Vonage appeal cites Supreme Court patent ruling

In its appeal of a jury verdict in the patent infringement case brought against it by Verizon, Vonage has turned to a recent U.S. Supreme Court decision that some analysts see as making it easier to invalidate patent claims.

In a brief filed May 9 with the U.S. Court of Appeals for the Federal Circuit, Vonage argued that the March jury verdict relied on a standard of analysis that the Supreme Court has since rejected. The jury found that Vonage’s service infringed three patents, and the VOIP provider was ordered to pay US$58 million in damages.

Vonage asked the appeals court to rule Verizon’s patent claims invalid or to at least order a new trial.

Vonage’s argument rests on a decision by the Supreme Court in late April in KSR International vs. Teleflex. In that decision, the Supreme Court looked at the standard for determining whether a patent claim is obvious. It ruled that courts should consider whether an alleged improvement to an invention is more than just the predictable use of existing elements. If, for example, at the time of an invention there was a known problem with an obvious solution, a patent claim may not be valid.

Rather than using this functional approach to determine whether Verizon’s patent claims were obvious, the U.S. District Court for the Eastern District of Virginia instructed the jury to use a more rigid standard.

“The District Court’s erroneous jury instruction on the wrong standard for [obviousness], thus, materially prejudiced Vonage’s ability to present its invalidity case, and is strong grounds for vacating the validity finding,” Vonage told the appeals court on May 9.

Verizon’s patent claims are invalid because they are based on combinations of predictable elements that already exist, Vonage argued. In other words, it would have been obvious to try the solutions in the patent claims. “Under KSR, [experts] would have found it obvious to try uniting the VocalTec Iphone software on the Harvard wireless laptops talking to the Internet wirelessly,” Vonage said about one of the patents. About another patent, it said that experts “would have found it obvious to try using routing control records, or other similar table lookups, to perform the conditional analysis translation . . . ” Verizon is scheduled to file its brief with the appeals court May 23, and Vonage’s reply is due May 30. The court is scheduled to hear arguments June 25. On May 3, the U.S. Court of Appeals for the Federal Circuit declined a Vonage motion for a lower court to vacate the jury verdict against it and order a retrial of the case in light of the Supreme Court’s ruling.

While the appeal is pending, Vonage is permitted to continue signing up new customers, and the company remains determined to increase its business. In reporting the company’s first quarter 2007 earnings May 10, Vonage Chairman Jeffrey Citron noted that it was “an extremely difficult quarter,” and vowed to continue the court battle with Verizon.

“While the patent litigation has challenged our business, it has not distracted our focus on providing consumers with the opportunity to choose a better phone service,” Citron said. “We believe we have workable designs for the two name translation patents and intend to begin deploying the solution to our customers shortly. In addition, we are continuing our development of the workaround for the wireless patent.” Vonage reported a first quarter net loss of $72 million down from $85 million one year ago. Revenue was $196 million, a 64 percent increase over the first quarter 2006, which Vonage attributed to strong growth in the number of customer lines and higher average revenue per line. Approximately 166,000 net subscriber lines were added during the quarter, bringing the total lines in services to nearly 2.4 million.