It always surprises us when some technologies are granted patents in the US market, and the Verizon Vonage patent dispute seems to be another case where perhaps a patent should not have been issued in the first place.
This week a US federal jury court said that Vonage had infringed Verizon patents relating to how it delivers Voice over IP and ordered it to pay $58 million. Now Verizon is seeking an injunction to switch off the service, which is not only unlikely (we cannot remember an injunction being granted in a patent infringement case in recent years), but it could bankrupt a company that has $500 million of the public’s money in its coffers, driving over 2 million customers back into the hands of the big two ‘monopolies’ Verizon and AT&T.
It’s fairly clear that these patents should never have been issued, that they were applied for purely to STOP the use of VoIP, not to innovate, and that they come from a company that is not known for its technology breakthroughs ‘ Verizon is no Lucent or Nortel when it comes to filing patents, because it is an operator which buys virtually all of its technology from other businesses.
Initially Verizon had asked for damages of $197 million but was awarded less than a third of the requested amount.
But the patents aren’t for the technology that underlies VoIP, oh no. And they aren’t even for specific methods or techniques, instead they are for ways of connecting VoIP to the public switched network.
This is a broad understanding, and you would have to look at each patent separately, but things like handoff from switched circuits to VoIP and issues relating to how a call is billed or authorized when it comes from a VoIP network to a switched circuit system are what are covered. The Call Data Record (CDR) system for billing is another international standard, and is fundamental to billing in switched circuits, so Verizon can’t think it has access to this IPR, but the patents would seem to suggest it can, at least, build on it.
In other words the patents were filed to present a royalty hurdle to penalize any company that offers cheaper rate phone connection than Verizon and take the form of ‘you legally cannot connect to my network without my say so and without me setting your royalties.’
Now it’s fairly obvious that this decision is not in the public interests and with all the public rights of way and privilege that Verizon gets from the FCC, you might think that this was a decision for the FCC, not for the some patent filing clerk.
But the trial was about whether or not Vonage used the technology in the patents, not whether or not Verizon should have been granted the patents in the first place. Perhaps such a trial needs to be brought. Perhaps what is needed is a patent pool for VoIP?
We know that many of the SIP patents, those relating to privacy, call authorization, conferencing, proxies and cookies, all came out of AT&T work which it rightly declared when setting the SIP standard. SIP or session initiation protocol is used at the core of the vast majority of VoIP implementations and is an IETF standard. It will also be used at the core of future IMS architectures and although there may be royalties payable to equipment makers, that’s all part and parcel of the VoIP community going forwards.
The Vonage system, perhaps because it was the first ever to offer VoIP commercially, may have bypassed many of what have become standard ways of offering a VoIP service.
We can understand why the US financial markets panicked and threw away Vonage shares like they were going out of style. A ruling like this, with the potential for a closedown of the service, however unlikely, in an administration that has sworn to back big business to the hilt, could see decisions in favor of Verizon at a higher appeal court, although we don’t expect that.
If a ruling to stop the service is granted, Vonage would apply for a stay on the ruling and likely get that granted, while it put in place slightly different technology, which nowadays it might buy off the shelf. Only a genuinely perverse set of legal rulings could genuinely halt the Vonage service, but then again this is America. It would not be the first time that a global movement like VoIP was halted in its tracks by a US court.
So where does Verizon take this ruling which suggest that it holds all the cards in VoIP. Does it go after Skype and stop its Skype Out calls to US subscribers? Well no it can’t do that because the Skype interface to the global circuit switched network doesn’t happen on US soil.
Can it go after all the equipment suppliers for SIP? No they seem to be licensed under separate technology from AT&T. The Verizon decision, if it stands will only allow the giant telco to go after VoIP operators where they connect to the circuit switched network on US soil. So that means Level 3 Communications, one of the core enablers of independent VoIP services in the US, and potentially other VoIP specialists such as Covad which target the enterprise.
But Verizon could take this further and attack the companies that are eating into the heartland of its customer base, the cable operators such as Cablevision, who two years ago was the first major cable operator to offer a $99 triple play in Verizon markets, and Comcast and Time Warner Cable. They have all recently begun offering VoIP, instead of switched telephony, over their digital cable services and are responsible for the proportion of voice subscription erosion which is not explained by mobile fixed line replacement (from which Verizon benefits anyway).
One of the key differences between these companies and Vonage is that the cable operators all have the protection of an energetic technology enabler in the form of CableLabs, which they jointly own and which will have researched its technology base fully. Each of them will also have patents of their own to protect. Level 3 certainly has patents and did much of the work behind the original Softswitches that switch VoIP and holds the core patents there and could counter sue Verizon.
Because other VoIP players may effectively be immune to the Verizon ruling, it looks like this was just a ‘get Vonage’ legal play after all, and while we have no specific sympathies with it, and what is after all a ‘get rich quick’ VoIP play which has not brought any innovation to voice services, we think that Vonage not only should, but will survive this legal challenge. What it may not survive is the fact that the world is catching up with it, and it needs to innovate at the service level and globalize more rapidly if it wants to survive the simpler acts of more intense competition.