Vonage is Sued for Patent Infringement by Verizon Communications

Vonage provides telephone services via broadband internet connections. They recently proclaimed themselves as "Leading the Internet Phone Revolution," with over 1.6 million lines and having the largest market share in broadband telephone services. However, in early June 2006, Verizon filed suit against Vonage claiming that Vonage is infringing seven of its patents relating to internet phone technology. This technology relates to completing calls between VoIP users and the public network, authenticating VoIP callers, validating VoIP callers' accounts, monitoring the usage of the VoIP callers, fraud protection, providing enhanced features and using Wi-Fi handsets with VoIP. All of these claims relate to key features of Vonage's commercial services. Therefore, if Vonage loses the lawsuit, they may no longer be a viable company.

Patent infringement occurs when a person or company, during the patent term, makes, uses or sells the patented invention without authorization. The two most common patent infringement defenses are: 1) the patent is invalid and/or 2) the patent has not been infringed. If a defendant is found to infringe a patent, the Court will issue an injunction that prevents the defendant from further making, using or selling the infringing product. For damages, the defendant may be required to pay the plaintiff lost profits and possibly punitive damages for willful infringement.

However, currently, Vonage's biggest concern may be 'How much is this thing going to cost?' Patent litigation is extremely expensive, often reaching millions of dollars, and Verizon has deep pockets, meaning Verizon could drag out the long litigation.

In the upcoming months, Vonage must decide whether to 1) settle the case or 2) go forward with the litigation. If they decide to settle the case, Vonage may be able to license the technology allowing them to continue use. However, while licensing may be an option, this option may act as an admission that they have no ownership rights to the technology. If they decide to go forward with the litigation, the litigation costs, and potential damages may cripple the company, but a positive verdict may be worth the risk.

While the suit has only just begun, the other industry giants will be paying close attention to the progression of this case.

Verizon Sues Vonage: Perspective of an IP Plaintiff

On June 19, 2006, two subsidiaries of Verizon Communications brought a patent infringement suit against Vonage in the United States District Court for the Eastern District of Virginia, seeking an injunction and damages.

Verizon sells a voice over Internet protocol (VoIP) service called VoiceWing, which converts a caller's voice signals to packets of information then sends them over the Internet to a recipient's telephone or VoIP-enabled computer. Vonage uses a similar process to provide services comparable to VoiceWing.

Vonage is allegedly infringing at least seven patents relating to VoIP owned by Verizon Services of Arlington, Virginia, and Verizon Laboratories of Waltham, Massachusetts (together "Verizon"). The technologies include: gateway interfaces between a packet-switched and circuit-switched network (as embodied in U.S. Patent Nos. 6,104,711; 6,282,574; and 6,128,304); billing and fraud detection (Nos. 6,430,275 and 6,137,869); call services such as call forwarding and voicemail (No. 6,298,062); and methods relating to the use of Wi-Fi handsets in a VoIP network (No. 6,359,880).

When a company believes its patented technology is being infringed, the first instinct may be to send a cease and desist letter to the infringing party. Such an action, however, can deprive an owner of strategic litigation advantages. When the other party is placed on notice of the rightful owner's concerns, they may file a declaratory judgment lawsuit in a U.S. District Court in their home district to secure "home field advantage." The declaratory judgment lawsuit will ask the court to determine whether the property rights are valid, whether they have been infringed, or both. Federal courts generally only allow the first lawsuit filed to go forward, which means that even if the rightful owner files an infringement suit a day after the other party, the owner's action will be stayed. A preemptive lawsuit also allows the other party to determine its litigation strategy, as well as gives the other party leverage in licensing negotiations.

One of the first steps when a company is considering litigation is to determine whether the other party is actually infringing the patent in question. A patent gives its owner the right to exclude others from making, selling, or using the invention, but does not confer the right to actually make, sell, or use the invention. The company may find that its patent is based on a patent owned by the alleged infringer. If this is the case, the company is actually infringing unless it obtains a license for the previous technology.

Besides purchasing a license, a company may investigate patent cross-licensing. When a company believes another party is using subject matter contained in the company's patent, they may offer a license to the other party in exchange for a license to use technology within the other party's patent portfolio. This option resolves the infringement without litigation or the payment of licensing fees.

Verizon did not notify Vonage of the alleged infringement prior to filing the lawsuit. This strategy gave Verizon time to select counsel, as well as investigate whether Vonage owns patents to similar technology. According to the complaint, Vonage does not currently own any issued U.S. patents. This finding may allow Verizon to rule out cross-licensing intellectual property or the possibility of a patent infringement countersuit and focus on stopping the perceived infringement.

