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VirnetX Reports: Today I Am a Patent Troll
This is a disappointing posting by Mobile Guru. While a prior posting on SeekingAlpha showed promise, this posting would seem to indicate he has not really understood VHC, its products and potential.
If he had he would not have presented the definition of a Patent Troll in his current posting.
"A patent troll is a derogatory term used to characterize a company that acquires patents for the purpose of extracting patent royalties from product developers.
A narrower term is non-practicing entity (
), which denotes a sub-category of patent trolls whose only activity in a domain is patent trolling. One definition of NPE is "an entity that does not have the capabilities to design, manufacture, or distribute products that have features protected by the patent."
On Page 12 of the 9/30/10 of VHC's10Q is the statement:
"Our employees include the core development team behind our patent portfolio, technology and software.
This team has worked together for over 10 years and is the same team that invented and developed this
technology while working at Science Application International Corporation or SAIC."
"We acquired this patent portfolio in 2006, and it now serves as the foundation of licensing business and
planned service offerings. We expect to continue to derive the majority of our revenue from license fees
and royalties associated with these patents. We also intend to continue our research and development
efforts to further strengthen our patent portfolio, and over time, we plan to leverage this portfolio to
develop a product suite that can be sold to original equipment manufacturers, or OEMs, enterprise
customers, and developers."
So clearly the current management/scientists of VHC have had and have "the capability to design products that have features protected by the patent".
The "manufacturing" that is involved with these patents are represented by the "Gabriel Connection Technology (software development kit and seamless) and automatic internet security (secure domain name registrar service which includes registrar server software, connection server software, and relay server software).
Below is the actual presentation on the VHC website which the Mobile Guru seems to have failed to read:
License & Service Offerings
We plan to offer a diversified portfolio of license and service offerings focused on securing real-time communications over the Internet, including:
•VirnetX patent licensing: Customers who want to develop their own implementation of the VirnetX code module for supporting secure domain names, or who want to use their own techniques that are covered by our patent portfolio for establishing secure communication links, will purchase a patent license. The number of patents licensed, and therefore the cost of the patent license to the customer, will depend upon which of the patents are used in a particular product or service. These licenses will typically include an initial license fee, as well as an ongoing royalty.
•GABRIEL Connection Technology™ Software Development Kit, or SDK: OEM customers who want to adopt the GABRIEL Connection Technology™ as their solution for establishing secure connections using secure domain names within their products will purchase an SDK license. The software development kit consists of object libraries, sample code, testing and quality assurance tools and the supporting documentation necessary for a customer to implement our technology. These tools are comprised of software for a secure domain name connection test server, a relay test server and a registration test server. Customers will pay an up-front license fee to purchase an SDK license and a royalty fee for every product shipped with the embedded VirnetX code module.
•Secure domain name registrar service: Customers, including service providers, telecommunication companies, ISPs, system integrators and OEMs can purchase a license to our secure domain name registrar service. We provide the software suite and technology support to enable such customers to provision devices with secure domain names and facilitate secure connections between registered devices. This suite includes the following server software modules:
◦Registrar server software: Enables customers to operate as a secure domain name registrar that provisions devices with secure domain names. The registrar server software provides an interface for our customers to register new virtual private domains and sub-domain names. This server module must be enrolled with the VirnetX secure domain name master registry to obtain its credentials before functioning as an authorized registrar.
◦Connection server software: Allows customers to provide connection services to enrolled devices. The connection services include registration of presence information for authenticated users and devices, presence information query request services, enforcement of policies and support for communication with peers behind firewalls.
◦Relay server software: Allows customers to dynamically maintain connections and relay data to private IP addresses for network devices that reside behind firewalls.
Secure domain name registrar service customers will enter into a technology licensing and revenue sharing agreement with VirnetX whereby we will typically receive an up-front licensing fee for the secure domain name registrar technology, as well as ongoing annual royalties for each secure domain name issued by the customer.
As I have indicated in prior posts, VHC came off on a very unexpected case win and settlement with MSFT back in back in June, 2010 and a "victorius patent review" also in June, 2010 just 5 months ago. It would not surprise me that most of the industry has not fully grasped what this "win" represents.
August 12, 2010 – VirnetX Holding Corporation (NYSE Amex: VHC), an Internet security software and technology company, today announced that, on August 11, 2010, it filed a complaint against Aastra USA, Inc., Aastra Technologies Ltd., Apple Inc., Cisco Systems, Inc., NEC Corporation, and NEC Corporation of America in the United States District Court for the Eastern District of Texas, Tyler Division. The complaint includes allegations of patent infringement regarding five patents owned by VirnetX, U.S. Patent Nos. 6,502,135, 6,839,759, 7,188,180, 7,418,504, 7,490,151. In its complaint, VirnetX seeks both damages and injunctive relief.
If CSCO's response is representative, basis a recent SeekingAlpha article, then it should not be very far in the future that these cases will be settled out of court in VHC's favor.
