The US court decision that found VoIP service provider Vonage Holdings Corp had infringed patents held by Verizon Communications Inc could have serious implications for the VoIP carrier market, according to Jan Dawson, VP of the US Enterprise Practice of analyst house Ovum, part of the Datamonitor group.
Verizon is asking for an injunction which will effectively close Vonage down, so if that goes through, it would affect any other VoIP provider that has the same technology, said Dawson.
Edison, New Jersey-based Vonage is the largest standalone VoIP provider in the US market, which is why Verizon went after them, said the Ovum analyst.
This case could have a ripple effect across the whole VoIP market. There are lots of other, smaller players who stand to be hit, he went on, citing in particular 8×8 Inc, the company behind the Packet8 Broadband Phone Service, and SunRocket Inc, which operates the SunRocket Internet Phone Service. They are competitors to Vonage and are in line to be affected, said Dawson.
Basking Ridge, New Jersey-based Verizon brought the lawsuit against Vonage in June last year in the District Court of Virginia and, last week, the jury ruled in its favor, finding that Vonage had indeed infringed three of seven patents.
It ordered the defendant to make a $58m payment to Verizon for damages, which is in the same range as quarterly losses at Vonage, Dawson noted, as well as imposing a 5.5% royalty fee on all future revenues, even though it found that the infringement was not wilful.
The other impacts are less obvious but nonetheless real, he went on. The case has so far gotten far less coverage than the RIM/NTP patent infringement case which grabbed headlines in early 2006, when some people held off on buying BlackBerries in case the BlackBerry service was shut down. But as this case gets more coverage, potential customers will be worried about signing up for new service with Vonage, and existing customers may churn in larger numbers than usual. Both of these effects would be disastrous for Vonage, who desperately needs to acquire customers more efficiently in order to break even.
The case goes back to court on March 23, and Dawson said there was a good chance Vonage won’t have to pay out the $58m for as long as it is appealing the ruling as it promised to do. If the injunction is granted, however, things will get more serious.
Vonage has sent out mixed messages about how it will respond if that happens – on the one hand arguing against the injunction in court on the basis that it will affect its millions of customers because it cannot work around it, and on the other, arguing through its spokespeople that it can work around any injunction, to placate customers.
In any case, he went on, the damage may well be done anyway, regardless of which way the injunction decision goes. Whatever the reasons for pursuing the suit in the first place, Verizon would get considerable satisfaction out of killing off Vonage, as would AT&T, Qwest and the cable companies, since they would capture the subscribers left without service.
And of course, there are the implications for the wider market. Vonage has argued that the patents it allegedly infringed on were written so broadly as to catch many industry standard technologies in their net, making it almost impossible to work around them. It remains to be seen whether Verizon will go after other companies using similar technology once this case is over.