Vonage is the current leader in the VoIP market and an injunction may seriously jeopardize Vonage's operations, allowing competing services like VoiceWing to acquire a greater market share.

The 500 GHz Processor

On June 20, 2006, IBM and Georgia Tech announced that they have successfully tested their latest semiconductor's clock speed at a staggering 500 Gigahertz (1 GHz = 1 Billion Cycles per second). Compare this clock speed to the typical personal computers on sale today, which top out at around 4 Gigahertz (these numbers don't measure the exact same thing, but give a relatively accurate comparison). This new chip speed record was reached using Silicon-Germanium (SiGe) transistors cooled to nearly absolute zero (approximately -451 degrees F or -268 degrees C) with liquid helium. However, the chip can still operate at a clock speed of approximately 350 Gigahertz at room temperature.

The introduction of germanium into silicon wafers yields substantial performance benefits while maintaining the many advantages of silicon. IBM has been experimenting with SiGe technology for over 15 years and has been producing high-volume SiGe chips for various industries since 1998. This new chip represents a significant leap forward not only because of the chip's high clock speed and low power consumption, but because the chip is compatible with existing standard high-volume silicon-based manufacturing techniques. This new technology is believed to lend itself to continued improvement and in the future is expected to support room temperature operational speeds in the Terahertz range (1 THz = 1 TRILLION cycles per second)!

Recent Judgments Concerning Industrial Property in Argentina

Our foreign associate, friend and colleague, Dr. Mariano Municoy of Moeller & Co. in Buenos Aires, Argentina, has been generous in taking the time to author an exclusive article for our blog. The article addresses recent and relevant judgments concerning industrial property in Argentina. Please click here to read. Thanks Dr. Municoy!

Microsoft Loses Patent Appeal

On June 14, 2006 the United States Court of Appeals for the Federal Circuit affirmed a US District Court decision holding Microsoft's Office Pro program infringed United States Patent No. 5,537,590.

In 1990 the inventor, Carlos Armando Amado, developed a program to link a spread sheet to a database. Microsoft was not interested in the program in 1992 when Mr. Amado offered to license his technology for use in Excel. Mr. Amado received a patent for the program in 1994; and, in 1995, Microsoft debuted software that linked Excel spreadsheets to Access databases.

In June 2005, a U.S. District Court for the Central District of California jury determined that Microsoft's sale of Office Pro software infringed Mr. Amado's patent and awarded $6.1 million in damages. The District Court issued an injunction against additional sales of the product, but stayed the injunction until the case was resolved on appeal. During the appellate process, all sales from the infringing software were placed into an escrow account, which is now worth more than $65 million.

The Court of Appeals remanded the case back to the District Court to determine Mr. Amado's share of the escrow account. Microsoft is currently pursuing its legal options.

Can Technology and Soccer Mix?

Sunday's World Cup match between France and South Korea raised a reoccurring question about officiating in the world's largest sporting event. In the 30th minute of the match, Patrick Vieira's header appeared to travel over the goal line before being swatted away by Lee Woon-Jae, the South Korean goalkeeper.

The lack of an instant replay system in soccer stands in stark contrast to professional sports in the United States, where instant replay has been used for years. Many soccer fans and officials oppose video replay systems because they believe review will interrupt the smooth flow of the game. The president of the Federation Internationale de Football Association ("FIFA"), the world governing body of soccer, has stated that "the game must keep its human face, which includes mistakes."

Although opposed to instant replay in the American form, FIFA has been experimenting with different technologies for over a decade but has been unable to find anything that is 100% reliable. The current front-runner is a "smartball" system being developed by Adidas, Cairos Technologies, and the Fraunhofer Institute for Integrated Circuits. The system has a ball containing a RFID chip and a network of receivers placed around the field to track the ball's movement.

The system was tested last year in the World Under-17 Championship in Peru, where the system failed to meet FIFA's 100% reliability requirement. According to a former head of officiating for FIFA, testing revealed several problems with the system: balls shot over the goal that landed on the net were counted as goals, data took several seconds to transfer to the referee, and more than one ball on the field crashed the system. These problems caused FIFA to decide that the system was not ready for the World Cup; however, the system will continue to be tested in matches after the World Cup ends.

Sea Launch

At 2:50 a.m. CST on June 18, 2006, a Russian-made carrier rocket with a U.S. communications satellite was successfully launched from Sea Launch's floating platform in the Pacific. Sea Launch was created in 1995 as a consortium comprising Boeing as well as leading spacecraft design and fabrication companies from Norway, Russia and Ukraine. Sea Launch is the only company to currently conduct launches from a sea platform in the Pacific's equatorial waters, a location that yields numerous benefits such as the conservation of rocket and satellite fuel (increasing the useful lives of both the rocket and satellite), a more cost-effective infrastructure and the ability to launch heavier payloads than otherwise possible.

