Verizon v. Vonage
http://www.fedcir.gov/opinions/07-1240.pdf (Fed. Cir. 2007, 1240)
• Facts:
Vonage provides telephone services over the internet (“VOIPâ€). VOIP works by means of a special telephone, adapter, or software package that connects to an Internet connection rather than a traditional phone line. The operation is otherwise completely transparent to the end user. Vonage achieves this by placing calls from its subscribers into the traditional telephone system at their end.
• Verizon’s Patents:
The patents at issue here are: 6,282,574 ('574); 6,104,711 ('711); 6,359,880 ('880). The ‘574 and ‘711 patents do not cover the traditional phone system; rather, they cover a server for enhanced name translation, a server useful in VOIP systems. The ‘880 patent covers a gateway system that allows wireless phones to connect to a base station that then connects to the Internet.
• Verizon’s Initial Arguments and Vonage’s Defenses
Verizon alleges that some of Vonage’s features use the Verizon patents. Specifically, Verizon claims that Vonage’s use of an SIP invite – a string of text containing the phone number which is decoded by Vonage’s server – infringes the ‘711 and ‘574 patents. Vonage argued that because its system does not change “levels†in protocol, it does not infringed the ‘574 and ‘711 patents. Verizon further argued that several of Vonage’s phones offered for sale violated the ‘880 patent. Vonage defended by stating the ‘880 language of “localized wireless gateway system†limits the patent to devices that have a short range, whereas Vonage’s phones had a range of several hundred feet.
• Procedural History
Verizon sued Vonage in June of 2006. A jury found, after a 7 week trial, that Vonage infringed the ‘574, ‘711, and ‘880 patents, which were valid and non-obvious. The jury awarded Verizon $58 million in compensatory damages and 5.5% royalties on any future infringing sales by Vonage. The judge later issued an injunction barring Vonage from infringing any of the patents; Vonage’s stock dropped like a rock. The Federal Circuit stayed this injunction until this case was decided.
• Holding
The Federal Circuit held that the District Court did not err with regard to construing any of the terms in the ‘574 and ‘711 patents which Vonage highlighted.
However, the Federal Circuit held that the District Court did not properly construe the term “localized wireless gateway system.†It found that a statement made in the prosecution history can serve as a disclaimer. Verizon made such a statement to the examiner after a rejection based on the ground that the prior art precluded such a “localized wireless gateway system.†Specifically, Verizon stated that the system would be “restricted to operate within a few feet from a base station (i.e. wireless handsets).†Because of this error, the court held that a new trial was necessary on the infringement of the ‘880 patent.
Because the outcome of the ‘880 infringement may have prejudiced the verdict and damages calculation, the damages were vacated and remanded as well.
Further, the injunction was upheld as to the ‘574 and ‘711 patents, because there was no clear abuse of discretion.
• Important Dicta
Michael Dissent, p.3: I agree with the majority that the prosecution of a divisional application may sometimes disclaim claim scope in a co-divisional application in the same family, even if the disclaimer occurs after the co-divisional application has been filed or issued as a separate patent. But the allegedly disclaiming language in the file history of the '880 patent's co-divisional application relied on by the majority as overpowering numerous clear statements in the specification simply does not rise to the level of a clear disavowal of claim scope.
• Importance
The importance of this case is twofold. First, it is likely this will greatly harm Vonage as a going concern. It seems that the injunction on further infringement will require Vonage to either redesign their software or face a shut down in service; for customers who require telephone service, this will likely be a fatal blow to their subscribership, and the company. Second, the case reinforces the need to watch carefully what one submits to an examiner to successfully prosecute a patent. If the courts will look at all statements – not just the claims, description, and specification within the 4 corners of the patent – attorneys need to be careful not to unduly limit the patent in other correspondence and statements.
• Critical Analysis
It seems that Judge Michael may have been correct when he styled this case as another where “our court needlessly upsetting judgments by finding legal error in Markman rulings that, while perhaps less than perfectly explained, are correct and that follow the methods for claim construction as explained in our precedents.†However, the result of the ‘880 analysis is almost a catch-22 for Vonage. The crux of the case was whether or not the ‘880 patent would be limited to devices with a short range. If the District Court considered the prior statement that it was, then would Vonage’s system really be non-infringing on remand? There is a tenable argument that no – any long range system necessarily includes a short range system. Given the language of the ‘880 claim, it seems unlikely that Vonage could distinguish its own system from Verizon’s.
