The Brand

By: Manav Das

Over the past few years, the internet systems offered by Vonage, an internet telephone service provider, have made considerable inroads into the traditional telephone systems of communications companies such as AT&T. Verizon, however, has claimed that Vonage’s systems infringe its patents.

The dispute centers around three Verizon patents: the ‘574, ‘711, and ‘880 patents.  The first two Verizon patents improve upon existing Domain Name Systems (“DNS”).  The DNS takes a web address and translates it into an Internet Protocol (“IP”) address.  The Verizon patents describe how to translate more general addresses into IP addresses.  Specifically, they translate telephone numbers into IP addresses and vice versa.  The Verizon patents also reveal how consumers can communicate using their computer speakers and microphones as their voice signals are carried in digital form through the internet.  The ‘880 patent is about localized wireless gateway systems, which allow wireless telephones to register with a base station receiver.

Vonage’s systems allow its consumers to access the traditional public-switched telephone network (“PSTN”) through the internet.  But, the Vonage systems need the technology that is required to translate between telephone numbers and IP addresses.  Verizon claims that this translation infringes their ‘574 and ‘711 patents. 

In addition to providing telephone service, Vonage manufactures and sells cordless telephones and wi-fi devices that are capable of connecting to a base station that connects to the internet using the Vonage system.  Verizon claims that this arrangement is a localized wireless gateway system that infringes its ‘880 patent.

The U.S. District Court for the Eastern District of Virginia held that Vonage infringed all three patents, though not willfully.  The jury awarded Verizon $58 million in compensatory damages as well as a fixed percentage of all royalties received from Vonage’s future infringing sales.  Vonage appealed to the Court of Appeals for the Federal Circuit (“CAFC”), which issued its opinion on September 26, 2007. The CAFC agreed that Vonage had infringed the first two Verizon patents, but held that Vonage had not infringed the third patent.

In the appeal, Vonage and Verizon essentially disputed the meaning of the term “localized.”  Vonage claimed that the ‘880 patent should be limited to a system that operates within a range of only a few feet, whereas Vonage’s system operates within a range of several hundred feet.  Vonage based this argument on prior statements Verizon made during the prosecution of a related patent of the same family as the ‘880 patent.  The CAFC reiterated the rule that a “statement made by patentee during prosecution history of a patent in the same family as the patent-in-suit can operate as a disclaimer.”  The court also explained, “to operate as a disclaimer, the statement in the prosecution history must be clear and unambiguous, and constitute a clear disavowal of scope.” The CAFC concluded that Verizon’s statements satisfied these conditions, and the disclaimer was valid, even though it came after the ‘880 patent was issued.  The court held that the district court erred in construing the term “localized wireless gateway system,” and remanded the case for a new trial.

In the appeal, Vonage also claimed that the district court erroneously instructed the jury to apply the Teaching/Suggestion/Motivation (“TSM”) test rigidly, an approach rejected by the Supreme Court in KSR.  The CAFC instructed the district court to consider this issue with respect to the ‘880 patent, especially because several claim constructions had been reinterpreted.  The court also vacated the award of damages because the monetary amounts had not been broken down and individually attributed to the three patents in dispute.