Case 5:17-cv-00551-LHK Document 1 Filed 02/02/17 Page 1 of 36
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`STEYER LOWENTHAL BOODROOKAS
` ALVAREZ & SMITH LLP
`Allan Steyer (State Bar No. 100318)
`Jill M. Manning (State Bar No. 178849)
`D. Scott Macrae (State Bar No. 104663)
`One California Street, Suite 300
`San Francisco, CA 94111
`Telephone: (415) 421-3400
`Facsimile: (415) 421-2234
`asteyer@steyerlaw.com
`jmanning@steyerlaw.com
`smacrae@bamlawlj.com
`
`PEARSON, SIMON & WARSHAW, LLP
`Bruce L. Simon (State Bar No. 96241)
`Daniel L. Warshaw (State Bar No. 185365)
`Alexander L. Simon (State Bar No. 305734)
`44 Montgomery Street, Suite 2450
`San Francisco, CA 94104
`Telephone: (415) 433-9000
`Facsimile: (415) 433-9008
`bsimon@pswlaw.com
`dwarshaw@pswlaw.com
`asimon@pswlaw.com
`
`[Additional counsel listed on signature page]
`
`Attorneys for Christina Grace
`and Proposed Lead Counsel for the Class
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`
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`UNITED STATES DISTRICT COURT
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`NORTHERN DISTRICT OF CALIFORNIA
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`SAN JOSE DIVISION
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`
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`CHRISTINA GRACE, Individually and on
`Behalf of All Others Similarly Situated,
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`Plaintiff,
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`v.
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`APPLE, INC.,
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`Defendant.
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`CLASS ACTION COMPLAINT
`Case No.
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`Case No.
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`CLASS ACTION
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`1. Trespass to Chattels
`2. Violations of the Unfair Competition
`Law, California Business and Professions
`Code §17200 et seq.
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`DEMAND FOR JURY TRIAL
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`Case 5:17-cv-00551-LHK Document 1 Filed 02/02/17 Page 2 of 36
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`Plaintiff Christina Grace (“Plaintiff”), individually and on behalf of all others
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`similarly situated, brings this Class Action Complaint against defendant Apple Inc. (“Apple” or
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`“Defendant”), and alleges as follows:
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`NATURE OF THE ACTION
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`1.
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`This is a consumer class action brought by Plaintiff on behalf of herself and all
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`others similarly situated who owned an Apple iPhone 4 or iPhone 4S that was operating on iOS
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`6 or an earlier operating system, and therefore lost the ability to use Apple’s “FaceTime” video
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`conferencing feature when Apple intentionally broke FaceTime for iOS 6 and earlier operating
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`systems on April 16, 2014.
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`2.
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`Apple Chief Executive Officer (“CEO”) Tim Cook (“Cook”) has described the
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`iPhone as “one of the most important, world-changing and successful products in history.” Since
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`introducing the iPhone in 2007, Apple has sold more than one billion units.
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`3.
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`All iPhones operate through Apple’s proprietary “iOS” operating system, which
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`is the software that controls the device’s functions and operations.
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`4.
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`FaceTime is Apple’s immensely popular real-time video messaging and chat
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`feature that enables FaceTime users to engage in real-time video (and audio) communications.
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`FaceTime is proprietary to Apple products and therefore users can only communicate via
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`FaceTime with Apple products. Since first releasing FaceTime in 2010, Apple has heavily
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`marketed the feature’s ability to close the gap between friends and loved ones separated by great
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`distances, particularly at life’s most meaningful milestones. Apple heavily touted FaceTime as a
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`centerpiece in the company’s advertisements for the iPhone 4 and iPhone 4S. In the years
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`following its release, FaceTime became one of the most popular and valued iPhone features.
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`Indeed, at Apple’s 2013 annual stockholders’ meeting, CEO Cook revealed that fifteen to twenty
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`million FaceTime calls were made on a daily basis.
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`5.
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`There are two types of ways that participants in a FaceTime call can exchange
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`audio/video media: (1) the so-called “peer-to-peer method,” where a direct connection is formed
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`between the caller and the callee; and (2) the so-called “relay method,” where the caller and the
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`CLASS ACTION COMPLAINT
`Case No.
