“Derivations” in Patent Royalty Definitions Require Origin-Lineage, Not Mere Shared Source Code (Virginia Contract Law)

I. Introduction

The dispute arose from a 2016 settlement and patent license agreement between Vir2us, Inc. (patent holder of “containerization” antivirus technology) and Invincea, Inc. (software vendor). The agreement granted a broad patent license, but imposed narrower reporting and royalty obligations for sales of defined “Container Products,” identified as certain “accused container products” plus “natural evolutions and derivations of these products.”

After Sophos acquired Invincea, Sophos integrated parts of Invincea’s code into certain Sophos products that used machine-learning features (not containerization). Vir2us claimed those Sophos products were “Container Products” and owed royalties. The central question on this appeal was interpretive: whether Sophos products that do not use containerization nonetheless qualify as “natural evolutions and derivations” of the agreement’s enumerated “accused container products” because of shared machine-learning source files.

II. Summary of the Opinion

The Fourth Circuit affirmed summary judgment for Sophos/Invincea on the royalty claim as to the disputed Sophos products. Applying Virginia plain-meaning rules, the court held that “derivations” requires a stronger, origin-based relationship—i.e., that the accused container products served as a starting point or source for the later product—than the record showed. Common source code (especially code that was deactivated in the accused container products) did not establish that Sophos’s later products were “derivations” of those defined products.

The court also rejected Vir2us’s fallback argument that the term was ambiguous in a way that would preclude summary judgment, concluding the contract language, read in context, was not ambiguous and supported judgment as a matter of law.

III. Analysis

A. Precedents Cited (and How They Shaped the Decision)

1) The prior appeal framing: Vir2us, Inc. v. Sophos Inc., 2023 WL 2136379 (4th Cir. Feb. 21, 2023) (per curiam)

The 2023 decision was foundational: it held the agreement’s first clause “unambiguously identifies only four ‘accused container products’” as an exhaustive list, and it rejected the idea that shared source code could convert unlisted products into listed ones. On remand, the only remaining interpretive route was the second clause: “natural evolutions and derivations.” The 2026 opinion carries forward the 2023 insistence on textual limits and its caution against importing “source code” concepts into the definition where the parties did not place them.

2) Appellate jurisdiction and Rule 54(b): Fox v. Baltimore City Police Dep't, 201 F.3d 526 (4th Cir. 2000); MCI Constructors, LLC v. City of Greensboro, 610 F.3d 849 (4th Cir. 2010); Braswell Shipyards, Inc. v. Beazer E., Inc., 2 F.3d 1331 (4th Cir. 1993)

Because a counterclaim remained pending, the order was not ordinarily appealable. The panel relied on the Rule 54(b) framework described in Fox v. Baltimore City Police Dep't, and evaluated finality and “no just reason for delay” under MCI Constructors, LLC v. City of Greensboro, referencing the factor-based guidance of Braswell Shipyards, Inc. v. Beazer E., Inc. These cases enabled merits review by validating the district court’s certification.

3) Standards of review and summary judgment mechanics: Young v. Equinor USA Onshore Props., Inc., 982 F.3d 201 (4th Cir. 2020); Desmond v. PNGI Charles Town Gaming, L.L.C., 630 F.3d 351 (4th Cir. 2011)

The court cited Young v. Equinor USA Onshore Props., Inc. for de novo review of both summary judgment and the underlying contract interpretation, and Desmond v. PNGI Charles Town Gaming, L.L.C. for the approach to cross-motions: each motion is tested independently under Rule 56. These authorities reinforced that the appellate court would not defer on interpretive questions and would decide whether the text compelled judgment as a matter of law.

4) Virginia contract interpretation rules: Golding v. Floyd, 539 S.E.2d 735 (Va. 2001); Smith v. Smith, 597 S.E.2d 250 (Va. Ct. App. 2004); Va. Elec. & Power Co. v. Norfolk S. Ry., 683 S.E.2d 517 (Va. 2009); TM Delmarva Power, L.L.C. v. NCP of Va., LLC, 557 S.E.2d 199 (Va. 2002); Video Zone, Inc. v. KF & F Props., L.C., 594 S.E.2d 921 (Va. 2004)

• Golding v. Floyd supplied the core command: clear terms are enforced according to their plain meaning.
• Smith v. Smith reinforced that absent patent or latent ambiguities, courts should not resort to extrinsic evidence.
• Va. Elec. & Power Co. v. Norfolk S. Ry. provided the definition of ambiguity (susceptible to more than one meaning, doubtful import, etc.).
• TM Delmarva Power, L.L.C. v. NCP of Va., LLC required the contract be considered “as a whole,” not by isolating terms—critical to reading “derivations” in the context of the defined term “Container Products” and the settlement’s patent-litigation backdrop.
• Video Zone, Inc. v. KF & F Props., L.C. supported using “usual, ordinary, and popular meaning,” which the court implemented through dictionary definitions.

