Can VirnetX's Legal Strategy Survive Losing to Cisco?

Technology licensing firm VirnetX (NYSEMKT: VHC  ) lost a crucial patent infringement case against networking giant Cisco Systems (NASDAQ: CSCO  ) on Thursday. The stock plunged 28% in regular trading hours and continued to sink in after-hours action. Cisco shares barely budged on the news.

It's black and blue on white: Not guilty at all.

The verdict (link opens PDF from the free RECAP court-tracker service) found VirnetX's secure networking patents to be valid, but the company failed to prove that Cisco had infringed on any of them. The jury was deadlocked in the afternoon but ordered back to further deliberations by Judge Leonard Davis. It didn't take long after that to reach a unanimous decision.

The jury spent just one day deliberating the case, but jurors were active in sending notes back to the courtroom to get more information. That's a stark contrast to the rushed and ultimately flawed jury process in last summer's Apple (NASDAQ: AAPL  ) vs. Samsung trial. In that case, the jury foreman seemed to have decided on his own that Samsung needed to be punished, and then convinced the other jurors to support his scheme. Judge Lucy Koh later found the $1.1 billion damage award there unenforceable, slashing it by half.

That won't happen here, since Cisco was found to owe VirnetX exactly $0.

Speaking of Apple, VirnetX won a $368 million damages award against the Cupertino company last November in front of the same judge and using the same patent claims (but with a different jury) as the Cisco case. The stock has consistently traded about 20% higher since that verdict, and investors were clearly hoping for another big payday from Cisco. If nothing else, another victory would have affirmed that VirnetX's litigation-heavy strategy is working and perhaps forced many more settlements as well as juicy licensing agreements in the future.

Now that strategy is up in the air. I expect VirnetX to appeal this decision, because the company's future depends on looking invincible in court. Don't cry too hard for VirnetX's shareholders, though. Shares have still more than quadrupled in value over the last three years, starting with a $200 million settlement from Microsoft. The company isn't dead yet -- just down for the count.

Once a high-flying tech darling, Cisco is now on the radar of value-oriented dividend lovers. Get the low down on the routing juggernaut in The Motley Fool's premium report. Click here now to get started.

Read/Post Comments (1) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 17, 2013, at 6:39 PM, Mack2387 wrote:

    This article didn't actually explain anything about VirnetX's ability, or its lack thereof, to survive this verdict. What's the point on misleading readers with the title? Waste of time.

Add your comment.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2315158, ~/Articles/ArticleHandler.aspx, 10/1/2016 3:34:54 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 18 hours ago Sponsored by:
DOW 18,308.15 164.70 0.91%
S&P 500 2,168.27 17.14 0.80%
NASD 5,312.00 42.85 0.81%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/30/2016 4:00 PM
CSCO $31.72 Up +0.33 +1.05%
Cisco Systems CAPS Rating: ****
VHC $3.06 Down -0.11 -3.47%
VirnetX Holding CAPS Rating: *
AAPL $113.05 Up +0.87 +0.78%
Apple CAPS Rating: ****
MSFT $57.60 Up +0.20 +0.35%
Microsoft CAPS Rating: ****