Digest of VirnetX, Inc. v. Apple, Inc., No. 2014-1489 (Fed. Cir. Sept. 16, 2014) (precedential). On appeal from E.D. Tex. Before Prost and Chen.

Procedural posture: Appellant accused infringer appealed from a final judgment that the asserted patents were valid and infringed. CAFC affirmed on validity, affirmed-in-part and reversed-in-part on claim construction, reversed and remanded on infringement, affirmed on the exclusion of evidence from a USPTO reexamination, and vacated the jury’s damages award.

  • Claim Construction: The CAFC affirmed the district court’s construction of “domain name” as “a name corresponding to an IP address,” rejecting Appellant’s argument that the plain and ordinary meaning, as supported by a technical dictionary definition, is “a hierarchical sequence of words in decreasing order of specificity that corresponds to a numerical IP address.” The CAFC found that the intrinsic evidence showed the inventors did not intend to limit the term to describing only internet web addresses. Instead, the intrinsic evidence suggested the use of the invention for secure communications between application programs such as video conferencing, e-mail, word processing programs, telephony, and the like.
  • Claim Construction: The CAFC reversed the district court’s construction of “secure communication link” as “a direct communication link that provides data security,” agreeing with Appellant that the term requires anonymity as well as data security. The CAFC found the specification indicated that the addition of anonymity was one of the primary contributions of the patent, and noted that Appellee had not identified any embodiment that provided data security without anonymity.
  • Infringement – Doctrine of Equivalents: The CAFC reversed the district court’s denial of Appellant’s motion for judgment as a matter of law on the issue of infringement based on the doctrine of equivalents. The equivalency was based on equating “security” and “encryption”; however, the specification made clear that encryption is a narrower, more specific requirement than security. Therefore, no reasonable jury could find infringement based on the doctrine of equivalents.
  • Reexamination: To establish good faith belief in the invalidity of the asserted claims and thereby negate the requisite intent for inducement, Appellant proffered at trial evidence of the USPTO’s initial rejection of the claims in a pending reexamination. The district court excluded this evidence, concluding that such non-final actions would be highly prejudicial and risk misleading the jury. Applying Fifth Circuit law, the CAFC concluded that the district court had not abused its discretion in excluding this evidence.
  • Damages – Reasonable Royalty: The district court instructed the jury not to use the value of the entire product in determining a royalty base, unless the product constituted the smallest saleable unit containing the patented feature. The CAFC held that this instruction mistakenly suggests that there is no further constraint on the selection of the base. Where, as in this case, the smallest saleable unit is a multi-component product containing several non-infringing features with no relation to the patented feature, the patentee must undertake an apportionment analysis.