Sea Launch rockets are assembled and tested in Long Beach, California. The launch operation includes two vessels: the platform (from which the rockets actually launch) and a command ship (from which the launch is safely controlled). When preparations in Long Beach are complete, the two vessels travel 3000 miles to the equatorial launch site in the Pacific near Christmas Island (a trip that takes 11 days for the slower platform vessel).

To date, the launches have all used the custom built three-stage Zenit 3SL rocket which has a payload capacity of up to six tons (12,000 lbs). Since 1999, Sea Launch has completed over 20 launches for companies such as EchoStar, DirecTV, XM Radio, and PanAmSat. The most recent launch put a geostationary satellite into orbit that will provide communication and broadcast services to the continental U.S. as well as Alaska, Hawaii, Mexico and Canada.

For more information, check out this link.

China's Passive Role is No Longer an Option

As you walk though any major metropolitan city, street vendors sell knock-offs of famous brand merchandise, such as Rolex watches, Prada shoes, Gucci bags and Louis Vuitton bags for a fraction of their retail prices. While these knock-offs relate primarily to issues regarding trademark infringement, copyright owners are not free from similar piracy, last month, it only took pirates a couple of days to bootleg and sell DVD's of one of the summers most anticipated movies, "The Da Vinci Code." Illegal activity such as this depletes the value of copyright owners' work and decreases their incentive to create.

In 2001, attempting to meet requirements to join the World Trade Organization (WTO), China enacted a host of intellectual property laws. In the last five years, filings of patent applications in China increased 20% per year. Apparently, investors are more willing to invest when they are protected by the intellectual property laws. However, while some progress is being made, most opponents argue that China is still not protecting the rights of intellectual property owners.

China remains the number one source of products which infringe intellectual property rights, costing companies from around the world in excess of $50 billion per year. As China quickly develops into the next world super power, the United States and the rest of the world will continue to demand that China take a more active role in curbing its counterfeiting and piracy. In the latest effort to force China to assume an active role in stopping the piracy of movies, music and software, the United States is threatening to file a complaint in the WTO for inadequate enforcement of copyright protection. While it is unknown what future effects will be created by such a complaint, one can only hope that it increases protection for those that justifiably own intellectual property rights.

Replacing TiVo?

Cablevision System Corp. ("Cablevision") has postponed its plans to unveil a subscription-based cable programming recording service, pending resolution of a copyright infringement lawsuit brought by several movie studios and television networks. The service utilizes a remote storage digital video recorder ("RS-DVR") and allows subscribers to record up to 45 hours of programming. Cablevision claims that the system has the same capabilities as a normal digital video recorder ("DVR"), such as simultaneously recording and watching shows without the purchase of additional equipment.

The studios and networks complain that RS-DVR technology offered by Cablevision would violate copyright laws because Cablevision does not have a license to provide the content to subscribers. The complaint equated RS-DVR technology with video-on-demand because the provider records content then dispenses the content at the request of the subscriber. Current agreements allow cable providers to provide video-on-demand for their subscribers; however, cable providers must negotiate an additional license from the content producer to provide the service to subscribers.

Cablevision has filed a counter-suit claiming that its technology is protected under the 1984 case of Sony Corp v. Universal City Studios, where the Supreme Court held that subscribers may record television programs for later personal use. Cablevision argued that the change from VCR to RS-DVR is the next step in technology and is similar to the change from Betamax to VCR. Cablevision also asserts that RS-DVR is analogous to current DVR technology because recorded content is only available in the subscriber's home.

The case was brought in the U.S. District Court for the Southern District of New York and both parties have agreed to an expedited schedule, with a hearing tentatively scheduled for October 30, 2006.

Combating Bio-Piracy: Proposed New Disclosure Requirements

Bio-Piracy refers to the idea of foreign corporations, universities and/or governments appropriating biological resources or traditional knowledge from developing countries, for commercial use, without acknowledgment or compensation. These research entities then apply for patents claiming the isolated and purified compounds developed from this local knowledge. Unfortunately, little to none of the benefits obtained from commercializing and patenting are ever received by the developing countries.

