Verizon Claims Vonage Owes It $197 Million For Patent Infringement

from the nice-work-if-you-can-get-it dept

Thu, Mar 8th 2007 3:47am — Mike Masnick

If you want a good example of the backwardness of the patent system these days, just check out the lawsuit where Verizon claims Vonage infringed on its patents. It's pretty well accepted that Vonage really was very innovative in bringing VoIP to market. It was one of the first "telephone replacement" VoIP offerings out there, and did a great job creating that marketplace with a huge marketing effort. However, after it was successful in finding a market (and competing against traditional telecom players like Verizon), Verizon suddenly decided that it held a patent on VoIP offerings and sued Vonage. Remember, that Verizon has done pretty much everything possible to keep people from getting services like Vonage. It had its own offering in the market, but was much later to market than Vonage and noticeably more expensive. It should come as no surprise that the offering didn't get much attention. So, what do you do when you fail in the market? You sue for patent infringement. Not only that, but you then claim that Vonage owes you $4.93 per customer per month -- which seems just a bit excessive.

This is also a good example to disprove the commonly stated claims of patent system defenders. They usually claim that these patents are needed to protect smaller players from being stomped out of business by a big company with more money and connections who can simply "steal" their idea and dominate the market. In this case, it was Vonage, the smaller player, that innovated in the market while the bigger company was slow to act. Verizon did later copy Vonage's offering, but was unable to succeed in the marketplace, despite having a lot more money, much better brand recognition, and many more telephony customers already in place. That's the exact opposite of what the patent defenders would have you believe would happen. Vonage continued to innovate, while Verizon was unable to compete. And then, rather than competing in the marketplace, the big company used patents to try to hamstring Vonage, adding additional fees (and the expense of a pointless patent lawsuit). It's hard to see how that's innovative at all.

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38 Comments

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ScaredOfTheMan, 8 Mar 2007 @ 4:15am

lets assume for a second that VZ patents are not disputed and hold up. This would be like suing guy who bought a knockoff rolex and not the guy who sold it to him.

I am amazed all the VoIP providers and manufacturers are not banding together to fight this lawsuit. First they came for my neighbors and when there was no one left...they came for me.
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TGX (kingaugustus), 8 Mar 2007 @ 4:22am

Vonage? what is thi'---
"
"ow" i just got hit in the head with an orange box"
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dr_audio, 8 Mar 2007 @ 4:32am

Verizon is typical of the union dominated, huge monopoly that is clueless about what the public wants until they see it becoming successful among their competitors. They have gouged their customers for years with crap service and expensive rates and now they are feeling the pain of free market phone service. I say good, let 'em suffer. And in this litigious society we now live in, what else would you expect but a lawsuit?
Go away giant telco-your mentality "we own the wiring to every house in America" days are over!
Good Riddance!!!
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Trouble Maker, 8 Mar 2007 @ 5:15am

two cents worth
Just say NO!

Turn it off, Dissconect it, cancel your program, close your account.

Say it with your money.

You don't NEED it. But as long as the "Public" (slack jawed, glazed eyed, mindless masses) lemmingly accept it...
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Tim Coker, 8 Mar 2007 @ 5:49am

Vonage != profitable?
Is vonage profiable yet? When they had their IPO, I seem to remember the prospectus saying they weren't profitable and had no expectation of being profitable in the near future. Is this still true?
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EdB, 8 Mar 2007 @ 6:20am

Re:
Wrong. First off a knockoff watch isn't IP, so it would be more like having the guy who made the fake watches arrested. In this case IF Verizon's patent is valid AND Vonage infringed then Vonage is in the wrong and redress is appropriate. If they were a little guy who did a better job of marketing someone else's idea, that's too damned bad.
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Thomason, 8 Mar 2007 @ 6:26am

Patents to those with the better ads.
Here again is that notion that, because "Vonage really was very innovative in bringing VoIP to market" that they should be immune from patent infringement. Did Vonage create anything greater than a massive ad campaign? Do you think Vonage created VoIP? They do what they do because the guy who set it up has lots of money from his past start-ups.
Try this hypothetical, Mike owns 1000 acres, and spends his last dime trying to strike oil there, and fails. Halliburton looks at the drilling maps and reports that Mike filed with the gov't. While Mike is stuck at an all-day hearing on his bankruptcy, the Big H set up a drill and strikes oil on Mike property. They efficiently pump it to a refinery, and gas prices drop a penny for all of us, based on this new found resource. Mike failed to make the most of what was his. He just couldn't deliver oil to the marketplace. but H did. Mike shouldn't be suing H, because they delivered, and the product of H's efficient effort was good for all of us. Right? So then, a well-financed start-up can review patents, take those that aren't being well-delivered to the market, and face no liability for patent infringement.
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ScaredOfTheMan, 8 Mar 2007 @ 6:30am