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`Case 5:17-cv-00551-LHK Document 1 Filed 02/02/17 Page 3 of 36
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`callee connect to a relay server that relays the data on behalf of the devices. During the period
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`relevant to this action, the servers used by Apple for relaying FaceTime calls were owned by a
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`company called Akamai Technologies, Inc. (“Akamai”). Unlike peer-to-peer FaceTime calls,
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`Apple made significant payments to Akamai for “relay usage” (i.e., bandwidth) on Akamai’s
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`servers.
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`6.
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`Prior to November 7, 2012, approximately 90-95% of FaceTime calls were
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`connected through the peer-to-peer method, and only 5-10% through the relay method. Thus,
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`Apple’s relay usage—and the expense to Apple arising therefrom—were relatively low.
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`7.
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`On November 7, 2012, however, a jury found that Apple’s peer-to-peer method of
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`connecting FaceTime calls infringed on patents held by VirnetX, Inc. (“VirnetX”). The only way
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`for Apple to avoid knowingly and intentionally continuing its infringement on VirnetX’s patents
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`was to shift 100% of FaceTime call volume to the relay method.
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`8.
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`Upon shifting 100% of FaceTime call volume to the relay method, Apple’s relay
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`usage soared. As a result, Apple began to incur multi-million dollar monthly charges for its use
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`of Akamai’s servers. Therefore, as internal Apple emails reveal, Apple undertook a concerted
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`effort to find a way to reduce its relay usage by reducing the volume of FaceTime calls connected
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`through the relay method. Indeed, an internal Apple email chain circulated during this time period
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`bore the subject “Ways to Reduce Relay Usage,” and explored potential strategies for doing so.
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`9.
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`On September 13, 2013, potential relief from Apple’s high relay usage fees
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`arrived. On that day, Apple introduced iOS 7, a next generation operating system that could
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`connect FaceTime calls through the peer-to-peer connection method in a way that had not yet
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`been found to infringe on VirnetX’s patents. The introduction of iOS 7 therefore helped Apple
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`reduce its relay usage and the resultant payments from Apple to Akamai.
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`10. More than seven months after the introduction of iOS 7, however, millions of
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`Apple users’ devices still operated on iOS 6 or earlier operating systems and thus could only be
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`connected via FaceTime through the relay method. Because of this, Apple was still amassing
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`significant relay usage and, therefore, facing substantial payment obligations to Akamai.
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`CLASS ACTION COMPLAINT
`Case No.
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`Case 5:17-cv-00551-LHK Document 1 Filed 02/02/17 Page 4 of 36
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`11.
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`Consequently, to further reduce its relay usage costs, Apple devised a scheme to
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`force millions of its users—i.e., users running iOS version 6 and earlier—to stop using FaceTime
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`on their devices. As Apple’s internal emails and sworn testimony at the VirnetX trial revealed,
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`Apple formulated a plan by which its engineers caused a digital certificate necessary to the
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`operation of FaceTime on iOS 6 or an earlier operating system to prematurely expire. Upon the
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`expiration of that certificate, and as a direct result of Apple’s actions, the valuable FaceTime
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`feature immediately and abruptly stopped working for millions of users running iOS 6 or an
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`earlier operating system (the “FaceTime Break”). To regain FaceTime capability, those users had
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`to either transition to iOS 7, or buy an entirely new Apple device with iOS 7 preinstalled.
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`12.
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`Apple did this knowing that for millions of users, moving to iOS 7 was highly
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`problematic because it was essentially incompatible with certain Apple devices. For iPhone 4
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`and iPhone 4S users, for example, the coerced move to iOS 7 subjected their devices to slowness,
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`system crashes, erratic behavior and/or the elimination of their ability to use critical functions on
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`their phone. As succinctly stated in one of the media reports that discussed these widespread
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`functionality problems, “[t]he older handsets buckle under the weight of the new software.” Thus,
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`for millions of Apple’s customers, a move to iOS 7 would significantly harm the functionality of
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`their device.
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`13.
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`In addition to recognizing these perils of moving certain Apple devices to iOS 7,
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`Apple more generally recognized the gravity of its decision to implement the FaceTime Break.