July 21 – VirnetX Holding Corporation (NYSE Amex: VHC) announced today that Kendall Larsen, Chairman, President and CEO, recently told CEOcast, Inc. in an interview that the company’s design pilot this quarter for its Secure Domain Name Initiative (
) in participation with leading 4G/LTE companies (domain infrastructure providers, chipset manufacturers, service providers, etc.) will move into production over the next six to 12 months for delivering to end-users and consumers of the Internet and mobile devices the needed and necessary security requirements for the next generation 4G/LTE wireless networks. The pilot initiative is implementing the company’s patented Secure Domain Name and automatic Virtual Private Network technology.
For whatever reason, this has been pushed out. I believe that it could happen any day, but I have no idea as to an exact date or with whom. My suspicions are that it will be with Qualcomm and Verizon, and I believe these would be a great combination, but it could be with some other biggies. Given the interview with Larsen back in July it would seem that a resolution could come soon.
Apparently, Mobile Guru has missed the point in his research into VHC for him to assert his generalized conclusions that VHC is a "patent troll". It would helpful if he spoke to Greg Wood at Investor Relations if he has any questions about VHC's "design, manufacture, or distribution of products". VHC is the company that will transform the concept of Internet security to one of safe usage. Their products move the concept of internet security from "reacting" to threats to 4G/LTE and cloud computing to making the security of a device invisible ("proactive") in any variation- mobile or otherwise- and thus to make moot any threat.
VHC has a "disruptive" new technology. VHC's patents are "basic" to the new technology of 4G/LTE and cloud computing. If any company's product does not have VHC's protection then it is vulnerable. If any company has a product that is similar or identical to VHC's patents and does not license and pay royalties then they will be hit with a lawsuit.
That is not "Patent trolling", that is just plain good business to protect one's patents. VHC has the requisite funds and legal payment arrangements to attack those infringing on their legitimate patents. VHC has the products to develop a large revenues in coming years.
Nov 9 01:44 AM
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VirnetX Holding Corporation: Wireless Security Giant or Mere Troll?
It is Robert Short who is the new Chief Technical Officer,
Jul 20 02:42 AM
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VirnetX Holding Corporation: Wireless Security Giant or Mere Troll?
It would have been helpful if you had asked those questions of Greg Wood (IR for VHC) prior to writing your article. I am confident you would have found the answers to your questions and you could have written a more objective and complete post.
I think you will find that prior to the MSFT settlement and the Patent Office ruling that no companies really took VHC seriously. Further, there were several times when funds were raised which were mostly used to pay the legal costs and employee salaries. Now VHC has no need for "venture capital".
There is no need for salesmen as they are outsourcing everything by getting companies to license and pay royalties (see IPCapital Group) plus VHC's own internal team. It is my understanding that the outsourcing company will get a % on the size of the contract. They have a great legal firm (for which services they will pay 8% of whatever the lawyers can get so there will be very limited cash outlays in this area).
There should be an announcement in this quarter (before 9/30)
of the chip and service provider that will be in the "pilot" program or as also known as the SDNI (Strategic Domain Name Initiative).
Additionally there will be Data Management companies like Symantec (whose CFO is on the BOD of VHC). This program will take about 6 months to be implemented.
It is expected that there will be other companies who will license and pay royalties who are already violating VHC's patents or they will be sued. VHC would prefer to have partners who are interested in a proactive security system (
) vs a reactive security system (everyone else who is not infringing on VHC's patents) rather than going the legal route (ie., not to be an "internet troll" as you have suggested) . As the CEO said at the ASM, there is "no competition" to VHC's product. I doubt he could say that if he didn't know it to be true.
All of those 4G devices which have already been sold had better have VHC's security or they are at great risk for hacking. If they have a system that is VHC's then they will need to pay for that (see MSFT).
SAIC did not "give away the patents for next to nothing". VHC will pay @$35 million from the MSFT settlement to pay off their obligation to SAIC. The people who invented the security system being used by VHC are the key people at VHC- particularly Munger (who just retired with over a million VHC shares and Scott the new Chief Technical Officer who took over for Munger).
It is doubtful that SAIC had any idea of whether there would be a value in those patents nor whether they could get them instituted without a lot of litigation. Obviously the former SAIC engineers and Kendall Larson had a different vision and despite the odds, prevailed.
It is ironic that the price is not much lower at $5.69 than it was about a year ago at a high of $7.06. Indeed, after the MSFT win, the stock went to $7.99 and has fallen back, partly because of overall market conditions but more likely because the market is still waiting for the pilot partner announcement. It is a bit ironic that a year ago, the company was fighting for its life and had the uphill battle against MSFT. Now that VHC won and has a whole lot of cash (and virtually no debt), with patent confirmation, and the likelihood of the partnership being announced within the next month or two and the stock is slightly below the high points.
I haven't checked on this, but just because they are using a small company for their beta testing doesn't mean that the testing will not be validated. You have to remember, this company had very little money when that testing started and they likely could not afford a bigger company. Sometimes small is just fine. You may recall DNDN had nothing for years and all of a sudden they have a whole lot.
I would suggest strongly for you to contact IR or Larson at VHC to discuss your issues. I would like to see your report when you get what you need. I would hope that you are more positive and less disparaging than the above posting of yours.
Jul 20 01:35 AM
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