Re: #6
I agree with going after the guy who made the watch...but again How did Vonage infringe if they are using Cisco gateways and say a Sonos Softswitch with maybe their own web front end? Its manufacturer's products that violate VZ "IP"

how about this example, its like Delta suing United airlines for using a boeing jet, if delta had a patent on flying. Shouldn't they sue boeing? or in this case Cisco or whatever other vendors Vonage uses.

I think this lawsuit is all about crushing the competition. They can't compete in the open market but they can smack'em around in court.
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d.l., 8 Mar 2007 @ 6:40am

who developed the patent?
This could be a patent that MCI held and which Verizon acquired when it swallowed MCI. I think MCI actually launched its VoIP product, the MCI Advantage, before Vonage launched its product. Vonage's product has been more successful, but I think MCI's got to market first.
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Carsten Watts, 8 Mar 2007 @ 6:40am

Vonage? Verizon
Wait a minute, what is VoIP? isn't it the same as video streaming or music streaming? Why arn't other companies being sued then. Does Verizon claim patent of the telephone. Because the way I see it, the bottom line is the telephone is actually the instrument. VoIP is just another way to transmit data. uhoh, I guess Verizon has the patent on data transfer aslo.
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Carsten Watts, 8 Mar 2007 @ 6:44am

Sorry for the spelling.
After all the bottom line is all the jury is going to understand anyway!
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IT Tech, 8 Mar 2007 @ 6:45am

Clarification of Issue
I wanted to add a little clarification to this issue, being familiar with it and as a tech in the IT industry - the lawsuit is not simply for the VoIP service/usage - it is for 7 specific technologies used in identifying VoIP calls to landlines, terminating VoIP calls to landlines, xfr of VoIP calls, etc.
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tom, 8 Mar 2007 @ 6:54am

voip started here first
COBT.OB

C2 Communications Technologies Inc. Files Lawsuit Against Telecommunications Companies
Thursday June 15, 2006 9:00 am ET

MARSHALL, TEXAS--(MARKET WIRE)--Jun 15, 2006 -- C2 Communications Technologies Inc. ("C2"), a subsidiary of C2 Global Technologies Inc. (OTC BB:COBT.OB - News), announced today that it has filed a patent infringement lawsuit against AT&T, Inc., Verizon Communications, Inc., Qwest Communications International, Inc., Bellsouth Corporation, Sprint Nextel Corporation, Global Crossing Limited, and Level 3 Communications, Inc. The complaint was filed in the Marshall Division of the United States District Court for the Eastern District of Texas and alleges that the defendants' services and systems utilizing Voice over Internet Protocol ("VoIP") infringe C2's U.S. Patent No. 6,243,373, entitled "Method and Apparatus for Implementing a Computer Network/Internet Telephone System".
C2 is represented in this litigation by Susman Godfrey, LLP and Monts & Ware, LLP.

C2 Global Technologies Inc. is a subsidiary of Counsel Corporation (TSX:CXS.TO - News).

About C2 Global Technologies Inc.

C2's business is focused on licensing its patents, which include two foundational patents in Voice over Internet Protocol ("VoIP") technology. C2 plans to realize value from its intellectual property by offering licenses to service providers, equipment companies and end-users that are deploying VoIP networks for phone-to-phone communications. For further information, please visit C2's website at www.c-2technologies.com.
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tom, 8 Mar 2007 @ 6:57am

If you build it they will come
C2 Global Technologies Inc. Granted Patent in Hong Kong
Wednesday August 30, 4:48 pm ET

C2 Global Technologies Inc. Granted Patent in Canada
Wednesday October 18, 6:33 pm ET

C2 Global Technologies Inc. to be Granted Patent in Europe
Monday November 20, 9:00 am ET
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shoelace414, 8 Mar 2007 @ 6:59am

wow.. tying VOIP to a telephone, if Verizon wouldn't have come up with that nobody would have though of that innovative idea!
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Overcast, 8 Mar 2007 @ 7:11am

Why should Verizon bother? They should learn when to just keep their mouth shut, really. It's an art that these companies seem to be forgetting.