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`Indeed, in the days leading up to the FaceTime Break, then-Apple Manager of Operating System
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`Security Jacques Vidrine (“Vidrine”) sent an email to other Apple personnel in which he
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`highlighted the significance of what the company planned to do, stating: “[L]et me just voice my
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`concern here. Maybe someone can talk me off the ledge by convincing me this is not as big a
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`deal as I think.”
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`14.
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`Unfortunately, Vidrine’s appeal fell on deaf ears. In a disturbing juxtaposition to
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`Apple’s marketing campaigns that highlighted the life-changing importance of FaceTime to
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`separated families, deployed soldiers, hearing-impaired individuals and countless others, Apple
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`CLASS ACTION COMPLAINT
`Case No.
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`Case 5:17-cv-00551-LHK Document 1 Filed 02/02/17 Page 5 of 36
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`advanced its financial interests by intentionally breaking FaceTime for millions of its users.
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`Indeed, Apple employees mocked the situation—and the millions of users unwittingly marching
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`toward the FaceTime Break—with a cartoon that was circulated within Apple via email.
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`15.
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`Apple selected April 16, 2014 as the day on which the FaceTime Break would
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`strike its customers. At the appointed time on that day and without warning, millions of Apple
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`users—every user who had not installed iOS 7—suddenly lost the ability to use FaceTime.
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`16.
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`The public response to the unexpected and unexplained FaceTime Break was swift
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`and substantial, including numerous media reports and vast customer outcry. Rather than
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`revealing the truth about the cause and impetus of the FaceTime Break, Apple claimed that
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`FaceTime had suffered a “bug,” and that to regain the ability to use FaceTime, users needed to
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`transition their device to iOS 7.
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`17.
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`Internal Apple emails eliminate any doubt that Apple intentionally broke
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`FaceTime, and did so in order to reduce relay usage and the high costs related thereto. For
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`example, weeks or months after the FaceTime break, Apple engineering manager Patrick Gates
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`(“Gates”) sent the following email to various Apple personnel: “Hey, guys. I’m looking at the
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`Akamai contract for next year. I understand we did something in April around iOS 6 to reduce
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`relay utilization.” Apple engineer Gokul Thirumalai responded to Gates, stating the following:
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`“It was a big user of relay bandwidth. We broke iOS 6, and the only way to get FaceTime
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`working again is to upgrade to iOS 7.” (Emphasis added.)
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`18.
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`Following the FaceTime Break, millions of iPhone 4 and iPhone 4S users whose
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`devices were operating on iOS 6 or an earlier operating system faced two options for continuing
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`to use their device: (1) remain on a pre-iOS 7 operating system, but without the ability to use
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`FaceTime; or (2) transition to iOS 7, and accept the significant reduction in functionality that their
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`iPhone would suffer as a result. To quote the colorful language used by an Apple employee in an
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`internal Apple email sent within hours of the FaceTime Break, as a result of the break “our users
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`on [iOS 6] and before are basically screwed[.]” (Emphasis added.)
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`CLASS ACTION COMPLAINT
`Case No.
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`Case 5:17-cv-00551-LHK Document 1 Filed 02/02/17 Page 6 of 36
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`19.
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`Plaintiff brings this action on behalf of herself and all other similarly situated
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`consumers who, at the time of the April 16, 2014 FaceTime Break, owned an iPhone 4 or iPhone
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`4S that was running on iOS 6 or an earlier operating system, and who therefore lost the ability to
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`use FaceTime on their device. Plaintiff alleges trespass to chattels and violations of the Unfair
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`Competition Law, California Business and Professions Code §17200, et seq. (the “UCL”).
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`JURISDICTION AND VENUE
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`20.
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`This Court has jurisdiction over this matter pursuant to 28 U.S.C. §1332(a)(1) as
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`modified by the Class Action Fairness Act of 2005, because at least one member of the Class is a
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`citizen of a different state than Defendant, there are more than 100 members of the Class, and the
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`aggregate amount in controversy exceeds $5,000,000.00, exclusive of interest and costs.
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`21.
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`Pursuant to 28 U.S.C. §1391(b), venue is proper in this district because a
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`substantial part of the events giving rise to the claims occurred in this District.
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`INTRADISTRICT ASSIGNMENT
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`22.
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`Assignment to the San Jose division of this district is appropriate under Civil Local
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`Rule 3-2 because a substantial part of the events or omissions which give rise to the claims
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`occurred in the San Jose division.
