JOURNALIST • EDITOR • DIGITAL STORYTELLING
SCOTTS VALLEY – VirnetX, a tiny technology startup that won a $105.75 million jury award in a patent infringement suit against Microsoft Corp. in March and then sued the company the next day on more patent infringement charges, has settled both cases in a $200 million licensing agreement.
The nine-figure cash settlement, which was filed Friday in U.S. District Court for the Eastern District of Texas and announced Monday, allows Microsoft use of a VirnetX patent in its products. Both suits will be dismissed. Other aspects of the settlement and license were not disclosed.
Shares were up 25 cents to close at $6.38 on Monday. In the past year, shares have closed between $1.20 and $7.99.
The settlement allows VirnetX, currently a 12-person company, to focus on its core initiative, promoting secure domain names and automotive virtual private network technology, said Kendall Larsen, chief executive office, president and VirnetX chairman, in a prepared statement. VirnetX declined comment outside of its prepared statement released Monday. The license will not impact VirnetX’s plans to operate a universal Secure Domain Name Service, according to the company.
“This agreement highlights the need for VirnetX’s Secure Domain Name Initiative,” Larsen said in the statement. “We look forward to our continued work with our Secure Domain Name Initiative partners in that effort.”
In a prepared statement of his own, Tom Burt, Microsoft deputy general counsel, said the company was “pleased to work with VirnetX to bring these cases to a successful resolution through this settlement. We look forward to VirnetX’s continued progress as it develops its technologies.”
Last year, VirnetX hired McKool Smith, a high-profile litigation firm that had a successful track record against Microsoft. McKool earned a fixed fee of $3 million and a contingency fee of 8 percent of the litigation proceeds. McKool’s out-of-pocket expenses were to be about $1 million, according to VirnetX’s annual report. Earlier this month, facing an expected appeal from Microsoft, VirnetX announced it had rehired McKool. The newest contract topped at $7.5 million plus a contingency fee of up to 10 percent if both cases were settled together. Out-of-pocket expenses were estimated at $1.5 million.
In the company’s most recent annual report, filed March 31 with the Securities and Exchange Commission, VirnetX describes itself as being in “the development stage” of a patent and technology licensing program that needed additional funding to be successful. The patent portfolio for secure real-time Internet communications was acquired from Science Applications International Corp., a Fortune 500 technology company. One patent in the portfolio covers the company’s ability to build a virtual private network across the Internet in real time that automatically secures communication, ensuring privacy to specifically designated users. VirnetX plans to establish the exclusive secure domain name registry in the United States and other key markets around the world and license its technology to makers of chips, servers, smart phones, laptops, net books and other devices and services gearing up for the 4G market.
Private and secure communications is a “global, large and exponentially expanding” market in large part due to the popularity of unsecured social networks such as Facebook, MySpace, LinkedIn and Twitter, as well as explosive mobile and smartphone usage, according to VirnetX.
The company, which lost more than $13 million last year, burned an average of $636,000 per month during the fourth quarter last year and expects that amount to grow this year. In public offerings, the company raised a net $3.3 million last year, and $5.4 million in February, and $2 million in March.
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