Historically, one of the most well known drugs, Cocaine, was and still is used in its unpurified form, the Coca Leaf, by the indigenous people of South America for its medicinal properties. The Coca Leaf was first introduced to Westerners when the Spaniards conquered South America in the late 1400's. However, it wasn't until a German Chemist, Friedrich Gaedcke, developed a purification process, that the Cocaine was isolated from the Coca Leaf in 1855. From that point up, until its prohibition in the early 1900's, cocaine was commercially sold in various medicinal syrups and other forms throughout America and Western Europe. Unfortunately, until the current Drug Lords, the indigenous people of South America, which first introduced the Spaniards to the Coca Leaf, did not share in the benefits of the widespread commercial success.

Currently, the United Nations (UN) requires prior informed consent and equitable benefit-sharing for foreign entities engaged in this type of research. However, developing countries feel that this is easily avoided at the national level, because the UN leaves it up to the member country if and how to apply these requirements.

In an effort to develop international regulations, developing countries have been campaigning in the World Trade Organization (WTO) attempting to mandate that patent applicants disclose the origin of inventions using biological resources or traditional knowledge as a condition of obtaining a patent.

While redistribution of wealth is a good idea, mandating a disclosure requirement may have adverse effects on patent owners' rights and stifle new investments. Prior to going through with such a proposal, developing nations and the WTO. need to sit down and determine the effects; balancing both the incentive to develop future technoloy and the interests of the countries that make development possible.

Europe Takes a Bite Out of Apple

European regulators in several countries have begun to scrutinize the connection between Apple's iTunes Music Store and Apple's iPod digital music players.

The French National Assembly passed a bill earlier this year requiring any music sold over the internet to be compatible with formats of all portable music players. The law also legalizes the creation of software to defeat digital rights management (DRM) technology, such as Apple's Fairplay, which controls the number of times a purchased song can be copied or shared. Although the law has yet to be passed in the French Senate, Apple has responded by threatening to shut down the French version of the iTunes Music Store.

Apple is facing increasing criticism on the other side of the British Channel about its pricing structure and incompatibility. The cost of a song in Great Britain is 79 pence (approximately $1.45), whereas in the European Union a song costs 0.99 Euro (approximately $1.25). This arrangement has caused a British consumer advocacy group to file a complaint with the European Commission alleging overcharging for goods by Apple. Apple has also recently been discussed in a hearing in the British House of Commons regarding digital media issues as record companies argued against Apple's incompatibility.

In Norway, the Norwegian Consumer Ombudsman's Office (COO) held that parts of the iTunes User Agreement violated Norwegian law. One of the provisions cited by the Norwegian COO was a reservation of a right to change the terms of the agreement by Apple at any time without notice to users. Another provision was a disclaimer of responsibility for any viruses that are incurred through the use of the program. The Norwegian COO has yet to rule on the legality of Apple's limiting use of downloaded music to iPod music players; however, the Norwegian COO is likely to rule against such limitations by Apple. Both Sweden and Denmark are expected to voice similar opinions in the near future.

Apple has taken a more measured approach to the British and Nordic legal proceedings and is determined to resolve these issues without shutting down any iTunes music stores.

What's in a Name?

Quite possibly a great deal. Branding and, in particular, re-branding has become an increasingly important corporate focus as of late. It is estimated that there were over 1,000 corporate name changes in the U.S. last year - as many as 75 of which were initiated by Chicago area companies. Conversion of the well-known Marshall Field's brand into Macy's and Bank One' absorption by Chase are two notable Chicago examples.

Numerous factors are considered when making these decisions, which often include extensive market research and vast corporate resources. Ultimately, a brand name may be maintained by its new owner (as in the survival by Chicago's Dominick's grocery store chain of its 1998 acquisition by Safeway Inc. and Philip Morris' 1988 acquisition of Northfield food giant Kraft) or may be phased out in order to achieve a single, nationally-recognized brand name (as in Chase or Macy's).

With Kraft and Dominick's, the goodwill associated with the brand name was valuable enough to warrant keeping it around or might possibly have been the reason for the acquisition in the first place. However, in the Marshall Field's and Bank One examples the acquired marks are phased out entirely, thereby reducing the number of competitors as well as the costs associated with maintaining two names. Bank One is already gone while Marshall Field's is still in the process and scheduled completely disappear by September of this year.

Were these choices the right ones - and for whom? Even in hindsight, it is often difficult to assess the success of such corporate maneuvering. Would (or did) the change to Macy's, Chase, Safeway or Philip Morris (now Altria Group) affect your decision to patronize these businesses? Is your answer to one different than the others? Does where you live make a difference? Please post your comments as to what influences your decisions.

Net2Phone Sues Skype

Net2Phone has filed a lawsuit alleging that Skype infringed Net2Phone's Point-To-Point Internet Protocol patent issued in August 2000. The patent describes a method of swapping Internet Protocol (IP) addresses through processing units over the internet to create a point-to-point communication link between computers. The infringement is allegedly caused by Skype's use of Voice over Internet Protocol (VoIP), which allows peer-to-peer telephone communication over the internet.