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`23.
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`Plaintiff Christina Grace is a citizen of California who resides in Marin County,
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`THE PARTIES
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`California. She owned an iPhone 4 that was running on iOS 6 on April 16, 2014 and incurred
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`damages as the result of Apple’s conduct.
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`24.
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`Defendant Apple is a California corporation with its headquarters and principal
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`place of business in Cupertino, California, which lies within this District. Apple designs,
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`manufactures and sells various consumer electronics, computer software and online services.
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`Apple’s consumer electronics products include the iPhone 4 and iPhone 4S. In addition to being
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`headquartered and having its principal place of business in Cupertino, California, Apple transacts
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`substantial business throughout the State of California, through advertising, marketing and
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`ownership of numerous Apple retail stores throughout California, including several in this
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`CLASS ACTION COMPLAINT
`Case No.
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`Case 5:17-cv-00551-LHK Document 1 Filed 02/02/17 Page 7 of 36
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`District. Further, substantially all of the misconduct alleged in this Complaint occurred in and/or
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`emanated from California.
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`Background
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`SUBSTANTIVE ALLEGATIONS
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`25. Widely recognized as Apple’s premier product line, iPhone is a line of industry-
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`leading smartphones1 that debuted on June 29, 2007. In the years that followed, Apple released
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`several successive versions of the iPhone on an approximately yearly basis.
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`26.
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`On June 7, 2010, Apple’s then-CEO Steve Jobs introduced the iPhone 4, which he
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`described as “the biggest leap since the original iPhone.”2 Within three days of the June 24, 2010
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`launch of the iPhone 4, Apple announced that it had sold roughly 1.7 million units.3
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`27.
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`Apple launched its next generation iPhone—the iPhone 4S—on October 14, 2011.
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`Over four million iPhone 4S’s were sold within the first three days of the device’s launch. Apple
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`Senior Vice President of Worldwide Product Marketing Philip Schiller commented that these
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`sales were “the most ever for a phone and more than double the iPhone 4 launch during its first
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`three days.”4
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`28.
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`In July of 2016, Apple celebrated the sale of its billionth iPhone.5 Apple included
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`within the press release announcing that milestone sale the following quote from its CEO Tim
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`Cook:
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`1 PC Magazine defines the term “smartphone” as “[a] cellphone and handheld computer that
`created the greatest tech revolution since the Internet. A smartphone can do everything a
`personal computer can do, and because of its mobility, much more . . . A smartphone combines
`a cellphone with e-mail and Web, music and movie player, camera and camcorder, GPS
`navigation, voice dictation for messaging and a voice search for asking questions about
`anything . . .” See http://www.pcmag.com/encyclopedia/term/51537/smartphone (last visited
`January 31, 2017).
`2 See http://www.apple.com/pr/library/2010/06/07Apple-Presents-iPhone-4.html (last visited
`January 31, 2017).
`3 See http://www.apple.com/pr/library/2010/06/28iPhone-4-Sales-Top-1-7-Million.html (last
`visited January 31, 2017).
`4 See http://www.apple.com/pr/library/2011/10/17iPhone-4S-First-Weekend-Sales-Top-Four-
`Million.html (last visited January 31, 2017).
`5 See http://www.apple.com/newsroom/2016/07/apple-celebrates-one-billion-iphones.html (last
`visited January 31, 2017).
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`CLASS ACTION COMPLAINT
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`Case 5:17-cv-00551-LHK Document 1 Filed 02/02/17 Page 8 of 36
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`iPhone has become one of the most important, world-changing and successful
`products in history. It’s become more than a constant companion. iPhone is
`truly an essential part of our daily life and enables much of what we do
`throughout the day.
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`All Apple iPhones, including the iPhone 4 and the iPhone 4S, operate through a
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`29.
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`proprietary Apple mobile operating system called iOS. iOS is an acronym that stands for “iPhone
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`operating system.” iOS has been described as “the software that controls all the basics of your
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`gadget, including the look, feel, settings and hardware.”6 Apple itself describes iOS as what
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`brings iPhone “to life.”7 Among other things, iOS runs the features and applications on the
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`iPhone.
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`30.
