52. In doing so, it
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`repeatedly stated that the “jury’s $1.20 per-unit rate” should not be adopted or enhanced for any
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`sunset royalty. Id.
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`The Court denied VirnetX’s request for a permanent injunction but granted its request for
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`an on-going royalty. Docket No. 798 at 51. The Court found that “[t]he jury’s implied royalty
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`rate [wa]s $1.20,” which neither party disputed, and rejected VirnetX’s request to enhance that
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`rate. Docket No. 798 at 51.
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`e. Apple’s Representations on Appeal
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`On appeal, Apple continued to assert that the jury had adopted Mr. Weinstein’s damages
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`model. It claimed that—assuming Mr. Weinstein’s opinions were admissible—he had failed to
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`explain his apportionment to the jury. To Apple, because “the verdict . . . [had] awarded [Mr.
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`Weinstein’s] full damages demand,” the jury could not have apportioned, and its verdict could not
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`stand. Corrected Non-Confidential Brief for Defendant-Appellant Apple Inc. at 78–79, VirnetX v.
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`Apple, Case No. 19-1050 (Fed. Cir. 2019) (Docket No. 27).
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`In the same breath, Apple argued that “if the Court affirm[ed] the PTO’s unpatentability
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`determinations and/or reverse[d] the infringement findings for the ’135 and ’151 patents (asserted
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`against redesigned VPN On Demand) or the ’504 and ’211 patents (asserted against redesigned
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`FaceTime), the district court’s judgment should be vacated and remanded to determine the
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`applicable damages, prejudgment interest, and ongoing royalties for the patents and infringement
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`findings that remain.” Id. at 74. It argued that the jury’s verdict had been predicated on four
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`patents’ infringement and had not apportioned damages on a patent-by-patent basis. Id. Apple
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`Case 6:12-cv-00855-RWS Document 840 Filed 04/23/20 Page 6 of 17 PageID #: 57719
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`did not specify whether “determine” meant “determine by the Court” or “determine by a new trial.”
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`Id. In reply, however, Apple asserted a new trial could remedy the Court’s allegedly erroneous
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`instructions. Non-Confidential Reply Brief for Defendant-Appellant Apple Inc. at 22, VirnetX v.
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`Apple, Case No. 19-1050 (Fed. Cir. 2019) (Docket No. 45).
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`At argument and in a series of FED. R. APP. P. 28(j)2 letters, the parties disputed whether a
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`new trial on damages would be necessary if only VPN on Demand infringed. See VirnetX’s 28(j)
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`Supplemental Authority & Apple’s Response, VirnetX v. Apple, Case No. 19-1050 (Fed. Cir. 2019)
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`(Docket Nos. 80, 81). But the parties did not fully brief that issue. See VirnetX III, 792 F. App’x
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`at 813.
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`f. Apple’s Representations During Appeal in the -417 case
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`On appeal in the -417 case, VirnetX v. Cisco, Case No. 18-1197 (Fed. Cir. 2019), Apple
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`addressed the impact on damages of various potential liability holdings. In doing so, counsel for
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`Apple represented that “no one is contesting the royalty rate across the patents.” Oral Argument
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`at 1:33–40, VirnetX v. Cisco, Case No. 18-1197 (Fed. Cir. Jan. 8, 2019). But shortly thereafter,
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`counsel clarified Apple’s position: “what we said is that, if the damages are incorrect, [the case]
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`would have to be remanded for determination.” Id. at 3:38–44.
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`II. Choice of Law
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`VirnetX argues that Fifth Circuit law governs the Court’s analysis of its motion, Docket
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`No. 824 at 16; and Apple disagrees, arguing Federal Circuit law controls. Docket No. 825 at 8–9.
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`Despite the disagreement, neither party argues the choice-of-law issue is dispositive. See Docket
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`No. 825 at 9 (arguing, in the alternative, under Fifth Circuit law); Docket No. 828 at 7–8
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`(addressing Federal Circuit case law).
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`2 FED. R. APP. P. 28(j) allows parties to present courts with supplemental authority after briefing.
