I would not keep writing on the same subject (damages and appeals in the VirnetX (NYSEMKT:VHC) vs. Apple (NASDAQ:AAPL) trial) if it was not apparent that there is a substantial amount of misinformation circulating on the investment message boards and investor websites such as Seeking Alpha. I find it most telling that all of this information, though readily available for those who care to do research, is constantly misrepresented (either by ignorance or malfeasance). The other articles that I have written on the subject are here and here and attempt to breakdown both VirnetX's damages models and the discussion and Apple's appeal at the CAFC. Strangely, with over 100 comments between the two articles there is never a serious attempt to debate my findings on a forum that seems the most ideal to attract that very conversation.
The misinformation I am most amazed by is the belief that VirnetX's use of the smallest salable unit (SSU) is interchangeable with the entire market value rule (which is really an exception to the rule) (EMVR). This is simply not the case. The SSU was first ruled on by Judge Rader in the Cornell vs. Hewlett-Packard and is actually described as the smallest salable patent practicing unit. The EMVR is an exception to the use of this unit as a basis for infringement damages. If the SSU is the entire product, this is a usage of the SSU and NOT the EMVR. There has yet to be a case where the plaintiff is required to break down the SSU into smaller, hypothetical units to find a royalty base. As Mr. Jakes puts it at the CAFC, "to segregate out whatever has to be attributed to this particular invention is not something that is required".
As I have said before, I am not a lawyer, but the English language means the same thing even to those of us without an ABA card. Also, diligent research and common sense can go a long way towards understanding the legal position of those making the argument. Apple spends a more than proportionate amount of time quoting the LaserDynamics decision, however, they seemed to have missed one very important sentence in the decision and I think it leaves the rest of their argument wanting, "We reaffirm that in any case involving multi-component products, patentees may not calculate damages based on sales of the entire product, as opposed to the smallest salable patent-practicing unit, without showing that the demand for the entire product is attributable to the patented feature." (this decision was written after Uniloc and Lucent). Where there is an "intersection" of the smallest salable unit and the entire market value because the SSU is the entire product, there is no case law demanding that the SSU be further broken down to form the royalty base.
I am in no way presuming to claim that I know what the CAFC is going to do, but I will put this out there for conversation's sake. For this to be a battleground decision on the merits of further apportionment of the SSU when it is also the entire product, Apple would needed to have presented a more logical and detailed argument apportioning out the patent-practicing features of the FaceTime And VPN on Demand functions and showing their relative value to the overall product. VirnetX satisfied the judge's requirement for proving damages on the SSU or he would not have allowed Mr. Weinstein's testimony, he also noted that Apple should have presented a much more plausible counterproposal for damages for the mobile devices, other than attempting to tie them to a software upgrade of a desktop computer.
Lastly, the only number that VirnetX argued towards in its closing arguments was the total base of the SSU sales, never Apple's overall sales or profits of the entire infringing product line. Thus, the jury was never tainted with numbers it had no business knowing. There may come a time when the CAFC takes a SSU of a large complex product and dictates that the infringing features be apportioned out of the calculation and used to set the damages, this time is not now. As shown above, Apple did nothing to prove their appeal has any merit and their trial team left the CAFC with no functional ability to use this case as a bellwether dismantling of the SSU where it is the entire product. Rational debate welcome and please don't turn the comment section off of that pursuit!
And as an ending, please let me note that this is an internet blog, as such I am not writing in APA version IV standards nor am I linking every case citation or any thing else for that matter. If you cannot find the information yourself or doubt the veracity of my usage or contextual surroundings, please feel free to point this out and I'll point you in the correct direction. If I wanted to do all those things this would appear as a Premium Article for which I'd receive a minor pittance.
Disclosure: I am long VHC.