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Why Shares of VirnetX Holding Corp. Tumbled Today

By Timothy Green – Oct 17, 2017 at 4:31PM

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A big rally driven by news of a favorable court ruling is unraveling now that all the details are known.

What happened

Shares of patent-holding company VirnetX Holding Corp. (VHC 0.68%) tumbled on Tuesday one day after it disclosed that it was awarded about $440 million in a patent case against Apple (AAPL 3.71%). The federal judge in the case ruled that Apple's on-demand VPN and FaceTime features infringed on patents held by VirnetX. Shares had soared between initial word of the ruling on Oct. 2 and a few days prior to the announcement, so this decline may be a simple case of investor enthusiasm getting out of hand.

So what

VirnetX will receive $1.80 for each iPhone, iPad, and Mac product that infringes on the company's patents. The sum of those payments comes out to about $343 million. The court also awarded VirnetX an additional $96 million for attorney' fees and related costs. This is the third time that a court has ruled in VirnetX's favor in cases against Apple.

A gavel sitting on top of a book titled "Patent Law."

Image source: Getty Images.

VirnetX CEO Kendall Larsen added some additional detail:

This Final Judgement amount is large because sales of Apple's infringing products are large. The cost of our security technology in infringing devices has been apportioned and is less than a quarter of one percent of the device's cost. We believe this established per device rate for security is very reasonable and will greatly assist us with our domestic and global licensing efforts.

Apple is expected to appeal the verdict.

Now what

With Apple set to appeal the verdict, this judgement doesn't mark the end of the patent battle between the two companies. There's no telling when or if VirnetX will actually receive cash from Apple. Apple has near-limitless resources to fight this battle, and the company is unlikely to go down without putting up a fight.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Apple. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool has a disclosure policy.

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