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`Case 6:12-cv-00855-RWS Document 840 Filed 04/23/20 Page 7 of 17 PageID #: 57720
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`Though often cached in substantive-procedural terms, the crux of the Federal Circuit’s
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`horizontal choice-of-law doctrine is the distinction between patent and nonpatent issues. See
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`Midwest Indus. v. Karavan Trailers, Inc., 175 F.3d 1356, 1359 (Fed. Cir. 1999) (en banc). That
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`distinction “has clarified the choice of law question for most purposes, but in some instances it has
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`not been obvious whether a particular issue should be characterized as a ‘patent’ issue.” Id. Issues
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`of substantive patent law are certainly patent issues, including whether substantive patent law
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`preempts or conflicts with other causes of action. Id. Procedural issues, on the other hand, are
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`nonpatent unless they (1) “pertain[] to patent law,” (2) “bear[] an essential relationship to matters
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`committed to [the Federal Circuit’s] exclusive control by statute” or (3) “clearly implicate[] the
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`jurisprudential responsibilities of this court in a field within its exclusive jurisdiction.” Id. Often,
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`the court’s definition of the procedural issue—defining it either narrowly or broadly—is
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`determinative. Cf. Harris Corp. v. Ericsson Inc., 417 F.3d 1241, 1250 (Fed. Cir. 2005) (“Waiver
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`is a procedural issue, but if one views the issue more narrowly as ‘waiver of a claim construction
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`argument,’ rather than the more general ‘waiver of an appellate argument,’ it seems indisputably
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`unique to patent law.”). Courts deciding “damages in patent cases” employ this framework.
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`Finjan, Inc. v. Secure Computing Corp., 626 F.3d 1197, 1207 (Fed. Cir. 2010).
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`The Court will apply Federal Circuit law for two reasons: first, the Federal Circuit has
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`suggested its own law applies, and second, the issue before this Court “pertains to patent law.”
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`See Midwest Indus., 175 F.3d at 1359.
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`First, the Federal Circuit seems to have understood that its own case law would apply on
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`remand. VirnetX III, 792 F. App’x at 812–13. Without reference to regional circuit law, the court
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`recited its new trial standard: “ ‘where the jury rendered a single verdict on damages, without
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`breaking down the damages attributable to each patent, the normal rule would require a new trial
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`Case 6:12-cv-00855-RWS Document 840 Filed 04/23/20 Page 8 of 17 PageID #: 57721
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`as to damages.’ ” Id. at 812 (quoting Verizon Servs. Corp. v. Vonage Holdings Corp., 503 F.3d
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`1295, 1310 (Fed. Cir. 2007)). To be sure, the Federal Circuit’s statement is not controlling, but it
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`does provide some insight. VirnetX III, 794 F. App’x at 813 (reserving issue for this Court); see
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`Engel Indus., Inc. v. Lockformer Co., 166 F.3d 1379, 1382 (Fed. Cir. 1999) (holding the Mandate
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`Rule applies only to issues actually decided, not those reserved for decision on remand).
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`Moreover, the Verizon court understood that Federal Circuit law governs in the situation
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`before this Court. That court announced its “normal rule” without reference to regional circuit
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`law. Verizon Servs. Corp., 503 F.3d at 1310. It cited the Supreme Court’s doctrine on erroneous
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`jury instructions but never mentioned Fourth Circuit law, i.e., the relevant regional circuit.
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`Implicitly, that court understood that its own law controlled.
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`Second, the issue here “pertains to patent law.” Like in Harris Corp., defining the issue’s
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`scope is key. In remanding, the Federal Circuit described the issue as “whether to hold a limited
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`damages-only retrial given the reduced basis of liability, including what discretion there might be
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`to hold such a retrial without conclusively determining whether one is needed, especially if doubt
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`remains as to the application of the above-quoted standards to this case.” VirnetX III, 794 F. App’x
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`at 813. While that statement does not reference patent law, the “reduced basis for liability” is a
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`partial vacatur on patent infringement, and the “above-quoted standards” are Federal Circuit
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`standards. Id. at 812–13. Then again, the court acknowledged the possibility that “doubt remains
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`as to the application of” its standards, which may express doubt as to the applicable law.
