Why VirnetX Shares Popped Then Fizzled

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 Internet security and software company VirnetX (ASE: VHC) popped as much as 11.5% this morning before giving back nearly all of its gains after a U.S. District Court issued a Markman Order regarding an ongoing patent infringement claim.

So what: The order, which rules on patent claim language, often serves as a great indicator for which way the court will eventually rule. According to VirnetX, which has filed patent claims against Cisco Systems (NAS: CSCO) , Apple (NAS: AAPL) , NEC, and Aastra, for violating two of its VPN-related patents, the initial comments look favorable to it winning.

Now what: VirnetX isn't a stranger to suing larger corporations over patent rights, as it successfully sued Microsoft (NAS: MSFT) in 2007 after alleging that Microsoft Office Communicator and Microsoft Office Meeting violated two of its patents. VirnetX later settled with Microsoft for $200 million. It's not unreasonable to think VirnetX isn't in line to win another case, but I also wouldn't bet the farm on a patent infringement case. At a forward P/E of 82, there are far better values to be had in the technology space than VirnetX.

Craving more input? Start by adding VirnetX to your free and personalized watchlist so you can keep up on the latest news with the company.

At the time thisarticle was published Fool contributorSean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, track every pick he makes under the screen nameTrackUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.The Motley Fool owns shares of Apple, Cisco Systems, and Microsoft.Motley Fool newsletter serviceshave recommended buying shares of and creating a bull call spread position in both Apple and Microsoft. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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