The obvious argument may have had more footing; however, it seems that the majority hung its hat on the misconstruing issue. In any regard, because the ‘574 and ‘711 patents seem to be correctly decided, Vonage has only won a small victory here. However, in the end, this victory will not likely be much solace to the shareholders, who have lost 20% of their value today.
http://www.fedcir.gov/opinions/07-1240.pdf (Fed. Cir. 2007, 1240)
• Facts:
Vonage provides telephone services over the internet (“VOIPâ€). VOIP works by means of a special telephone, adapter, or software package that connects to an Internet connection rather than a traditional phone line. The operation is otherwise completely transparent to the end user. Vonage achieves this by placing calls from its subscribers into the traditional telephone system at their end.
• Verizon’s Patents:
The patents at issue here are: 6,282,574 ('574); 6,104,711 ('711); 6,359,880 ('880). The ‘574 and ‘711 patents do not cover the traditional phone system; rather, they cover a server for enhanced name translation, a server useful in VOIP systems. The ‘880 patent covers a gateway system that allows wireless phones to connect to a base station that then connects to the Internet.
• Verizon’s Initial Arguments and Vonage’s Defenses
Verizon alleges that some of Vonage’s features use the Verizon patents. Specifically, Verizon claims that Vonage’s use of an SIP invite – a string of text containing the phone number which is decoded by Vonage’s server – infringes the ‘711 and ‘574 patents. Vonage argued that because its system does not change “levels†in protocol, it does not infringed the ‘574 and ‘711 patents. Verizon further argued that several of Vonage’s phones offered for sale violated the ‘880 patent. Vonage defended by stating the ‘880 language of “localized wireless gateway system†limits the patent to devices that have a short range, whereas Vonage’s phones had a range of several hundred feet.
• Procedural History
Verizon sued Vonage in June of 2006. A jury found, after a 7 week trial, that Vonage infringed the ‘574, ‘711, and ‘880 patents, which were valid and non-obvious. The jury awarded Verizon $58 million in compensatory damages and 5.5% royalties on any future infringing sales by Vonage. The judge later issued an injunction barring Vonage from infringing any of the patents; Vonage’s stock dropped like a rock. The Federal Circuit stayed this injunction until this case was decided.
• Holding
The Federal Circuit held that the District Court did not err with regard to construing any of the terms in the ‘574 and ‘711 patents which Vonage highlighted.
However, the Federal Circuit held that the District Court did not properly construe the term “localized wireless gateway system.†It found that a statement made in the prosecution history can serve as a disclaimer. Verizon made such a statement to the examiner after a rejection based on the ground that the prior art precluded such a “localized wireless gateway system.†Specifically, Verizon stated that the system would be “restricted to operate within a few feet from a base station (i.e. wireless handsets).†Because of this error, the court held that a new trial was necessary on the infringement of the ‘880 patent.
Because the outcome of the ‘880 infringement may have prejudiced the verdict and damages calculation, the damages were vacated and remanded as well.
Further, the injunction was upheld as to the ‘574 and ‘711 patents, because there was no clear abuse of discretion.
• Important Dicta
Michael Dissent, p.3: I agree with the majority that the prosecution of a divisional application may sometimes disclaim claim scope in a co-divisional application in the same family, even if the disclaimer occurs after the co-divisional application has been filed or issued as a separate patent. But the allegedly disclaiming language in the file history of the '880 patent's co-divisional application relied on by the majority as overpowering numerous clear statements in the specification simply does not rise to the level of a clear disavowal of claim scope.
• Importance
The importance of this case is twofold. First, it is likely this will greatly harm Vonage as a going concern. It seems that the injunction on further infringement will require Vonage to either redesign their software or face a shut down in service; for customers who require telephone service, this will likely be a fatal blow to their subscribership, and the company. Second, the case reinforces the need to watch carefully what one submits to an examiner to successfully prosecute a patent. If the courts will look at all statements – not just the claims, description, and specification within the 4 corners of the patent – attorneys need to be careful not to unduly limit the patent in other correspondence and statements.
• Critical Analysis
It seems that Judge Michael may have been correct when he styled this case as another where “our court needlessly upsetting judgments by finding legal error in Markman rulings that, while perhaps less than perfectly explained, are correct and that follow the methods for claim construction as explained in our precedents.†However, the result of the ‘880 analysis is almost a catch-22 for Vonage. The crux of the case was whether or not the ‘880 patent would be limited to devices with a short range. If the District Court considered the prior statement that it was, then would Vonage’s system really be non-infringing on remand? There is a tenable argument that no – any long range system necessarily includes a short range system. Given the language of the ‘880 claim, it seems unlikely that Vonage could distinguish its own system from Verizon’s.
The obvious argument may have had more footing; however, it seems that the majority hung its hat on the misconstruing issue. In any regard, because the ‘574 and ‘711 patents seem to be correctly decided, Vonage has only won a small victory here. However, in the end, this victory will not likely be much solace to the shareholders, who have lost 20% of their value today.