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`Despite that ambiguity, this Court must wade into two areas of patent law—patent damages
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`and waiver regarding patent enforcement—to resolve the parties’ disputes. First, the parties
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`disagree over the proper interpretation of the jury’s verdict. To resolve that dispute, the Court
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`must compare Mr. Weinstein’s testimony, Mr. Bakewell’s testimony and the jury’s verdict to
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`Case 6:12-cv-00855-RWS Document 840 Filed 04/23/20 Page 9 of 17 PageID #: 57722
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`divine how the jury reached its damages figure. In doing so, the Court must consider the nature
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`and implication of expert testimony on patent damages—certainly an issue that “pertains to patent
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`law.” See Midwest Indus., 175 F.3d at 1359. Second, VirnetX and Apple dispute the implications
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`of Apple’s post-trial representations—i.e., whether Apple’s purported framing of the jury verdict
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`prevents its arguments here. By resolving that dispute, the Court will determine whether VirnetX
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`may enforce a patent judgment—a question intimately bound with patent law. See Harris Corp.
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`v. Ericsson Inc., 417 F.3d 1241, 1250–51 (Fed. Cir. 2005) (“Because the ability to make claim
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`construction arguments on appeal is intimately bound up with patent enforcement, we hold
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`that Federal Circuit law controls waiver in the context of claim construction arguments.”).
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`In sum, the Federal Circuit has suggested that its own law applies to the issue before the
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`Court, and in resolving that issue, the Court must address two questions that “pertain[] to patent
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`law.” See Midwest Indus., 175 F.3d at 1359. Thus, this Court will apply Federal Circuit law. Still,
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`as the parties agree, the distinction between Fifth and Federal Circuit law is not outcome
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`determinative: the Fifth and Federal Circuit’s standards dovetail. See infra, § III at n.3.
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`III. Legal Standards
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`As noted above, “where the jury rendered a single verdict on damages, without breaking
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`down the damages attributable to each patent, the normal rule would require a new trial as to
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`damages.” Verizon Servs. Corp., 503 F.3d at 1310 (citing Memphis Cmty. Sch. Dist. v. Stachura,
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`477 U.S. 299, 312 (1986)).
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`Though “reason to depart from this general rule” may exist, Verizon Servs. Corp., 503 F.3d
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`at 1310, little precedent explains what circumstances justify such a departure. In WesternGeco
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`L.L.C. v. ION Geophysical Corp., 913 F.3d 1067, 1074 (Fed. Cir. 2019), the Federal Circuit posited
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`circumstances under which departure might be appropriate but remanded for the district court to
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`take up that question. Before remanding, however, the court clarified that it applies “a
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`harmlessness analysis similar to [its] approach in the case of erroneous jury instructions.” Id.; see
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`also Verizon Servs. Corp., 503 F.3d at 1310 (citing Memphis, which addresses erroneous jury
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`instructions). In the jury instruction context, harmlessness is an exceedingly high bar: an error
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`“can only be harmless error if it ‘could not have changed the result.’ ” Eko Brands, LLC v. Adrian
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`Rivera Maynez Enters., 946 F.3d 1367, 1379 n.6 (Fed. Cir. 2020) (quoting Verizon, 503 F.3d at
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`1307 n.7) (emphasis added); see Memphis Cmty., 477 U.S. at 312 (“When damages instructions
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`are faulty and the verdict does not reveal the means by which the jury calculated damages, the
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`error in the charge is difficult, if not impossible, to correct without retrial, in light of the jury's
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`general verdict.”) Likewise, the standard for departing from the normal rule must be exceedingly
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`high: the liability error must not have affected the damages verdict. See WesternGeco L.L.C., 913
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`F.3d at 1074 (“In other words, the award can be sustained if there was undisputed evidence that
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`the technology covered by [the affirmed] patent . . . was necessary to perform” the accused
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`infringement.) (emphasis added).3 “Review of the denial or grant of a motion for new trial is
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`evaluated under an abuse of discretion standard.” Medtronic, Inc. v. Intermedics, Inc., 799 F.2d
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`734, 740–41 (Fed. Cir. 1986).