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`One of the most popular iPhone features is a real-time video conferencing feature
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`called FaceTime. Released in 2010 in conjunction with the release of the iPhone 4, FaceTime
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`allows users to place audio/video calls to other FaceTime users. During Apple’s 2013 annual
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`stockholders’ meeting, Apple CEO Tim Cook revealed that fifteen to twenty million FaceTime
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`calls were made on a daily basis.8
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`In Marketing and Selling The iPhone 4, Apple Highlights FaceTime as a Breakthrough,
`Life-Changing Technology
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`31.
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`Prior to the introduction of FaceTime, video conferencing was a coveted but as-
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`yet largely undelivered feature of mobile technology. As described by Frank Casanova, Apple’s
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`Senior Director of Partner Marketing, during sworn testimony at the VirnetX trial given January
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`28, 2016:
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`[V]ideo conferencing has long been held as something everyone’s wanted to do,
`but it’s been very difficult for many years . . . [I]t wasn’t until we brought our
`FaceTime product that it was actually usable across a wide range of products and
`across great distance, whether through Wi-Fi or cellular connections.
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`6 See http://www.cnn.com/2013/09/18/tech/mobile/ios-7-upgrade-faq (last visited January 31,
`2017]).
`7 See http://www.apple.com/iphone-7/ios/ (last visited January 31, 2017).
`8 See http://www.macrumors.com/2014/02/28/apple-40-billion-imessages/ (last visited January
`31, 2017).
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`CLASS ACTION COMPLAINT
`Case No.
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`Case 5:17-cv-00551-LHK Document 1 Filed 02/02/17 Page 9 of 36
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`32.
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`The iPhone 4 was the first iPhone that offered FaceTime as a feature. In marketing
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`the iPhone 4, Apple heavily emphasized this new and groundbreaking video conferencing
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`capability. For example, Apple press releases regarding the iPhone 4 described the device as “the
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`new iPhone 4 featuring FaceTime.” Further, at Apple’s 2010 Worldwide Developer’s
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`Conference, then-CEO of Apple Steve Jobs heralded the release of FaceTime and its inclusion
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`within the iPhone 4, noting that for the first time in history, video calling from mobile devices
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`had been made easy. The following image depicts Steve Jobs delivering this message at this
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`pivotal point in Apple’s history:
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`33.
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`FaceTime was featured prominently in the advertising campaign launched by
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`Apple to promote the iPhone 4. In fact, several of Apple’s television advertisements for the
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`iPhone 4 focused exclusively on FaceTime and its life-changing capabilities, emphasizing the
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`feature’s ability to bridge the gap between friends and loved ones no matter the geographic
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`distance between them, particularly at life’s most meaningful milestones.
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`34.
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`As shown in the following screenshot, one such advertisement depicted a deployed
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`soldier in the United States military who, despite being separated from his pregnant wife, was
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`able to be “present” as a medical professional administered a sonogram to the expectant mother,
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`providing the couple perhaps their first glimpse of their unborn child:
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`CLASS ACTION COMPLAINT
`Case No.
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`Case 5:17-cv-00551-LHK Document 1 Filed 02/02/17 Page 10 of 36
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`35.
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`The same advertisement also depicts what appears to be a hearing-impaired
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`couple, who are able to see and communicate with one another in sign language in real time thanks
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`to FaceTime:
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`A second advertisement depicts a grandfather who sees his newly-born
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`granddaughter for the first time, and engages in an emotionally charged conversation with his son
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`in which they discuss what it feels like to be a first-time father and grandfather:
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`9 See https://www.youtube.com/watch?v=cKoLp_lGo14 (last visited January 31, 2017).
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`CLASS ACTION COMPLAINT
`Case No.
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`Case 5:17-cv-00551-LHK Document 1 Filed 02/02/17 Page 11 of 36
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`37.
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`Another such advertisement shows various people communicating through
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`FaceTime, and includes a narrated voiceover that underscores that FaceTime is synonymous
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`with—and essentially indivisible from—the iPhone. The voiceover states the following:
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`If you don’t have an iPhone, you don’t have FaceTime on your phone. Which
`makes it this easy to talk face to face with another iPhone. This easy to talk with
`a Mac. And this easy to talk with an iPad. FaceTime – just one more thing that
`makes an iPhone an iPhone.
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`38.
