VoIP Systems

Vonage, Verizon Fight to Go Into Late Rounds

Some are already hearing the bell toll for Vonage Holdings Corp. (NYSE: VG), but the fact is the company's legal tussle with Verizon Communications Inc. (NYSE: VZ), will trudge on for another year or more, both companies say. (See Is Vonage Dead?.)

On Friday, U.S. Dist. Judge Claude Hilton issued an injunction prohibiting Vonage from using certain Verizon VOIP technology. Vonage shares took a 25 percent hit that day. Vonage stock rebounded Monday, closing up $0.38 (12.7%) at $3.38. In early morning trading on Tuesday, Vonage shares were down again -- this time off $0.11 (3.25%) to $3.27. (See Jury Rules on Vonage.)

On March 8, a jury in Hilton's court found Vonage guilty of infringing three Verizon VOIP patents. The jury ordered Vonage to pay damages of $58 million plus future royalties. Verizon requested the injunction that day. (See Vonage Ordered to Pay $58M to Verizon.)

Friday wasn't D-Day for Vonage. Judge Hilton said he'd wait until April 6 to sign the injunction. Also on April 6, the judge says he'll decide whether or not to grant Vonage a "stay" on the injunction. Vonage attorneys are asking for a stay of 120 days, or for the length of its planned appeal.

Vonage claims April 6 won't be D-Day either. "We are optimistic the trial court judge will stay the injunction," Vonage's chief legal officer Sharon O'Leary said in a statement Monday. "If he doesn't, however, we're very confident the Circuit Court of Appeals will stay the injunction through the entire appeal process." (See Vonage Reaffirms Appeal.)

So the game goes on. "It's a very high-stakes poker game here," says Frank Dzubeck, telecom analyst and president of Communications Network Architects. "In this particular case, now that the game has shifted and the cards are all in Verizon's hands, you have Vonage doing a great deal of backpedaling," Dzubeck says.

In appeals court, Vonage's legal strategy will shift. Sources who attended the jury trial say Vonage attorneys waved their right to challenge the actual evidence in the original patent infringement case. So, on appeal, they will challenge Judge Hilton's interpretation of what is covered by the three Verizon patents and what is not. In legalese, his "patent construction."

"We do not agree that we infringed on their patents still to this day, for a good reason -- because we do not agree with the patent construction," says Vonage spokeswoman Brooke Schulz. "We not only disagree with it, it's the basis of our appeal."

Vonage, then, will try to convince the appeals court that Hilton's definition of the Verizon patents was too broad -- that, under a narrower definition of the patents, Vonage could not have been found guilty of infringement.

So what happens if Vonage loses on appeal? Plan C: Workarounds. (See Vonage 'Workarounds' May Ease Patent Pain.)

Vonage says it’s been working for months on homegrown technology that would circumvent the need for Verizon's patented stuff. "We're continuing to evaluate and develop workarounds for the technologies the jury found we're infringing upon -- WiFi and what we call Name Translation," says Vonage's Schulz. By "name translation" Schulz refers to technology used to convert packet-based calls onto circuit-switched calls, and vice versa.

Schulz says the workarounds will be put in place only when Vonage's legal options have run out. She denies said "workarounds" rely on technology licensed from third parties. She also puts down speculation that her company is in talks with Verizon to license the technology Vonage was found guilty of infringing.

Now for Some Class Action
Vonage got more legal trouble on Monday, when a consumer class action suit was filed in U.S. District Court in California. The suit claims Vonage misled consumers about the quality and reliability of its VOIP service, and engaged in false advertising and deceptive business practices.

The suit claims that Vonage provides doesn't set-up and support its customers as promised, and that the company makes cancelling the service a costly choice.

— Mark Sullivan, Reporter, Light Reading

fgoldstein 12/5/2012 | 3:11:14 PM
re: Vonage, Verizon Fight to Go Into Late Rounds Has anyone here actually looked at the patents? Apparently a jury is usually not asked if the patents are any good, merely if they were infringed. So total garbage gets this far, to be overturned on appeal. In this case the jury did hold the patents valid; this is a bit like asking the janitor to diagnose if you have cancer.

Only a few claims actually were upheld. One was claim 27 of the '527 patent (26 included for completeness):

26. A method comprising:

receiving a name translation request at a server coupled to a public packet data network;

translating a name included in the request into a destination telephone number associated with a name included in the request; and

transmitting a reply containing both the destination telephone number and a packet data network address of a telephone gateway coupled between the public packet data network and a telephone network through the public packet data network to a calling device.

27. A method as in claim 26, wherein the address is an Internet Protocol address.

Gee, that's not obvious, or prior art, is it? Boy that American inventiveness sure worked hard for that one! How about the '711 patent, wherein only Claim 20 was found violated:

15. A method comprising:

receiving a name translation request at a server coupled to a public packet data network;

executing a conditional analysis in response to the name translation request;

if the conditional analysis produces a first result, translating a name included in the name translation request into a first destination address;

if the conditional analysis produces a second result, translating the name included in the name translation request into a second destination address; and

transmitting a response message containing the first or the second destination address to a calling device for use in establishing communication at least partially through the public packet data network.

20. A method as in claim 15; wherein:

the first and second destination address includes a numeric Internet Protocol address; and

the second destination address further includes information relating to call routing via a public switched telephone network.

No, sirree, that doesn't look at all like DNS or MX records or anything else invented before 1997!

Finally, the third upheld patent, the "not willfull" violations of the '880 patent, where only claims 1, 6, 7 and 8 were found violated:

1. A method comprising:

registering a wireless telephone terminal in a localized wireless gateway system;

transmitting registration data identifying the gateway system from the localized wireless gateway system to a home location register database through a public packet data communication network;

receiving a request from a calling computer coupled to the public packet data communication network for a call to the wireless telephone terminal;

in response to the request, accessing the home location register database and obtaining a packet data address for the localized wireless gateway system;

using the address to set up a voice communication through the public packet data communication network and the localized wireless gateway system between the calling computer and the wireless telephone terminal.

6. A method as in claim 1, wherein the public packet data communication network is a packet switched network.

7. A method as in claim 6, wherein the packet switched network comprises a system of interlinked data networks using TCP/IP protocol.

8. A method as in claim 7, wherein the system of interlinked data networks comprises the Internet.

Yep, that's Vonage all right, supporting wireless and cordless phones with HLRs! Dead ringer for parasitic broadband VoIP if you ask Mr. Patent Lawyer.

This whole sordid affair is a blot on the already-soiled reputation of the USA's judicial system. I can barely imagine how Vonage mounted a competent defense and lost on those claims. And those are the sum total of their infringements.
euler 12/5/2012 | 3:11:14 PM
re: Vonage, Verizon Fight to Go Into Late Rounds I find it hard to believe that Vonage was given the OK for an IPO! The lack of due diligence or even possible fraud will have serious repercussions.
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