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`3 Notably, this standard dovetails with the Fifth Circuit’s standard for similar cases. In Albright v. Longview Police
`Dep’t, 884 F.2d 835, 842–43 (5th Cir. 1989), the Fifth Circuit set aside a portion of a jury’s liability finding. After
`doing so, the Court remanded for the district court to address an issue of state law and then, depending on the court’s
`resolution of that issue, for a new trial. Id. Because the court was “unable to separate the mental anguish and
`other damages claimed for [the potentially viable claim] from the lost wages and damages solely attributable to [the
`inviable claim], . . . a new trial on damages [wa]s required.” Id. (citing Memphis Cmty. Sch. Dist. v. Stachura, 477
`U.S. 299, 312 (1986)). Like the Federal Circuit, the Fifth Circuit requires harmlessness. See id.; Auster Oil & Gas,
`Inc. v. Stream, 835 F.2d 597, 603 (5th Cir. 1988) (holding, because the jury “might have” awarded damages in an
`impermissible way, a new trial was necessary.); cf. Alaniz v. Zamora-Quezada, 591 F.3d 761, 773 (5th Cir. 2009)
`(affirming an entire damages award based on an independent grounds for liability). Tellingly, both the Fifth and
`Federal Circuits relied on Memphis to craft their standards, which provides the relevant harmlessness standard.
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`Case 6:12-cv-00855-RWS Document 840 Filed 04/23/20 Page 11 of 17 PageID #: 57724
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`Applying Federal Circuit precedent, this Court has previously departed from the normal
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`rule. In one such case, the Court upheld a damages verdict despite invaliding certain claims when
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`the defendant failed to object to the verdict form and presented a claim-independent damages
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`theory:
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`Even in its responsive briefing [a defendant] admits that it ‘does not object to the
`form of the verdict or apportionment of damages . . . .’ (Doc. No. 651 at 12). . . .
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`[That defendant] fails to explain why its damages expert, [Mr. Bakewell,] offered
`single lump sum damages amount that remained the same regardless of the number
`of claims or patents found to be infringed.
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`Eon Corp. IP Holdings, LLC v. Landis+Gyr Inc., No. 6:11-CV-317-JDL, 2014 U.S. Dist. LEXIS
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`160635, at *37–38 (E.D. Tex. Oct. 21, 2014), rev’d on other grounds sub nom., Eon Corp. IP
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`Holdings LLC v. Silver Spring Networks, Inc., 815 F.3d 1314, 1316 (Fed. Cir. 2016); see also SK
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`Hynix Inc. v. Rambus Inc., No. C-00-20905 RMW, 2013 U.S. Dist. LEXIS 66554, at *55 (N.D.
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`Cal. May 8, 2013) (upholding verdict under similar circumstances). Both Eon and SK Hynix fit
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`the exceedingly high bar for departing from the normal rule: no party presented a claim-dependent
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`damages theory, so the undisputed evidence compelled an identical damages verdict. Eon Corp.
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`IP Holdings, LLC, 2014 U.S. Dist. LEXIS 160635, at *37–38; SK Hynix Inc., No. C-00-20905
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`RMW, 2013 U.S. Dist. LEXIS 66554, at *55.
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`IV. Discussion
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`The jury rendered a general damages verdict, and the Federal Circuit vacated only part of
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`the jury’s liability findings, so the normal rule would require a new trial. Verizon Servs. Corp.,
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`503 F.3d at 1310. Neither party asserts that the jury explicitly calculated a royalty rate for devices
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`with VPN on Demand only. Instead, VirnetX argues the Court must depart from the normal rule
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`and remit damages to $1.20 per device that contains VPN on Demand (i.e., 384,528,255 devices
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`or $461,433,906 total) based on (a) the jury’s implicit findings and (b) Apple’s conduct. Docket
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`No. 824 at 15–16. Neither reason is persuasive.