Vonage - in my experience, sucked. Sorry, I gave it a fair try... It wasn't the service so much - just how if the bill was a day late 'click' off it went, add to that their salesmen 'canvassing' me on that line. And the final nail was that $45 charge when I wanted to turn it off. If I had any thoughts about going back, they died right then and there.

So, eehh, I'm beginning to hate these companies abusing patent law as much as I hate the RIAA... I'll keep that in mind.

You know - someone needs to put up a web page that shames all these companies abusing copyright law, so we know who to NOT buy from.
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a, 8 Mar 2007 @ 7:59am

Vonage spent a lot of money selling a cheap service. If they infringed on VZ's patent, they should have to pay. Why should they be exempt?

Can I copy movies and sell them for a dollar? It provides value to the marketplace, so shouldn't that be the only thing that matters?

So now Vonage is a replacement for a telephone line? So they have to comply with CALEA and E911 right? They have to pay or collect the same taxes as a telephone line, right?

To bad they don't, and when they are asked, they fight it tooth and nail.

You think Jeff Citron is the high and mighty bringer of good things to consumers? Yeah, wonder why he can't be in the securities industry any more. Wonder why he paid a $20 million fine to the SEC. Get real, just another guy with smoke and mirrors. Vonage lost money every year expecting someone to buy them. Didn't happen and they went public, which tanked. Anyone who invested in them is doomed.
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Sanguine Dream, 8 Mar 2007 @ 8:12am

Only if it's valid...
I'm with comment #6. If Verizon has a valid patent then I'm all for them suing. But by valid I mean that Verizon didn't 1. File a patent then offer sucky service in hopes that someone else would innovate for them or 2. Wait til Vonage started up and when it appered that it may be profitabe one day Verizon rushed to the patent office in hopes of getting a broad patent that would cover anything Vonage did.

I'm willing to bet that Verizon is only suing now because they thing Vonage looks like it could be profitable to them or they figured, "Hey someone else has done all the hard work now we can just sue. That way we can actually make them pay us for the hard work they put into it!"
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Carsten Watts, 8 Mar 2007 @ 8:26am

Re:
Vonage no longer just turns off your service, they now allow you a grace period to make a payment. I have never had a salesman contact me??
I am grateful for that :-)
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Carsten Watts, 8 Mar 2007 @ 8:32am

#13
Well, Well, Well it appears that Verizon may not have the patent after all...:-) These are the kind of lawsuits that should never be allowed to enter the court systems at all. They are too frivolous in nature. Verizon drop the suit and find your own honey pot. Quit bogging up the courts with your whining....
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Scott Decker, 8 Mar 2007 @ 9:53am

Verizon -- Vonage - True Competition
Verizon is simply trying to take advantage of the lack of knowledge of our courts and our Government representatives in congress. They have been doing so for years!!!!!!! Our congress has passed stupid law after stupid law or tarriff, because of the lack of expertise and knowledge about this issue -- Shall we mention the Telecommunication act of 1996 that not only failed miserably to bring credible competition -- it actually created a better platform for creating monopolies all over again ( see recent mergers - Verizon /MCI ATT/BellSouth etc) ! Verizon has been poorly run since the mid 80's and it is time to understand this! There is no way this patent infringement case should stand up unless of course the courts simply do not understand. Who trully owns the fiber anyway?
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Michael Sole, 8 Mar 2007 @ 9:59am

Patent infringement? How about anti-trust?
This law suit is an anti-trust practice by Verizon and Vonage should counter sue with a class action suit with all of their customers and the government.

Case closed!
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Sue 'em all, Let God sort 'em out, 8 Mar 2007 @ 10:14am

If Verizon has patents that cover what Vonage is doing, then Vonage did not innovate anything.
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Craig Ferrante, 8 Mar 2007 @ 10:57am

vonage
I like my vonage system and think this is the big and powerfull telcom tring to make a profit off the little bit of profit vonage has made thus far. I dont support the law suit and this just makes me happier i told verizon to go fly a kit years ago for cell service and home phone service.
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Anonymous Coward, 8 Mar 2007 @ 1:13pm

What???
It is a "Dog-eat-dog" world out there. The term of "If you can't beat them...Join them!" gets thrown out of the window. So a new term is created ..."If you can't beat them... Sue them!"
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a, 8 Mar 2007 @ 1:13pm

Craig, what profit has Vonage ever made?
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a, 8 Mar 2007 @ 1:47pm

Vonage lost the suit and owes Verizon $58 million plus 5 and a half percent royalties from future sales.

