Apple Commits Flagrant Foul In VirnetX Suit, Receives Stiff Penalty

Aug. 20, 2012 3:52 PM ETAAPL, CSCO, VHC3 Comments
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Healthcare, Tech, patents, litigation

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Daniel B. Ravicher is an attorney that represents clients in business and technology related transactions and litigation, which he's done since the dotcom boom. Mr. Ravicher is also investor in private and public life sciences, information technology, and other companies. He also regularly consults with investment banks, hedge funds, and individual investors on legal issues that may materially affect the value of private and publicly traded companies. He sometimes publishes his thoughts here, on his website, and on Twitter. Mr. Ravicher is not an investment adviser and the opinions he expresses are not legal, financial or any other kind of advice.

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I previously discussed VirnetX's (VHC) four currently pending patent infringement cases against Apple (AAPL), Cisco (CSCO) and other tech companies. In the first of those cases, set to go to trial in November, VirnetX took the deposition of an engineering manager at Apple who had himself applied for a patent on technology similar to, if not identical to, the technology claimed in VirnetX's patents.

The Apple engineer's patent application, though, was filed long after VirnetX's original patent application. This is a great fact for VirnetX, because if Apple's own engineer thought the idea was worthy of a patent when he applied for one, it will be hard for Apple to argue the same or similar idea wasn't worthy of a patent earlier in time when VirnetX submitted its application. It also shows that what Apple was working on is very similar to, if not the same thing as, that described in VirnetX's patents. So, this issue can be helpful to VirnetX in proving both that its patent is valid and that its patent is infringed by Apple.

During the deposition, VirnetX's attorney, Austin Curry of McKool Smith, wanted to ask the Apple engineer how his patent application was different than VirnetX's patent, but Apple's lawyer blocked the questioning and said he would shut down the deposition if Curry continued with the questioning. Curry, correctly sensing he was on a very favorable line of questioning, continued, which ultimately led Apple's attorney to indeed stop the deposition.

The Federal Rules of Civil Procedure state that there is never any excuse to stop a deposition absent severe bad faith or harassment of the witness by the questioning attorney. If the questions being asked are improper, the defending attorney is supposed to make objections on the record and later move for the questions and answers to be disqualified as evidence. At most, an attorney can instruct a witness not to answer a question if it would divulge attorney-client privileged material. You do not -ever- stop the deposition. I've never even heard of a deposition actually being stopped by an attorney, and I've seen some pretty nasty depositions in my time.

After Apple's lawyer stopped the deposition,which,to me,was at minimum a huge huge huge (did I say huge enough!)sign of weakness and confirmation that Curry was hitting on a very sensitive weakness in Apple's case,Apple asked the judge to issue a protective order barring VirnetX from continuing to ask any questions about the Apple engineer's patent application and its similarity to VirnetX's patents.VirnetX asked the Judge to rule Apple's lawyer had violated the rules of civil procedure and issue sanctions against Apple for that violation.

Last week, the judge issued an order granting VirnetX's motion for sanctions against Apple, and denying Apple's motion for a protective order. According to the judge, Curry performed excellently during the deposition. He was tough in not abandoning his line of questioning, but also not argumentative or needlessly emotional. As the judge said in last week's order:

[T]he Court has reviewed the transcript excerpts submitted by the parties and viewed the entirety of the video of Mr. Allié's deposition. At no point did VirnetX's counsel conduct the deposition in a manner that could be characterized as intended to annoy, embarrass, or oppress Mr. Allié. VirnetX's counsel did not badger Mr. Allié, raise his voice, or use inappropriate language. On the contrary, VirnetX's counsel conducted the deposition in a professional and respectful manner.

Regarding the conduct of Apple's lawyer, the judge said:

Apple's counsel, however, repeatedly lodged speaking objections during the deposition, stating that Mr. Allié was not in a position to understand the '135 patent until he had reviewed the entirety of the specification and prosecution history. Yet when asked, Mr. Allié himself confirmed that he understood the limitations of claim 1 of the '135 patent as recited by VirnetX's counsel and never requested to review the specification nor the prosecution history. ... Apple's counsel chose to end the deposition in violation of Rule 30(d)(3)(A). Merely disagreeing with a particular line of questioning is not justification to shut down the deposition. ... Apple's motivation to shut down the deposition was to provide an opportunity to "woodshed" the witness, rather than to protect the witness from any unfair conduct or questioning by opposing counsel.

After finding Apple's lawyer violated the rules of civil procedure, the judge realized that a simple slap on the wrist would not suffice to adequately punish Apple for the violation and put VirnetX in the position it would have been had Apple's lawyer not impermissibly stopped Curry's questioning. On the issue of penalty, the judge said:

If the Court simply imposes fees and expenses and orders completion of Mr. Allié's deposition, it would be a nominal sanction at best, as Apple would have accomplished what it conceivably wanted - disruption of the deposition and an opportunity to visit with the witness regarding his testimony. Such a nominal sanction would not provide any deterrent effect and would not put VirnetX in the position it was in prior to the termination of the deposition. In fact, such a nominal sanction would conceivably encourage tactical violations of the Rules in this case and future cases. Absent a true and meaningful sanction, future litigants faced with a witness about to give potentially unfavorable testimony may choose to improperly terminate the deposition knowing that the most likely result is that they will merely be required to offer the witness for additional testimony at their expense at a later date.

So, the judge offered Apple a choice between two penalties. Option 1 was to resume the deposition and eliminate any attorney-client protection for anything said between Apple's attorneys and the witness since the last deposition was cut off. In addition, Apple would not allowed to ask any rebuttal questions of the witness about the issue of comparing his patent application to VirnetX's patents. Option 2 was for the witness to not be allowed to testify at trial and in addition the judge would tell the jury that his deposition was improperly stopped in order to prevent him from giving testimony that would be unfavorable to Apple.

Apple had until yesterday (Monday, Aug 13) to decide which of these two penalties it would suffer and it elected Option 1. This is a huge victory for VirnetX. Curry will now not only get to ask the witness all the questions he wanted to ask, but he'll also be able to find out what coaching, if any, Apple's lawyers have given the witness about the issue since the deposition was stopped.

This doesn't mean VirnetX will necessarily win the case, just like returning the opening kickoff for a touchdown doesn't necessarily mean you'll win a football game. But, there aren't many better ways to start off for VirnetX, or worse ways to start off for Apple. Mr. Curry and the rest of the VirnetX team should be applauded for their ethical and rules-compliant behavior in pursuing zealous representation of their client.

If you're interested in more details about all this, see the judge's order linked to above and the transcript from the oral argument on the related motions here (starting on page 44, line 7). Those are the two sources I used for this article, including identifying Mr. Curry as the VirnetX attorney who conducted the deposition.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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