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`These and other iPhone 4 and iPhone 4S advertisements demonstrate that Apple
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`fully appreciated FaceTime’s critically important role in the lives of iPhone users, particularly
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`those separated by great distances and even war.
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`Apple Appropriates VirnetX’s Patented Technology For Use in FaceTime
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`39.
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`VirnetX is an internet security software and technology company that holds a
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`portfolio of patented technology for securing real-time communications over the internet,
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`including 4G LTE security. VirnetX offers software and technology solutions designed to
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`facilitate secure communications and create a secure environment for real-time communication
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`applications such as instant messaging, voice-over-internet protocol, smart phones, eReaders, and
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`video conferencing.
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`10 See https://www.youtube.com/watch?v=KMRz1GjMvL4 (last visited January 31, 2017).
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`CLASS ACTION COMPLAINT
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`Case 5:17-cv-00551-LHK Document 1 Filed 02/02/17 Page 12 of 36
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`40.
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`VirnetX was founded in part by former employees of Science Applications
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`International Corporation (“SAIC,” which is now Leidos, Inc.), a Fortune 500 scientific,
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`engineering and technology applications company that uses its deep domain knowledge to solve
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`problems of vital importance to the nation and the world, in national security, energy and the
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`environment, critical infrastructure and health.
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`41.
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`The story of VirnetX’s founding begins in 1999, when the Central Intelligence
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`Agency (the “CIA”) launched a joint program with SAIC11 to develop technology that would
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`allow agents in the field to communicate with CIA headquarters safely.12
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`42. While developing this technology for the CIA, the VirnetX inventors also invented
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`ways to facilitate secure communications that would greatly improve ease of use for the end users,
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`and they recognized that this technology had a potentially massive commercial value. SAIC
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`therefore spun its groundbreaking technology out into a separate startup venture named VirnetX,
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`which was populated by highly-qualified and experienced scientists and engineers who had
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`occupied prominent positions at SAIC.
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`43.
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`After its founding, VirnetX took the secure encrypted communications technology
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`that its scientists and engineers had invented and developed, and commercialized that technology
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`into a marketable product that enables secure messaging, secure voice and video calling, and
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`secure mail and secure file sharing between any device.
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`44.
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`Unfortunately, in the years following its founding, VirnetX became a victim of
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`patent infringement. As three separate juries determined, Apple appropriated VirnetX’s patented
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`technology and used it to set up the secure communications for various features offered on
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`iPhones and other Apple devices. One such feature—and the one at the center of this action—is
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`11 Prior to changing its name in September of 2013, Leidos, Inc. was called Science Applications
`International Corporation. For the sake of clarity and efficiency, the term “Leidos” as used
`herein encompasses both Leidos and SAIC.
`12 See http://www.forbes.com/sites/marshallphelps/2016/05/09/an-innovation-jason-bourne-
`would-love/#21962ec9435e (last visited January 31, 3017).
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`-11-
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`CLASS ACTION COMPLAINT
`Case No.
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`Case 5:17-cv-00551-LHK Document 1 Filed 02/02/17 Page 13 of 36
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`FaceTime.
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`45.
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`To stop Apple’s unauthorized patent infringement and “to protect their patented
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`innovations, the [VirnetX] scientists were forced to litigate.”13
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`Apple Is Ordered To Pay VirnetX $368.2 Million For Infringing On Patented Technology
`Used In FaceTime
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`46.
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`On August 11, 2010, VirnetX filed a lawsuit against Apple in the United States
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`District Court of the Eastern District of Texas. The lawsuit, captioned VirnetX Inc., et al v. Apple,
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`Inc., 6:10-cv-00417 (the “VirnetX Action”), alleged that Apple had infringed on four of VirnetX’s
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`patents, specifically US Patent Nos. 6502135, 7418504, 7490151, and US 7921211.
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`As of November 2012 and continuing through April 16, 2014, devices running iOS
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`audio/video media between each other in two ways: (1) the peer-to-peer method, and (2) the relay
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`method.
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`48. When audio/video data was communicated using the peer-to-peer method, the
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`caller and the callee would exchange that data directly between each other through the internet.
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`Sometimes, however, it was not possible to connect a FaceTime call through the
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`peer-to-peer method. Thus, in those instances, the devices would connect to a relay server, and
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`the relay server would relay the audio/video data on behalf of the devices.
