VirnetX Shares Popped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of wireless security expert VirnetX (ASE: VHC) jumped as much as 10.9% on above-average volume. That's on top of yesterday's massive-volume 12% bounce to make a very impressive week indeed.

So what: Yesterday, the big news was a bullish analyst note; today, the company was awarded a patent that was promptly used as ammunition in a fresh infringement lawsuit against Apple (NAS: AAPL) .

Now what: So the ink is still fresh on that new patent, yet VirnetX claims that Apple "willfully" violated it. Also, the company chose to notify Apple of the violation by launching a lawsuit rather than starting a license negotiation. I don't know about you, but it doesn't sound like any attempt to reach a "fair and reasonable" business arrangement to me.

At the same time, you don't hear anybody talking about VirnetX's legal setbacks, such as the patent office invalidating (link to PDF) the supposedly vital '759 claim. This one-sided conversation is often a sign of impending collapse as investors cheer the good news and never even hear the bad stuff. For examples of this, see Crocs (NAS: CROX) in 2007 and 2008 or SodaStream's (NAS: SODA) much more recent moment of fad fame. Don't let this unbalanced reporting happen to you.

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At the time thisarticle was published Fool contributor Anders Bylund holds no position in any of the companies mentioned. The Motley Fool owns shares of Apple. Motley Fool newsletter services have recommended buying shares of Apple and SodaStream International; and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Check out Anders' holdings and bio, or follow him on Twitter and Google+. We have a disclosure policy.

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