So how long till Verizon files suit against cable companies?
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R. E., 9 Mar 2007 @ 11:17pm

Sweetheart Deal in the Works for Verizon?
Verizon can program its DSL offerings to obstruct the style of data stream that VOIP requires -- plummeting Vonage's reliability. I'd expect that to begin shortly, now that Vonage is at maturity. So, feed your opponent a good breakfast, because he may marry your sister. In this case, Verizon may use it's judgement to purchase a large stake in Vonage, a tech company that pioneered cheap, offshore labor -- something Verizon could never have accomplished itself due to union and regulatory constraints. The ideal scenario -- reluctantly acquiring your rival, jack up its Vonage's costs and rates to justify keeping Verizon's overpriced services.
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Grayson Peddie, 10 Mar 2007 @ 2:17pm

To Verizon
Verizon, you can buy Vonage, charge me triple times the quaduple amount of rate ($24.95) so you can break my bank for suing Vonage.

For that, once you do, I'm dropping off of Vonage since I will not sign up fo CapTel (www.captelmail.com) service (I'm hearing impaired).

Frivulous patents...Verizon won't get away with this...

What are you going to sue next, Verizon? AT&T? Packet8? Tell me! You're a total monopolist!

It's great that you (Verizon) violated the Telecommunication Act of 1996! Have fun violating it...
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Grayson Peddie, 10 Mar 2007 @ 2:22pm

About my previous comment...
I know my comment is very lame...

*sigh*

Somehow I got a feeling I might want to switch to Packet8 or CallVantage (I wonder if those two support G.711 codec for TTY (teletypewriter for the deaf) compatibility) but maybe not -- maybe just go for Embarq or Sprint (about $50 a month for phone service...maybe?) just to play it safe so I don't have to change the subscription service that much (I've already subscribed to Vonage service by October of 200).
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Anonymous Coward, 11 Mar 2007 @ 8:15am

Why is Verizon illegally violating our basic right to privacy?
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Matt, 14 Mar 2007 @ 3:35pm

Stupid Patent System
Your big problem with many of these patent cases now is the jury system I'm sorry to say. They're often dealing with complex issues that people in the industry can easily identify as "prior-art" or "well known to the trade". You're average joe however doesn't understand anything about the technology and just get a nice sanitized "helicopter view" from a lawyer. Hence these stupid patent rulings.
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TH, 23 Mar 2007 @ 3:54pm

Does this affect vonage customers?
I'm a vonage customer. How will this affect us???
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Mike, 28 Mar 2007 @ 10:55am

Weak Patents
My understanding is that Verizon (or, MCI) should never have been granted patents on this in the first place. It's like granting Intel a patent on microprocessors in general because they were the first to do it. Imagine a world where only Intel could produce microprocessors of any kind! We would still all be running 60Mhz Pentium I processors and they would cost $$$$.

Or, imagine a world where only Ford cars (or whatever brand) were available because they got they patent on cars designed around the concept of an internal combustible engine!
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John, 6 Apr 2007 @ 10:36am

Verizon Sucks
I will never switch back to Verizon. I'm moving to comcast if they terminate Vonage, but those f***ing bastards will never get my business. They've cheated their customers for years, and have no idea how to survive in a truly competitive market.
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YabemptiBoozha, 4 May 2007 @ 1:50pm

Don't Cry for Vonage
If you think they're so wonderful, here's my challenge. Sign up for any of their services. Keep good records. Then call them up about a week later and tell them you want to cancel. Then watch for a couple months as they keep billing your account for a service you cancelled. Call them up and tell them you cancelled, listen to them tell you they have no record of your cancellation, and try to reason with people who have absolutely no interest in helping you. Then watch as they keep charging you. Or, if you lack the confidence to put your money where your mouth is, just check out the Vonage experiences on consumeraffairs.com. Or the user comments on Cnet. Then come back to this forum and tell us all how Vonage is the champion of the little guy. I'm no fan of Verizon, but as far as I'm concerned, this is a case of a big cockroach eating a smaller but filthier cockroach. The world has one less cockroach and is better off for it.
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Me, 4 Oct 2007 @ 6:37am

All I know is...
... Vonage was crucial in getting decent phone service at a decent price. I use Verizon for their FIOS but if I have to pay $40/month for their *basic* *local* phone service because Vonage goes away, well, I just might have to switch everything back to cable, even if their phone service is much more expensive than Vonage.
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Thiago daLuz, 26 Mar 2013 @ 12:49pm

Re:
I've seen this on a much smaller scale regarding my Arizona sign company, and you make a great point. One thing though, in the story, the note about there being no one left is after "they came for me", but it's a good example of what's going on.
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