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`a. The Jury’s Verdict Does Not Necessitate a Feature-Independent Royalty Rate
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`Because the jury awarded “the exact amount Mr. Weinstein had testified would be
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`appropriate,”4 Docket No. 824 at 11, VirnetX contends the jury must have adopted Mr. Weinstein’s
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`feature-independent royalty rate: “it would make no sense” for the jury to have found otherwise,
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`Docket No. 828 at 5–6; see Docket No. 824 at 16. Indeed, VirnetX claims that Apple conceded
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`as much in post-trial briefing and that the Court found as much when implementing a $1.20
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`ongoing royalty rate. Docket No. 824 at 16, 19–20. VirnetX notes the VPN on Demand patents
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`expire after the FaceTime patents, so VirnetX argues a portion of those ongoing royalties would
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`compensate VirnetX for VPN on Demand’s infringement alone. Id. Finally, VirnetX leverages
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`Fifth and Federal Circuit precedent to argue that any alternative interpretation of the verdict is
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`impermissible. Id. at 20–22. VirnetX claims that, in view of the parties’ agreement on the number
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`of accused units and the already-established royalty rate, nothing remains to be determined, so a
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`new trial is unwarranted.
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`This case does not justify departure from the normal rule. First, assuming the jury adopted
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`a feature-independent royalty rate, VirnetX improperly focuses on that rate’s implications. To
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`depart from the normal rule, the liability error must not have affected the damages verdict.
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`Rephrased in context, FaceTime’s infringement must not have affected the jury’s royalty rate
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`methodology. VirnetX argues that FaceTime’s infringement is irrelevant because the jury adopted
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`a feature-independent royalty rate. But that argument puts the cart before the horse, using a
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`4 Though neither the parties nor the Court has acknowledged it, the jury actually awarded $2000 less than Mr.
`Weinstein’s proposed royalty. Compare Docket No. 722 at 2 (awarding $502,567,709 to VirnetX) with Docket No.
`753 at 90:7–91:19 (testifying that royalty should be $502,569,709).
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`Case 6:12-cv-00855-RWS Document 840 Filed 04/23/20 Page 13 of 17 PageID #: 57726
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`potentially compromised damages verdict to argue FaceTime’s infringement had no effect on that
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`same verdict. Properly ordered, VirnetX must show the jury would have adopted a feature-
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`independent royalty rate regardless of FaceTime’s infringement. It has not done so.
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`FaceTime’s infringement may have affected the jury’s decision to apply a feature-
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`independent royalty rate. Mr. Weinstein argued for a feature-independent royalty rate, and Mr.
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`Bakewell advocated for a feature-dependent royalty rate. Each provided substantial evidence in
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`support of their conclusion. In resolving that dispute, the jury may have relied on its FaceTime
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`infringement findings. Because every accused device contained FaceTime, it is impossible to
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`know whether the jury would have decided differently if FaceTime did not infringe. As the Federal
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`Circuit acknowledged, “the jury did not have to decide whether the $1.20-per-unit figure would
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`be correct if only VPN on Demand infringed.” VirnetX III, 792 F. App’x at 813. On that basis
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`alone, the normal rule applies, and a new trial is required. That is not to say the jury’s liability
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`finding necessarily affected its damages methodology. In actuality, as VirnetX argues, the jury
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`may have reached the same conclusion regardless of FaceTime’s infringement. Such an
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`interpretation of the jury’s general verdict would be reasonable and logically sound, but in the
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`absence of more specific jury questions, the impact of FaceTime’s infringement on the jury’s
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`damages methodology is unknowable.
