Vonage chief executive Jeffrey Citron yesterday said, on a conference call, that he now sees a positive end in sight to its legal woes with Verizon. However, he also said a workaround to the disputed technology would hopefully be deployed to customers during the next few weeks.
Vonage senior VP of corporate communications Brooke Schultz told Computer Business Review yesterday that settlement talks with Verizon were ongoing but not fruitful. We’re at complete opposite ends of the spectrum, she said. Vonage and Verizon have been in settlement discussions since before the trial began in March, she said.
Despite mounting legal expenses, Vonage, which is the largest stand-alone voice-over-IP provider in the US, managed to shrink its loss to $72.3m, or 47 cents a share, during the quarter, from $85.2m last year. Revenue rose 64% to $196m. However, the company gained far fewer subscribers during the quarter, just 166,000 compared to 328,000 last year. And it spent $275 on average to acquire each of those new customers.
Schultz declined to say how much the company has spent on developing its workaround to Verizon’s technology, but said it would not likely significantly affect next quarter’s financial results.
Citron said, While our primary focus is running our business, the Verizon lawsuit has consumed significant financial and human resources, and the associated media coverage has had an impact on our business.
Still, Wall Street seemed to share some of Citron’s optimism that better days were ahead for Vonage: its shares rose more than 10% to close at $3.38 on the Nasdaq yesterday. That is, however, more than an 80% loss of the shares’ value when it went public about a year ago.
Vonage on Wednesday asked that Verizon’s patent claims be ruled invalid or that the case be retrialed, in a brief filed with the US Court of Appeals for the Federal Circuit. It has also requested that the stayed injunction be vacated. Vonage asserts that a new standard of patent validity was not applied to the earlier ruling against it.
The Supreme Court case that Vonage is pinning its hopes on is KSR International vs. Teleflex. On April 30, the court ruled that a patent claim is considered obvious if there was, at the time of invention, a known problem with an obvious solution. Otherwise, an invention is improved upon merely by the predictable use of existing technology elements.
But this approach was not used by the jury in the US District Court that found Vonage guilty of infringement on Verizon’s patents. The District Court instructed the jury to rigidly apply the TSM test rejected by the Supreme Court in KSR, read Vonage’s brief. However, in light of the intervening change in law from KSR, at least a new trial on validity is warranted.
Vonage argues Verizon’s patent claims are clearly obvious under KSR because they include the predictable use of existing technology elements.
You can’t take two piece of technology and put them together and argue that that is a new innovation, even though those two pieces of technology are in the marketplace, Schultz said.
Two of the disputes relate to network address translation, while a third covers wireless access technology.
In March, a jury ruled that Vonage infringed on three Verizon patents relating to both companies’ voice of IP services. At the time, an injunction preventing Vonage from selling the service was handed down, but was stayed shortly thereafter.
Then last week, Vonage’s request for an immediate retrial was denied by a US appeals court. Vonage argued that a favorable ruling by the Supreme Court in an unrelated case sets a legal precedent for how patent validity is judged.
Verizon has until May 23 to reply to Vonage’s brief, after which Vonage has a week to respond to Verizon’s reply. Schultz said oral arguments for Vonage’s appeal will begin on June 25. We could have a decision back from the appellant court as early as July because they have fast-tracked this case, which we requested, she said.