5) Disagreement is not ambiguity: Douglas v. Hammett, 507 S.E.2d 98 (Va. Ct. App. 1998)

Vir2us argued that competing readings implied ambiguity. The panel cited Douglas v. Hammett to reject that move: different interpretations by litigants do not automatically create ambiguity if the text has a clear meaning.

6) Series-qualifier canon under Virginia law: McMillion v. Commonwealth, 903 S.E.2d 578 (Va. Ct. App. 2024)

While the panel ultimately resolved the case on “derivations” alone, it noted that Virginia applies a series-qualifier approach (citing McMillion v. Commonwealth), which would tend to read “natural” as modifying both “evolutions” and “derivations,” further narrowing the clause.

B. Legal Reasoning

1) Plain-meaning definition of “derivations” emphasizes source and lineage

The court canvassed dictionaries (including Webster’s, the Oxford English Dictionary, Merriam-Webster, and Black’s Law Dictionary) and distilled a common idea: a “derivation” implies that the later thing originates from or is developed/produced from the earlier source. From that, the court articulated an operative contract meaning: the accused container products must have served as the starting point or origination for the later product.

2) Record evidence did not show the required origin relationship

The disputed Sophos products existed in some form before integration of Invincea code, undermining a narrative that they were “developed from” the accused container products. Moreover, Vir2us did not show that the shared machine-learning files were unique to the accused container products or that Sophos extracted those files from the accused products (as opposed to receiving code through other integration channels after acquisition). The court treated “common code” as, at most, overlap—not proof of derivation.

3) Functional and contextual fit: “Container Products” anchors the clause to containerization

The agreement’s defined term is “Container Products,” beginning with “accused container products” from containerization-focused patent litigation. The court reasoned that a “derivation” of an accused container product would be expected to resemble it in a meaningful way—especially in its core function (containerization). Yet it was undisputed that Sophos’s disputed products used only machine learning and did not employ containerization at all. The fact that machine-learning files were present (but deactivated) in the accused container products weakened, rather than strengthened, Vir2us’s theory: code that played no functional role in the accused products could not, without more, make later machine-learning-only products “derivations” of them.

4) No ambiguity requiring trial

Applying Virginia’s ambiguity doctrine, the panel concluded the term—read in the agreement’s structure and the settlement context—was not “of doubtful import” and was not reasonably susceptible to Vir2us’s broader “shared code equals derivation” approach. Thus, summary judgment was appropriate.

C. Impact

• Software licensing and patent settlements: The decision signals that royalty triggers tied to “evolutions/derivations” will likely be construed as requiring demonstrable origin-lineage and contextual/functional continuity, not merely shared libraries, files, or code artifacts—especially when the shared code is dormant in the “source” product.
• Drafting lesson: If parties intend royalties to attach to products that incorporate certain code (even if unrelated to the accused functionality), they should say so expressly (e.g., define covered products by inclusion of specified code modules, repositories, or file hashes), rather than relying on “derivations.”
• Litigation proof requirements: Plaintiffs advancing a “derivation” theory should expect to need evidence of provenance (where code was taken from), uniqueness (that the relevant code is characteristic of the defined products), and product-development lineage (how the later product was built from the earlier one).
• Precedential weight caveat: Because the opinion is unpublished, its direct precedential force is limited in the Fourth Circuit, but it provides a structured plain-meaning analysis that may be persuasive in similar disputes governed by Virginia law.

IV. Complex Concepts Simplified

• Containerization (in this case): A security method that isolates suspicious files in a virtual “safe room” to test them.
• Machine learning (in this case): A different security method that uses trained models to identify malicious content; here associated with “Cynomix” files.
• “Source code present” vs. “feature used”: Software may include code for multiple features, but only some features are activated; the court treated “derivation” as concerned with the product’s origin/identity and context, not merely dormant code that happens to be included.
• Plain meaning & ambiguity: Under Virginia law, courts enforce clear text as written; a contract is ambiguous only when reasonably susceptible to more than one meaning, not merely because parties disagree.
• Rule 54(b): A procedural mechanism allowing appeal of a final judgment on one claim even when other claims remain pending, if the district court finds “no just reason for delay.”

V. Conclusion

Vir2us, Inc. v. Sophos Inc. reinforces a strict, text-and-context approach to royalty definitions in patent license settlements under Virginia law. The Fourth Circuit held that “natural evolutions and derivations” of defined “accused container products” demands an origin-based, lineage-like relationship— not merely the presence of overlapping source code—particularly where the shared code is unrelated to the accused functionality and was inactive in the defined products. The case stands as a cautionary guide for drafting and proving “derivation” theories in software-centric royalty disputes.