US Appeals Court Partly Upholds Patent Ruling Against Vonage?

Vonage has been the target of substantial patent infringement litigation in recent months. One of their ongoing disputes has been with Verizon, a competitor in the internet phone business. Recently, the U.S. Court of Appeals for the Federal Circuit released its decision in Vonage’s appeal. At first glance, it may appear Vonage was the more successful of the two parties in the appeal as the entire damages award was vacated, and a new trial was ordered for the infringement of one of the patents. In fact one journalist wrote that the appeal court `partly’ upheld the patent ruling against Vonage[1]. However, a closer review of the decision illustrates that the bulk of the patent ruling against Vonage was essentially upheld.

Verizon commenced infringement proceedings against Vonage asserting infringement of three of their U.S. patents relating to their voice over IP technology. The District Court via a jury trial found that Vonage infringed the three patents, awarded damages of $58,000,000, and set a royalty rate of 5.5% for any future infringement. In addition, the District Court issued a permanent injunction preventing any future infringement by Vonage. Vonage appealed the decision to the U.S. Court of Appeals for the Federal Circuit.

In the appeal, the court effectively upheld the infringement and injunctions against Vonage for two of the patents. In spite of the attempts of Vonage to attack the construction of some of the key terms in these patent claims (i.e. translation’, `conditional analysis’, `server’, etc.), the court upheld the District Court’s interpretation and dismissed the appeals[2]. This result represents success on a substantial portion of the appeal. Based on a simple mathematical calculation, Verizon was successful in upholding the decisions in approximately two-thirds of the patents at issue.

Although the court ordered a new trial on the issue of infringement of the third patent and issued a stay on the injunction, this is not a permanent resolution to the matter. The court did not expressly reverse the decision of the District Court. Rather, the court found the District Court erred in its construction of a key term (`localized wireless gateway’) in the patent claim which resulted in prejudice to Vonage[3]. While this result represents some measure of success for Vonage, it is only in relation to approximately one-third of the patents at issue. Further, there is a risk that this success may be short lived depending on the final outcome of the new trial.

The decision of the court to remand the determination of damages back to the District court may suggest that Vonage faired better than they actually did on the appeal. Although the requirement for a new trial would have an impact on the original damages award, the entire damage award was abandoned due to the failure of the jury to breakdown the damages attributable to each individual patent[4]. If the damages had been properly attributed, it is likely the court would have only remanded the determination of damages in relation to the third patent, and left the rest of the damage award undisturbed. Further, irrespective of the outcome in the infringement of the third patent, Vonage is likely to be subject to a rather substantial damage award in light of the size of the previous award. As a result, Vonage only obtained temporary relief from a `certain’ damage award in relation to two patents. The only damage award Vonage may avoid, is in relation to the third patent, which is dependent on the outcome of the new trial.

The statement that the appeal court partly upheld the patent ruling against Vonage suggests that Vonage was successful in appealing the majority of the patents at issue. As the review above illustrates, Verizon was successful in upholding the bulk of the patent infringements and injunctions (two-thirds) against Vonage. Although it is easy to misconstrue the decision to abandon the entire damages award, Vonage essentially obtained temporary relief from a `certain’ substantial damage award. As a result, it can be safely stated that the court upheld the `bulk’ of the patent ruling against Vonage.

[1] `U.S. appeals court partly upholds patent ruling against Vonage’, Barbara Ortutay.

[2] Verizon Services Corp., Verizon Laboratories, Inc., and Verizon Communications, Inc. v. Vonage Holdings Corp., and Vonage America, Inc., 2007 U.S. App. Lexis 22737 at pg. 9 ñ 12.

[3] Verizon Services Corp., Verizon Laboratories, Inc., and Verizon Communications, Inc. v. Vonage Holdings Corp., and Vonage America, Inc., 2007 U.S. App. Lexis 22737 at pg. 12 ñ 15.

[4] Verizon Services Corp., Verizon Laboratories, Inc., and Verizon Communications, Inc. v. Vonage Holdings Corp., and Vonage America, Inc., 2007 U.S. App. Lexis 22737 at pg. 16.

One Comment
  1. In my opinion, the Court failed to balance the rights of Verizon and the public interest.

    The bar for “obviousness” in patent claims was lowered when the Court upheld Verizon’s overly broad patents. This stifles innovation and goes against “the progress of science”, a priority declared by the Constitution. Consequently, competition in the industry is undermined, as smaller players are unable to invent around unduly broad patents.

    It appears that the US patent system is perhaps inadvertently, backing up the big boys, like Verizon, who have the resources to engage in stockpiling, a weapon used against competitors with the aim of monopolizing the market. The Court’s over-eager approach in protecting patents is a slippery slope. The Court must be cautious in preventing big players from exploiting the system to their advantage.

    To maintain rights to a patent, its holder is required to “actively defend” the patent. Already, this tips the scale in favour of companies with deep pockets. Vonage appears to be the ideal “victim”, having no previous patents and limited resources compared to Verizon. “Nuclear stockpiling” is a defence against potential infringements but it is also uneconomical. Perhaps a solution is to revert to the decision in Microsoft v AT&T, where software was declared not to be eligible for patent protection.

    Ultimately, with fewer choices in the market, it is the public who suffers. In an on-going patent war, a “middle ground” approach, as suggested by Judge Dyk is difficult to achieve without first reforming the patent system.

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