Back in June, VirnetX Holding Corp announced plans to sell a 10% stake in itself to an obscure Japanese partner billed as a consortium of Japanese corporations and financial institutions. The PIPCO (which trades on the NYSE American exchange) was set to gain $20 million in expansion capital as well as an entrée into a potentially lucrative market for licensing its secure communications technologies and patents. But according to recent SEC filings, the stake in VirnetX will no longer change hands after the company’s favourable US district court verdict against Apple boosted its share price.

The share sale was supposed to see Public Intelligence Technology Associates (PITA) acquire $20 million of VirnetX stock at $3.64 per share. The first bump in the road came less than a month after the company’s initial announcement. In an 8-K filed on 27th June, VirnetX said that the parties had missed the 19th June deadline to close the share purchase, and had agreed on an extension until 17th July. The next filing came on 14th July, when VirnetX said it had been informed that “the Investor’s financing sources have not yet completed their diligence”. Rather than set a new closing date, VirnetX said it would reevaluate its position based on ongoing discussions with PITA.

On the patent licensing front - the PIPCO’s core business - it got a couple of pieces of good news in the meantime. The smaller one, in late August, was the announcement of a Patent Standstill Agreement with Taiwanese device maker HTC. Executives signaled that they believed that the deal, which was facilitated by IPVALUE, would eventually result in a licence.

The much bigger win came from a judge in the Eastern District of Texas, where VirnetX has fought a years-long infringement case with Apple. There the PIPCO was awarded a final verdict which, including enhanced damages, totalled about $440 million. In addition to the jury’s initial award of $1.20 per Apple device, the judge ruled that there had been wilful infringement of the asserted patents related to communications security.

In the immediate aftermath of the verdict, VirnetX shares surged nearly 20%. However, as IAM pointed out at the time, a big infringement award from a US district court does not mean much until it has been appealed to the Court of Appeals for the Federal Circuit, which is notorious for cutting these kinds of rulings down to size, or striking them out completely, along with the related patents.

Nevertheless, the stock is currently trading at over $5 per share, significantly above the $3.64 agreed in the share sale to PITA. This appears to have been the end of the deal. In an SEC filing, VirnetX says that the two parties terminated the deal last week in light of the price hike and continued uncertainty about PITA’s financing. They also said they would keep in place a revenue sharing agreement that would see the companies share proceeds from patent and technology licensing efforts undertaken in Japan.

It is still hard to find much information about PITA. Its website (in Japanese) lists shareholders including Wirthlin-Dentons, Atos, VirnetX and several individuals, but offers few clues as to links with Japanese corporates. It is hard to understand how a consortium of Japanese corporates and banks would have such a hard time raising $20 million dollars. But another deal executed by Eriya Unten, the individual behind PITA, seems to be in similar straits. Unten agreed to buy a portfolio of patents from US company Onstream last February, for a minimum price of $40 million, in order to monetise them. But a subsequent regulatory filing by that company in July shows that that deal doesn’t appear to have gone through either, for similar diligence-related reasons.

Times are tough for PIPCOs, no doubt, and it can’t be easy for them to find investors. VirnetX isn’t the only such company we’ve seen look to Asia for financing: Document Security Systems did a stock swap with a Singapore businessman only last month to save itself from being de-listed from the NYSE American exchange. Listed licensing companies understandably want to diversify, and Asia is a natural ground for expansion. But the big patent players in Asia have so far focused their partnerships on private NPEs and national patent funds like IP Bridge and Intellectual Discovery. I don't expect that will change anytime soon.