Vonage loses appeal in Verizon patent case
After months of battle, Vonage has lost the bulk of its appeal in the Verizon Communications patent infringement case.
In March, a jury in Virginia found that Vonage had infringed on three patents held by Verizon. And it awarded Verizon $58 million in damages along with future damages of 5.5 percent on the revenue that Vonage was making during the appeal process.
The judge in the case imposed an injunction on Vonage that would force the company to stop delivering a service using technology that infringes on Verizon's patents. But because Vonage has been appealing the case, the injunction has not yet gone into effect.
On Wednesday, Vonage's appeal essentially came to an end. And as the legal dust settles, the small voice over IP company now faces the possibility of paying hefty monetary damages and a total shutdown of its IP telephony service.
But as is often the case in complicated legal disputes, the actual outcome of the case is still far from certain. In its final judgment, the U.S. Court of Appeals threw out one of the three patent verdicts and upheld the other two. And because the total damage award was assessed based on Vonage violating all three patents, the appeals court asked the lower court to reconsider the entire $58 million damage package awarded in March.
On the one hand, this sounds like a partial victory for Vonage. And the company has said as much.
"We thank the appellate court for its thoughtful consideration of the merits of our case," Vonage's chief legal officer, Sharon O'Leary, said in a statement. "We are pleased with the decision to vacate the 880 patent and the damages. However, Vonage remains confident that it has not infringed on the 880 patent--a position we will continue to vigorously assert and look forward to presenting at trial."
But the reality of the situation is altogether different. For one, the two patents the court upheld happen to be the most fundamental to Vonage's service. Essentially, U.S. Patent No. 6,282,574 and U.S. Patent No. 6,104,711 define how phone calls are routed over the Internet, which essentially is the basis of Vonage's IP telephony service today.
By contrast, U.S. Patent 6,359,880, which is the patent the appeals court said would have to be retried by the lower court, has to do with how public wireless and cordless Internet gateways communicate with the Internet. Because this technology is not a big part of Vonage's commercial service today, sending the case back to the lower court will likely have little impact on Vonage's actual business.
And because the '880 is considered less significant, when the lower court reassesses damages, as it's been asked to do by the appeals court, it could just re-enter the same amount without holding an entirely new trial.
The reason is simple. Both Vonage's and Verizon's experts who testified during the original trial, stated that the '880 patent should have little impact on determining damages. This means that the damages that were assessed were based mostly on the cumulative contribution from the two other patents, '711 and '574. And the judge could look at this testimony and re-enter the $58 million for damages.
But in addition to the hefty damages the company will still likely have to pay, Vonage is now facing the possibility of having its service shut down.
During the appeal, the injunction issued by the judge in the case was not in effect. But once the appeals court's decision is final, which should happen within two weeks to a month, the injunction barring Vonage from using any technology that infringes on Verizon's patents goes into effect.
Vonage is adamant that its service will continue.
"It's business as usual," O'Leary said in a statement. "We have had our workarounds for the '711 and '574 patents in place for some time and will remain focused on providing a great customer experience."
But these claims will have to be verified. Right now it's unclear how this will work. Either the court will step in to determine if the new fixes violate the patents as they were examined during the trial, or Verizon will have to challenge the new workarounds.
One thing is certain, Vonage's troubles are far from over.
"I think there is definitely a threat that its service could be impacted," said Rebecca Arbogast, an analyst with Stifel Nicolaus. "Vonage says it has a workaround, but who's to really know? My hunch is that Verizon will likely aggressively challenge these fixes as well."
This latest legal blow comes just one day after a jury in Kansas found that Vonage infringes on six patents held by Sprint Nextel. The jury awarded damages of $69.5 million in that case. All in all, the news looks bleak for Vonage, said Arbogast.
"These are different patents in a different court," she said. "But the damages in the Sprint case are significant, and it's just piling on one more shovel full of penalties on the company at a time when it already has a significant amount of money tied up in escrow over the Verizon case. Plus, there's the threat of an injunction, and it makes investors wary."
Indeed, Vonage's stock dipped another 26 percent to close at 96 cents per share.
Marguerite Reardon has been a CNET News reporter since 2004, covering cell phone services, broadband, citywide Wi-Fi, the Net neutrality debate, as well as the ongoing consolidation of the phone companies. E-mail Maggie. 
The US Patent system needs an overhaul. The Verizon patents are general details and it would be hard for any VOIP company not to violate them.
It is all about greed and not about competition.
situation, what really needs to be overhauled is the consumer.
VOIP needs to, and eventually will, become the reality and not
the "alternative".
Consumers need to become long-range thinkers, and stop
feeding the dinosaurs.
I disagree, in principle, to what's happening here, and I will not
renew my Verizon contract come February.
I know that I, alone, can't affect a change in the system, but I
can, at the very least, look at myself each morning as I shave,
and say "I acted my conscience".
Too bad 99% of the buying public can't do the same.