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`For similar reasons, VirnetX’s reliance on Siemens Med. Sols. USA, Inc. v. Saint-Gobain
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`Ceramics & Plastics, Inc., 637 F.3d 1269, 1291 (Fed. Cir. 2011), and Oiness v. Walgreen Co., 88
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`F.3d 1025, 1030 (Fed. Cir. 1996), is misplaced. Both involve error at the damages stage (i.e., not
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`affording the plaintiff a minimum recovery and excessive damages, respectively) rather than the
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`liability stage. Though both cases suggest that courts may alter damages in some circumstances
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`without a trial, neither relates to affirming a damages verdict despite a reduced foundation of
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`liability.5
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`Second, VirnetX’s argument is based on a lone premise: the jury awarded a uniform $1.20
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`royalty rate for each accused device. Docket No. 828 at 5–6; see id. at 16. From that premise,
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`VirnetX argues the jury must have adopted a feature-independent royalty rate that would apply
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`equally to devices containing only VPN on Demand. Id. Though in actuality the jury may have
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`adopted a uniform $1.20 royalty rate, that conclusion does not necessarily follow from the jury’s
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`verdict. The jury rendered a general damages verdict—$502,567,709—susceptible to multiple
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`interpretations. Docket No. 722. One interpretation—the one VirnetX supports—is that the jury
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`multiplied the number of accused devices (418,808,091) by a singular royalty rate (approximately
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`$1.199995 per device) without regard for the accused features. Again, such an interpretation
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`would be sound, but other mathematically equivalent interpretations exist. Nothing in the four
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`corners of the jury’s verdict requires a singular royalty rate.
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`Conceding this point, VirnetX argues a feature-independent royalty rate is the only
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`reasonable interpretation of the jury’s verdict given the evidence presented at trial. Docket No.
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`838 at 19:4–24. But the evidence supports alternative interpretations. Mr. Bakewell’s testimony
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`supports a $0.01 royalty rate for devices with only FaceTime—i.e., his income approach.
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`Assuming a $0.01 royalty rate for devices with only FaceTime, Mr. Weinstein’s testimony
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`supports a royalty rate of approximately $1.30608 per device for devices with both FaceTime and
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`VPN on Demand—which, combined with the $0.01 royalty rate for devices with only FaceTime,
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`yields the jury’s damages verdict. Mr. Weinstein opined that a royalty rate between $1.20 and
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`$1.67 applied for devices with both features, and if the jury found only the Avaya, NEC, Siemens
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`5 McDonald v. Bennett, 674 F.2d 1080, 1092 (5th Cir. 1982), is inapposite for the same reasons.
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`and Mitel licenses comparable, then the average royalty rate per accused device would equal
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`$1.31.6 Thus, the evidence supports a feature-dependent royalty rate: $0.01 for devices with
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`FaceTime only and approximately $1.30608 for devices with FaceTime and VPN on Demand. A
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`feature-independent royalty rate may be the most reasonable inference from the facts, but it is not
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`the only inference.
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`Neither Fifth nor Federal Circuit doctrine precludes a feature-dependent interpretation of
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`the verdict. That interpretation “of the jury verdict [would] render [the verdict] consistent and
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`reasonable.” Isbell v. Wal-Mart Stores, Inc., 997 F.2d 881, 1993 WL 261053, at *2 (5th Cir. 1993).
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`Nothing about it is internally inconsistent or unsupported by evidence. It “presume[s]” the jury
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`“follow[ed] [the Court’s] instructions,” Wellogix, Inc. v. Accenture, L.L.P., 716 F.3d 867, 876 (5th
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`Cir. 2013), awarding damages sufficient to compensate VirnetX for both FaceTime’s infringement
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`($0.01 per device) and VPN on Demand’s infringement (approximately $1.29608 per device). The
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`jury would not be required to “award no damages” for VPN on Demand, in contravention of
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`Federal Circuit law. Apple Inc. v. Motorola, Inc., 757 F.3d 1286, 1328 (Fed. Cir. 2014), overruled
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`in part on other grounds by Williamson v. Citrix Online, LLC, 792 F.3d 1339 (Fed. Cir. 2015) (en
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`banc).
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`Likewise, the Court’s ongoing royalty award does not resolve the issue. In adopting “[t]he
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`jury’s implied royalty rate,” the Court was not addressing whether evidence supported alternative
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`conclusions (i.e., whether the jury’s liability error might have infected its damages). It was
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`addressing what damages the jury awarded based on its now-erroneous liability verdict. Moreover,
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`the Court was sitting in equity and determining an implied royalty rate, not a required royalty rate.
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`6Adjusting the average royalty rate down by half-of-one-cent is consistent with Mr. Weinstein’s opinion