Vonage Unfazed as Court Upholds Verizon Infringement
Two Vonage patents infringe Verizon patents, but a third may not, the Federal Circuit U.S. Appeals Court ruled Wednesday. The court upheld an Alexandria, Va., U.S. District Court patent infringement and injunction decision on two patents, sending a third back to the lower court for revisions to claim construction language. The two patents upheld should not be called invalid due to a recent Supreme Court definition of “obviousness,” but the lower court should discuss that issue for the remanded patent, it said. The court vacated a $58 million plus 5.5 percent royalty damage award since the lower court didn’t specify how the blanket amount was to be divided among the patents.
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The ruling was not unanimous. Chief Judge Paul Michel said the order should have been affirmed as a whole. “The district court correctly construed all of the terms at issue in this appeal,” he said. “Further, I would hold that the district court’s jury instructions on obviousness were consistent with the Supreme Court’s decision in KSR Int'l Co. v Teleflex, Inc.” Judge Arthur Gajarsa concurred with most of the majority decision, but disagreed with the court’s upholding patent infringement for one upheld patent since the lower court failed to construe the claim term “destination address” and Vonage’s proposed construction was “substantially correct,” he said.
Vonage said the decision shouldn’t hurt its business, as workarounds on the two patents have been used “for some time,” said chief legal officer Sharon O'Leary. The VoIP company plans to “vigorously assert” to the district court that it has not violated the remanded third patent, she said. In comparison, Verizon had little to say. “The court’s decision speaks for itself,” a spokesman said.
The upheld patents cut to the “core of Vonage’s current business,” Stifel Nicolaus said, calling the decision “bad news for Vonage.” But Vonage was lucky the appeals court took so long to reach a decision, originally expected in August, the firm said. The lag’s “practical impact was to provide Vonage some additional time to develop a workaround,” it said. “The key question now is whether they have done so in a way that will survive scrutiny by Verizon.”
The circuit judges didn’t uphold infringement claims against all three patents due to disagreement with the lower court’s term construction. As defined by the district court, the term “localized gateway system” kept Vonage from offering evidence that could have disproved infringement, it said. The court also disagreed with construction of the term “localized wireless gateway system,” but that was not the deciding factor for ordering a new district court trial, it said.
A recent Supreme Court decision invalidating patents on “obvious” inventions didn’t apply to the two upheld patents, the Federal Circuit said. To prove an invention obvious, one must show it logically combines multiple previous inventions. For the upheld patents, Vonage didn’t “dispute that the obviousness testimony at trial centered on a single reference,” the court said. “Any alleged error in instructions requiring a finding of motivation to combine several references would have been harmless.” However, the appeals court told the lower court to consider discussing the issue for the remanded third patent. “Because the majority is revising the claim construction of several key terms, a remand to the district court is necessary to consider whether a new trial should be granted on the issue of obviousness,” it said.
The injunction on the two upheld patents should take effect within a month, Stifel Nicolaus said. Vonage could get an emergency stay from the Supreme Court, but that’s unlikely, the analyst firm said.
The decision came a day after a Kansas jury found Vonage infringed Sprint Nextel patents (CD Sept 26 p2). Vonage said it will appeal that decision, but the company could “face a liquidity crisis” regardless, Stanford Group said. “The negative publicity of the Sprint and Verizon lawsuits could weigh on subscriber additions and churn,” the analyst firm said. “There remains significant risk to operations and cash flow.”