*sigh*
my interest in getting a cell phone services I stick Tmoblie. I afraid Vonage will cut my service i love Vonage I can't live without Vonage because so cheap to call on the phone. VONAGE hang in there its all Bush Fault. Go Hillary 2008
Ok, and how is it his fault? Seriously? Its how the patent system works today. You think of an idea, patent it, sit on the patent until someone thinks of a way to make the idea work and puts it into production. Then you sue that company for doing what you could not.
Goodbye Vonage, you deserve what you get and will not be missed!
2. I have cable and it rocks; I have an MSc in Communications and 20 years developing data comms software, so there is no need to assume that I don't know this stuff. What is your background?
3. I use the router from Vonage; there is nothing between my handset and the Vonage box.
Your point on quality is not based on fact; the way that a VOIP handles the voice data packets is signififcantly impacted by any QoS technology in place - I do not believe they have any.
Re Vonage as a crook. Go search the web for anngry customers; don't just listen to me.
In my case I tried to cancel to move to Comcast and it took months to get Vonage to stop billing my credit card. The company has no system in place for generating a transaction ID when you call to cancel; it is easy for telephone reps to 'forget' that a cancellation call took place. This is what happened to me several times.
If it looks like a duck and it walks like a duck, it is a duck!
Well that sucked.
They went up against Vonage and won, but Vonage is not Google. And Verizon will go up against google, soon, hopefully, and that will begin their decline into history. They should focus on providing fiber connectivity to the internet, and let companies that know what they are doing handle everything else, but no, they want to screw things up for all of their customers.
This may be enough reason to switch to the cable company for phone service. they suck also, but not as much as verizon. or att.
Verizon. ATT. Qwest. Companies that can only exist in a monopoly situation.
The future of phones is mobile and internet. Verizon may have won the battle, but they will lose the war. At least they can fall back on their cell phone-crippling service.
The first three calls are they tryin to "Save" you so they can get a bi-weekly bonus! They dont care if your phone works or not they want there money!
Yes I am ashamed that I work for this company thay only likes to take ppls money and not care if there phone works or if there number doesnt get transfered on time.. HINT PPL it takes longer than 10 days to transfer your number and you must take all of your features off od ur line that INCLUDES DSL! I mean yea we are cheaper but if I were you I would go with Verizon. I work for them i only have to pay 14 a month for the unlimited phone service do i have it??? Nope. why cause it never works. your calls drop, you get static, or you get an echo. No id rather go with Cablevision and pay for the phone tv and computer!
And dont try to call Vonage up and ask them about what is going on cause i can tell you exactly what they are going to say: that they are happy to discuss it with you and that we are going to overturn yadda yadda yadda.
We tried to over turn Verizon and we lost and we just lost to Sprint my advise get out of Vonage as soon as possible and go with someone else b4 we have another sunrocket mess with the phone compnay going out of buisness and ppl losing there numbers that they had for years!!!
I think you're just a person who's just bitter with Vonage for terminating you for not doing your job.
In general, there are no perfect phone service, but with this company, I can say that its almost perfect due to the price and the service. And we do hope that Vonage will surpass these problems they encounter right now.
Again; Google the web and you will see many people that have had nightmares cancelling Vonage.
The only way to cancel is to phone them; no letter, no email, no fax, no website. When you call them there is no transaction ID or confirmation number; we asked. People cut you off or simply forget to complete the cancellation.
Then call to get thru to Vonage complaints and the number says they are 'not taking calls right now' and hangs up on you.
Not the actions of a legitimate company.
Unfortunately, you can't get DSL without phone service, so unless you want more than one line, this isn't the way to go. But with a monthly bill as low as $45/mo., it's not like you need Vonage unless you make a lot of long distance calls. Even then, you stay as low as $55/mo. for unlimited local and long distance calls. Not too bad, just for the phone service it's $40/mo. compared to use Vonage with cable at $85/mo.
All my prices are based on services in my area and are regular prices, because who care about the introductory prices when you'll have the service longer than the introductory period. And I will not take into consideration the fact that some people use their cell phone as their primary phone because cell service sucks where I live. stupid, good trees (I do actually like the trees more than I hate them, and they don't contribute much to service anyways. And I don't want to see any more tower in my area, they remind me of the dark spires from the second season of Digimon, so they kind of creep me out.)
- The Lawyers Win
- by MarkR445 October 4, 2007 7:47 PM PDT
- The only winners here are the lawyers because VoIP is a great offer that delivers real value. Pity since it is likely that Vonage will hemorrhage due to the FUD factor (fear, uncertainty and doubt). And worse, it will give a black eye to all of the other good providers like Net2Phone and Lingo.
- Like this Reply to this comment
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(23 Comments)I have Net2Phone and I like them because they seem to have focused primarily on developing technology with a great set of features - rather than throw money at campaigns. After more than 10 years, they are not the Johnny come lately so at least I feel safe with them.