7 Lawsuits That Shook The VoIP Industry

VoIP technology was supposed to be the proverbial pot of milk and honey for those who arrived on the scene first. However, it is not really turning out to be that way for quite a few VoIP players. Apparently, there are companies who feel that their patents have been infringed though some would feel that they are into this business of lawsuits purely to make money. And caught bang in the middle of all the allegations and counter-allegations is the USPTO.

The number of lawsuits within the VoIP industry is arguably symptomatic of how businesses behave when faced with the threat / opportunity of a new technology. Below are seven VoIP lawsuits that involved the big guns and invoked quite a bit of media interest in 2006.

1. Verizon versus Vonage
Vonage is by a long stretch every other VoIP company’s favorite punching bag. Do they deserve it? Public opinion is divided but the number of cases has left Vonage with a bloody nose and loose purse strings. On 12 June 2006, Verizon filed a case against Vonage in the U.S. District Court for the Eastern District of Virginia. The crux of the case is that according to Verizon, Vonage infringed on seven of it’s patents. Check this excerpt from ITworld:

… the lawsuit cites seven Verizon patents including: gateway interfaces between packet-switched and circuit-switched networks, billing and fraud detection in VOIP, methods for using WiFi handsets on a VOIP network, and how to provide services such as call waiting and voicemail in VoIP.

As a result of the lawsuit filed against it Vonage saw its stock dip to $8.22 from $9.25. Vonage of course denied the infringement and stated that it had received no prior notice of infringement from Verizon. Verizon is aggrieved that Vonage gained a staggering 1.1 million new customers by using the infringed technology, with the fact that a lot of these customers were former Verizon clients rubbing salt into an open financial wound. The matter is sub-judice and we will keep you posted.

2. Streamcast versus Skype
A big company with deep pockets like Skype / eBay can be viewed as a sitter for a lawsuit; hurt them when they are on an upswing or coming out with an IPO and you could just get away with an out-of-court settlement if your case has the merit to keep the big guy embroiled in it for some time. The Streamcast lawsuit hinges around the ownership of the FastTrack P2P file-sharing technology. In March 2006, Streamcast charged Skype with 11 causes of action and sought a TRO (Temporary Restraining Order) from the court against the defendants that include Skype inventors Niklas Zennstrom and Janus Friis.

In fact, trouble had been brewing between Skype and Streamcast from the time Zennstrom and his team allegedly sold file-sharing technology to Sharman Networks in an illegal manner in 2002. Streamcast maintains that it had the right of first refusal for the technology behind Skype. The Skype founders have been sued under the Racketeer Influenced and Corrupt Organizations Act (RICO Act) which normally covers criminal activities by organized crime. The latest news on the Streamcast versus Skype case is that the case has been dismissed by the federal courts stating that Streamcast had not built it’s case well enough to convict Skype of any wrongdoing. Streamcast had sued for $4.1 billion and it has vowed not to give up easily.

3. Rates Technology versus Google
In October 2006, Rates Technology filed a patent infringement case on Google. The case pertained to the VoIP components of Google Talk. The case was filed in the Eastern District of New York and includes two causes of action against Google. According to Rates, they hold two patents, awarded in 1995 and 2001; these are related to cost reduction in long distance calls using the internet. Rates has asked for enforcement of the patent, an injunction against Google, damages, and even Attorney’s fees.

Rates Technology has been around for quite some time and in the words of Rich Tehrani has been described as:

… a company with a patent portfolio currently being used to persuade VoIP equipment and service vendors to pay a fee in exchange for protection from a patent infringement lawsuit.

An excellent brief on Rates Technology is here. On it’s part, Google has decided to dig in and slug it out. Rates is apparently set to make a killing from similar suits against Vonage and Skype as well.

4. Teles versus Nokia
Nokia had to face a patent infringement lawsuit from German telecom Teles AG in February 2006. This case, filed in a Mannheim court, was a bit different in that it was not a service provider facing the heat but a manufacturing company, and a giant one at that. Teles claims that the GSM fallback function in the Nokia 6136 handset is an infringement of Teles’ German and European VoIP patents. Nokia, which was busy promoting the device at the 3GSM Congress in Barcelona, was caught unawares.

Teles turned the screws on Nokia in both Europe and North America and hired the law firms Howrey LLP, Foley & Lardner LLP and Novak Druce & Quigg LLP in Washington to manage the proceedings in America. What Nokia did was to “borrow” the GSM fallback technology patented by Teles in 1996 in order to hand a call over to a line switching network if the IP network is temporarily down. Right now the matter is sub-judice and we promise to keep you posted.

5. Net2Phone versus Skype
In May 2006, Skype was at the receiving end of another lawsuit, unsurprisingly over patent infringement. This time it was patent No. 6,108,704 earned by Net2Phone in August 2000. It is a “point-to-point Internet Protocol” patent which involves and exchange of IP addresses between processing units so that devices can communicate via the Internet. The lawsuit was filed in U.S. District Court for the District of New Jersey. Skype and Net2Phone are competitors in the VoIP market and both providers allow users to communicate via the PC or a telephone.

Net2Phone entered the market earlier but lost customers to Skype, which was cheaper and offered better voice quality. For a wonderful illustration of the patent with block diagrams, go here. I guess, being an 800 lb. gorilla has it’s advantages but there’s always a quick mover trying to dethrone the fastest gun or in the process gain some fame which it can later encash.

Net2Phone wants damages and an injunction against further use of its patent by Skype, which covers vital communication aspects such as broadly covers data processing encompassing speech signal processing, linguistics, language translation, and audio compression/decompression. The matter is in the court with Skype refuting the allegations conscious of the fact that yielding to one could open the floodgates for a host of such litigious lawsuits.

6. Klausner versus AOL
A lawsuit that resulted in an amicable settlement for both parties in 2006. In June 2005, Klausner sued AOL claiming violation of intellectual property rights by AOL’s voice services platform. More specifically, it is the infringement of patent no. 5,572,576 that deals with visual notification of new voice messages and selective retrieval. The lawsuit claimed patent damages and royalties to the tune of $200 million. Judah Klausner, who founded Klausner Technologies, also holds the patent for what eventually led to the development of the PDA.

As is the case with such lawsuits, the plaintiff picks on those aspects of the defendants business that are critical, in this case, it was AOL’s voice services platform including AOL Voicemail, AOL Call Alert, AOL by Phone and AOL VOIP Internet Phone Service. In April 2006, the two parties arrived at a settlement under which the AOL voicemail services are licensed under Klausner’s patent no. 5,572,576. Settlement terms were not made available to the media.

7. Shareholders versus Vonage
Vonage faced trouble on the home front when in June 2006 it was sued by investors alleging that the company’s IPO inducted investors into the fold without verifying their credentials. The Vonage stock made it’s first appearance at the NYSE on the 24th of May at $17/share and within a week it had lost a staggering 30% of it’s value.

The inside story is that the company was losing money and knew that it would not be able to attract institutional investors, which is why it advertised heavily to attract public investors and in doing so violated stock security rules. The lawsuit was a situation the embattled company could have done without to say the least. In addition to the patent violation suits, this raised further questions on the credibility of the company.