Using a computer headset or a USB phone, Skype customers use a computer terminal to place phone calls to other Skype users or to non-internet phone users. For calls to Skype users, traditional phone networks are bypassed through the use of a peer-to-peer network that utilizes computer terminals of all online Skype users "in traffic routing, processing and bandwidth intensive tasks." For calls to non-Skype users, users pay a set rate for a connection to conventional phone networks.

Although there are other internet phone companies, such as Vonage , these utilize centrally managed systems to connect the user's computer terminal to the traditional phone networks and charge a monthly fee.

Chinese Court Upholds Pfizer's Viagra Patent

On June 5, 2006, the Beijing No. 1 Intermediate People's Court upheld Pfizer's patent for the use of sildenafil citrate, the active ingredient in Viagra. The ruling reversed a decision by the Patent Reexamination Board of China's State Intellectual Property Office.

In 1994, Pfizer filed a Chinese patent application for the use of sildenafil citrate in male erectile dysfunction. Viagra, commonly referred to as "weige" or "great brother" in Chinese, was introduced into the Chinese market in 2000, and within six months, state media reported that approximately ninety percent of all Viagra pills sold in Shanghai were fake.

More than a dozen Chinese companies, known as the "Weige Alliance," challenged the validity of Pfizer's patent. In 2004, the Chinese Patent Reexamination Board invalidated the patent on the ground of insufficient disclosure of information due to failure to provide convincing technical content with the patent application.

It is unclear how the State Intellectual Property Office and the companies involved will react, but the decision will stand unless the case is appealed to Beijing Higher People's Court.

China joined the World Trade Organization in 2001 and promised to tighten patent protection, but enforcement of intellectual property rights has often continued to be weak within the Chinese border. The Bush administration considers this an important test to prove China's commitment to protect the intellectual property rights of foreign companies.

Illinois Cuts Funding for Tech Centers

Illinois Technology Enterprise Centers (ITEC) is an Illinois state-funded grant program designed to assist startup technology entrepreneurs. ITEC was established in 2000 when it opened two centers located in Evanston and Urbana-Champaign. Thereafter, in 2002, an additional six ITECs were opened at Argonne National Laboratory, Carbondale, Chicago, DuPage County, Peoria and Springfield.

For ITECs clients, at no cost or through subsidies, ITEC offers lab space, business advice and fund-raising help. ITEC normally assists companies focused in the following areas:

-information technology
-telecom/wireless
-industrial technology
-advanced materials
-engineered products
-drug diagnostics
-drug therapeutics
-medical devices and medical software

In the last three years, the ITEC centers helped start 185 companies, assisted in raising $157 million in financing and created or saved 1,190 Illinois jobs.

Unfortunately, these benefits may end if something isn't done. The 2007 Illinois state budget has decreased ITEC funding from about $2 million to $435,000. This reduction may result in some centers closing as soon as fall 2006.

Those at the Illinois Department of Commerce and Economic Opportunity (DCEO) that are involved in allocating ITEC funds promise to look for new funding. However, until any decisions are made, the benefits that the ITEC program has provided upstarts in new technology in Illinois may become extinct.

Ringback Tone Patent

What is a ringback tone? The term "ringback tone" is typically used to refer to the audible ringing that is heard on the telephone line by the calling party after dialing and prior to the call being answered at the distant end. Already very popular in Asia, cell phone users can modify their ringback tone through their cellular service provider to choose certain songs or messages to be played to specific callers. This technology is currently being developed by major U.S. carriers including Verizon. A cell phone user may get online and pay an annual fee to use a specific song, quote or message for their callers. It is rumored that in addition to the per tone fee, there will be a monthly subscription to have the service.

Now almost two years after ringback tones were introduced by wireless carriers, the U.S. Patent Office granted a patent to Karl Seelig, CEO of Perceptive Impression, for ringback signal replacement. The ringback signal replacement market is expected to garner $3 billion in revenue over the next several years. The Seelig patent covers replacing ringback signals with any acoustic sound presentation.

Perceptive Impression has another idea for ringback tones aside from allowing cell phone users to customize their ringback: ADVERTISING. The company's goal is to create a new advertising platform utilizing short ads that companies create. A February survey concludes that 89% of major brands are planning to market via mobile phones by 2008. The survey further concludes that 50% of the brands plan to spend between 5% and 25% of their marketing budget in mobile phone advertising over the next five years. Yikes. I can already imagine what ads I might be forced to listen to every time I call my friends.