VirnetX Holding Corporation (VHC), a Nevada company that makes its living by licensing its intellectual property — and suing those who violate it — just won a $625.6 million case against the largest company in the world, Apple Inc. (AAPL).
(Side note: Alphabet Inc (GOOG, GOOGL) was briefly the largest company in the world on Tuesday, but AAPL has regained the title. I expect the king of the hill will see quite a few changes this year.)
Back to VirtnetX: The news pushed VHC stock up more than 50% in mid-day trading, which is a helluva one-day gain, but still well below the 80% it was up earlier in the day. The Apple stock price, on the other hand, was essentially unaffected.
So is this news significant for anyone other than owners of VHC stock? Let’s take a look.
Don’t Hold Your Breath for More
Companies like VirnetX, which acquires and develops software patents and intellectual property with the sole intent to license them out to others or take people to court, are frequently criticized in the world of business.
Famous Dallas entrepreneur Mark Cuban, who made his billions selling Broadcast.com to Yahoo (YHOO) at the peak of the dot-com bubble, will rant about companies like VHC whenever he’s given the chance.
The argument is that VHC doesn’t actually do anything on its own. Instead, it’s a patent “troll.” That is to say, someone who owns patents without ever really intending to use them, then going on to reap the reward when companies like Apple create new products and services that actually contribute to the economy.
Companies like VirtnetX clog up the courts, wasting the precious time and resources of the companies that are making an honest living. What’s more, they disincentivize cool new technology from coming to market. Personally, I think Cuban makes some really good points.
Wednesday’s decision in the VirnetX Inc., et al. v. Apple Inc. case, may be one of the last decisions of its kind, so anyone who’s running out to buy VHC stock today is outside their mind.
Sure, the $625.6 million decision is huge for VirnetX, which even after its 50% rally has a market capitalization of just $380 million, so there’s a “value proposition” to be had. But (VHC shareholders will hate that there’s a “but”) there’s a big “but” surrounding this case and I cannot lie. From ArsTechnica:
“The VirnetX v. Apple showdown may be one of the last of its kind in which a “patent troll”-style company is able to wrest a nine-figure jury verdict from a tech company. Patent trolling still abounds and is increasingly concentrated in East Texas. But the ability to get huge verdicts has been dampened by changes in case-law, particularly the Supreme Court’s 2014 Alice Corp. v. CLS Bank decision that made it easier for defendants to get software patents thrown out of court.”
Bottom Line for AAPL and VHC
To be honest, this lawsuit never really meant much to Apple or AAPL stock. Of the $626 million that the Texas jury awarded VirnetX, only $334.9 million will definitely go to VRC. That sum will compensate VirnetX for two patent infringements AAPL doesn’t contest, which relate to Apple’s VPN on Demand feature.
The remaining $290.7 million was awarded to VirnetX as compensation for what the jury found to be patent infringements related to Apple’s famous FaceTime and iMessage services. Those were claims that Apple disputed, and ones that it will likely appeal, according to ArsTechnica.
Even if Apple decided to throw in the towel and pay the entire $626 million bill instead of just $334.9 million, that would amount to a measly 11 cents per share in cash.
If I own VHC stock, I’m taking the gains today and I’m running for the hills.
Ignoring the fact that most honest, hardworking people hate the idea of a company whose business model revolves around filing lawsuits, the business is also incredibly unpredictable. In the last five years, VHC stock is down 46%, even after Thursday’s huge gains.
I’d much rather be invested in a stock like AAPL, which has doubled in the last five years.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.
