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Microsoft Settles With Patent Holding Co. VirnetX for $23M

By Mark Wilson, Esq. on December 23, 2014 | Last updated on March 21, 2019

In September, we blogged about the ongoing legal battle between VirnetX, a patent holding company (or patent troll, depending on your point of view), and Apple. VirnetX claimed a patent on the process of establishing a secure tunnel between two computers on the Internet. Apple uses something like this technology in FaceTime, though the Federal Circuit Court of Appeals reversed a jury verdict in VirnetX's favor on some of the infringement claims.

As it turns out, VirnetX had sued everyone -- including Microsoft, which VirnetX claimed used its patented securing tunnel technology in Skype.

Just Go Away

According to Ars Technica, Microsoft paid VirnetX a $23 million settlement just to go away. In addition, Microsoft would be granted a license to all of VirnetX's patents. The $23 million settlement follows a much larger $200 million payday for VirnetX in 2010.

VirnetX, like many patent holding companies, makes all of its money by licensing technology to other companies. According to Bloomberg News, the $23 million settlement was 10 times more than what VirnetX made from licensing in 2013.

Trolling Is as Trolling Does

The more neutral word that companies like VirnetX prefer is "non-practicing entity" (NPE). This refers to holding companies that do little more than sit back and collect rents on technology they happen to own patents for. For all of its multimillion-dollar money-making, VirnetX's "headquarters" is a small office park on the southeast shore of Lake Tahoe, Nevada, which also houses dentists and accountants. (It helps that VirnetX's office is minutes from the California border, but Nevada has no corporate or personal income taxes. Go figure.)

Unlike many other NPEs, however, VirnetX at least appears to develop some new technology and is regularly granted new patents by U.S. Patent and Trademark Office (although just because USPTO grants a patent doesn't mean the claims are valid). Other companies desperately attempt to avoid litigation out of the fear that their patents -- on which they receive all their revenue -- will be held invalid.

Other patent claims are just outright wacky, like the one that promoted Personal Audio LLC to sue Adam Carolla and other podcasters for royalties. Personal Audio had the audacity to claim that a failed service it launched in the 1990s that involved mailing audio cassettes of news articles to customers was a patentable precursor to podcasts. That suit was dropped and settled earlier this year; Personal Audio claimed it settled because podcasts weren't lucrative enough, but it's probably no coincidence that Carolla also crowd-sourced a legal defense fund to take on Personal Audio instead of settling.

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