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`50.
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`At the same time that a calling iPhone would try to establish a peer-to-peer
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`connection, it would concurrently try to establish a relay connection. Thus, the two connection
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`methods would occur in parallel, and the call would be connected through whichever method
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`achieved a connection first. 90-95% of the time, the first connection would be achieved through
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`the peer-to-peer method.
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`51.
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`In the VirnetX Action, VirnetX alleged, inter alia, that Apple devices infringed on
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`the ’504 and ’211 patents by establishing peer-to-peer FaceTime calls. Following extensive and
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`13 See http://www.forbes.com/sites/marshallphelps/2016/05/09/an-innovation-jason-bourne-
`would-love/#21962ec9435e (last visited January 31, 2017).
`-12-
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`CLASS ACTION COMPLAINT
`Case No.
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`Case 5:17-cv-00551-LHK Document 1 Filed 02/02/17 Page 14 of 36
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`contentious litigation activity, along with a refusal by Apple to compensate VirnetX for its use of
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`VirnetX’s patented technology, the case went to trial.
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`52.
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`On November 7, 2012, a jury awarded VirnetX $368.2 million in damages based
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`upon Apple’s infringement on VirnetX’s patents.14 Among the jury’s findings was a
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`determination that Apple devices infringed on VirnetX’s ’504 and ’211 patents. Specifically, the
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`jury found that when FaceTime calls on iOS 6 (or earlier operating systems) were connected
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`through the peer-to-peer connection method, they unlawfully infringed on VirnetX’s patented
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`secure encryption technology.15
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`Apple’s Patent Infringement Subjects The Company To Substantial Expense In Connection
`With FaceTime Calls Placed On iOS 6 and Earlier Operating Systems
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`53.
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`The November 7, 2012 judicial finding that FaceTime on iOS 6 and earlier
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`operating systems infringed on VirnetX’s patents created a serious and costly problem for Apple.
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`54.
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`As noted above, FaceTime calls can be connected in either of two ways: the peer-
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`to-peer method, or the relay method. Importantly, as of 2012 and continuing at least until April
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`16, 2014, the relay servers through which relay method FaceTime calls were connected were
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`owned and operated by a company called Akamai. In exchange for allowing Apple to route
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`FaceTime calls through its relay servers, Akamai charged Apple fees that were calculated based
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`on Apple’s usage of those servers. Thus, low usage of Akamai’s relay servers by Apple translated
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`14 On September 16, 2014, the United States Federal Circuit Court of Appeals affirmed the
`finding that Apple had infringed on VirnetX’s ’135 and ’151 patents, reversed the district
`court’s construction of a claim term of the ’504 and ’211 patents, reversed the damages award,
`and remanded for further proceedings. In subsequent proceedings in the VirnetX Action, a
`jury found that Apple willfully infringed on VirnetX’s ’504 and ’211 patents under the Federal
`Circuit’s claim constructions of those patents and awarded $302 million for Apple’s violation of
`VirnetX’s patents. See, e.g., https://www.virnetx.com/virnetx-awarded-302-4-million-verdict-
`apple/ (last visited January 31, 2017).
`15 To be clear, this complaint does not assert any patent or patent-based claims against Apple
`(or anyone else), nor does this action require any review, reconsideration or re-litigation of the
`patent claims at issue in the VirnetX Action. Further, the findings in the VirnetX Action with
`respect to Apple’s patent infringement in no way dictate the outcome of this action. Rather ,
`the findings of patent infringement referred to herein merely constitute background facts
`comprising part of the sequence of events that caused Apple to break FaceTime for users
`running iOS 6 and earlier operating systems.
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`-13-
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`CLASS ACTION COMPLAINT
`Case No.
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`

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`Case 5:17-cv-00551-LHK Document 1 Filed 02/02/17 Page 15 of 36
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`to low fees owed by Apple to Akamai, and high relay usage required Apple to pay Akamai
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`substantially higher fees.
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`55.
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`Prior to November 7, 2012, roughly 90 to 95% of FaceTime calls were connected
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`through the peer-to-peer method rather than the relay method. Because FaceTime calls connected
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`through the peer-to-peer method did not utilize