VirnetX's VPN Patents Declared Valid: USPTO

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VirnetX, which last month reached an out-of-court settlement with Microsoft in a patent-infringement case, announced Tuesday that the U.S. Patent and Trademark Office (USPTO) has found the patents at issue valid and enforceable.

The decision will not alter Microsoft’s (NASDAQ: MSFT) settlement with VirnetX (AMEX: VHC).

The bigger company is still out the $200 million it paid in mid-May to make VirnetX and its lawyers go away. As part of the deal, Microsoft also took out licenses for the use of VirnetX’s two virtual private networking (VPN) patents.

While the impact of the ruling on Microsoft is minimal at this point, the fact that the VPN patents have been declared valid increases VirnetX’s clout in doing future technology licensing deals with Microsoft or other companies.

It may also send a message to IT decision makers and technology buyers to expect to pay higher prices for products containing patented technologies licensed from third parties in the future.

“[The ruling] validates the importance of our patent portfolio,” Greg Wood, a VirnetX spokesperson, told InternetNews.com. VirnetX claims to hold some 48 patents, according to statements on the company’s website.

“VPNs are a widely used technology right now [and] we’re a licensing company, so it has a lot of implications,” Wood added.

The case began in 2007, when VirnetX sued Microsoft for infringing its two VPN patents, and it went to trial in early March of this year. VirnetX alleged that the two patents were used in a slew of Microsoft products, including Windows XP, Windows Vista, Live Communication Server, Office Communication Server, Windows Messenger, Live Meeting Console and Microsoft Office Communicator.

Microsoft ultimately lost the case. Almost immediately, VirnetX filed a second suit against Microsoft, alleging that Windows 7 and Windows Server 2008 also infringe its patents. However, VirnetX had to wait to file the second suit until Windows 7 was released.

The jury in the original suit awarded VirnetX $105.75 million. Rather than fight a second lawsuit that would be a virtual replay of the original trial and loss, Microsoft instead decided to settle — the companies never explained why the settlement was nearly twice what the jury had awarded in the first suit.

However, given the wild popularity of Windows 7 after its release, Microsoft’s lawyers may have been trying to head off even higher penalties that could have been awarded if the company had decided to fight the second suit.

As it happens, Scotts Valley, Calif.-based VirnetX is just now getting into the technology licensing business, Wood said.

“We view Microsoft as our first licensee,” he added.

Microsoft declined to comment on the USPTO’s decision.

Stuart J. Johnston is a contributing writer at InternetNews.com, the news service of Internet.com, the network for technology professionals.