Verizon Unlikely to Sue Cable on VoIP
Analysts: Vonage An Easier Target For Patent Claim
By Todd Spangler -- Multichannel News, 6/3/2007 8:00:00 PM
Verizon Communications won big against Vonage Holdings in the first round of their patent-litigation bout, and even the most propitious outcome for Vonage will end up costing the Internet-phone company millions of dollars.
Now analysts wonder whether Verizon, if it ultimately prevails against Vonage, would take a swing at its real competitors: cable operators.
The short answer? Probably not, according to several industry analysts. But given the expansive interpretation of the patents in question by the court in the Verizon/Vonage case, some said the game may not be completely over yet.
| Call the Lawyers |
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| Vonage was found guilty of infringing three Verizon-owned patents: |
| Source: U.S. Patent and Trademark Office |
| 6,104,711 (8/15/2000): Enhanced Internet domain name server — A server that supports different types of translations over a public, packet-based data network (such as the Internet), including domain name to phone number |
| 6,282,574 (8/28/2001): Method, server and telecommunications system for name translation on a conditional basis and/or to a telephone number — For systems that bridge the traditional phone network with the Internet |
| 6,359,880 (03/19/2002): Public wireless/cordless Internet gateway — A localized wireless gateway system that provides phone access to a public, packet-based data network |
“I think Verizon will go after anyone. Once they get the Vonage case settled, there’s not a reason in the world they wouldn’t go after other service providers,” said Frank Dzubeck, president of telecom consulting firm Communications Network Architects. “Companies are being very aggressive with their patent portfolios.”
Verizon successfully sued Vonage, the largest pure-play Internet-voice service, with about 2.4 million customers, in the U.S. District Court for the Eastern District of Virginia. In March, a jury found Vonage had infringed on three patents owned by Verizon covering certain parts of the process of translating between packet- and circuit-switched voice networks.
Vonage was ordered to pay the nation’s second-largest phone company $58 million in damages plus 5.5% of its ongoing telephony revenue. Vonage has appealed the decision, with a June 25 hearing scheduled before the U.S. Court of Appeals for the Federal Circuit in Washington, D.C.
But analysts said there are several factors why Verizon isn’t likely to go lawsuit-crazy against cable.
First of all, the largest cable operators measure their revenue in billions, unlike relatively tiny Vonage. “It’s one thing to bully a little guy,” said Jon Arnold, principal of telecom research firm J Arnold & Associates. “It’s a much different thing to bully somebody who’s as big as you are.”
The large cable operators also have more leverage because they have sizeable patent holdings themselves. To date, the U.S. Patent and Trademark Office has issued around 2,000 patents related to voice-over-Internet Protocol, according to Gartner research director Dan O’Connell.
“One thing that got Vonage in trouble was that they didn’t have a lot of patents,” he said. “If you have a big patent portfolio, you have a leg to stand on.”
Large firms often engage in cross-licensing deals with other organizations that have intellectual property in the same domains instead of initiating legal action, O’Connell added.
Moreover, Verizon would need to assess the reaction of local, state and federal regulators if it filed suits against the major cable operators, said David Lemelin, senior analyst for In-Stat, a sister company to Multichannel News.
IP-based voice services are a growing revenue opportunity for Verizon. But Lemelin said the telco has much more at stake with its regulated legacy assets and its FiOS rollout, which may receive unwanted regulatory scrutiny if the company is perceived as overly aggressive.
“I think a lot of dominos would have to fall in Verizon’s favor before they would ever attempt a similar suit against the cable companies,” he said.
Meanwhile, some have noted that cable appears to have a built-in defense against the Verizon patents, given that most operators use closed, privately managed IP-based networks. By contrast, the three Verizon patents in the Vonage case pertain specifically to phone communications over the public Internet.
Sanford Bernstein analyst Craig Moffett said that doesn’t necessarily mean cable operators are immune from legal action. But he added that if there is any liability in cable, it’s most likely to be among the equipment suppliers, “since that’s where the translation is actually taking place,” he said.
But juries and judges may interpret any given patent’s applicability very broadly, said O’Connell. At a basic level, “cable VoIP has to do the same kinds of the things Vonage has to do: translate from the IP world to the circuit-switched world,” he said.
Still, O’Connell said Verizon may think twice about enforcing its voice-over-Internet patents after an April 30 ruling by the U.S. Supreme Court. The ruling in KSR v. Teleflex is expected to make it harder to defend “obvious” patents — that is, those that “would occur in the ordinary course [of business] without real innovation.”
Vonage cited the high court’s ruling in a motion to the U.S. Appeals Court to have the Verizon case dismissed, but the court denied the motion.
“The Supreme Court decision took a fresh look at what many have considered unenforceable patents,” O’Connell said. “Certainly there is a strong likelihood that Verizon v. Vonage would fall under that ruling” as considered by the appeals court.
Finally, even if the patent-infringement verdict is upheld, Vonage said it has developed workarounds that don’t use the Verizon patents. As In-Stat’s Lemelin pointed out, “If Vonage can achieve [a viable workaround], the cable companies can certainly figure one out.”
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