Verizon Claims Vonage's Appeal Isn't So Obvious

Verizon today urged a federal appeals court to reject Vonage's contention that a recent Supreme Court decision on obviousness justifies the reversal of a $58 million infringement judgment against the Internet telephony company.

The nation's second-largest telephone company also asked the appeals court to reinstate a permanent injunction against Vonage using any of Verizon's infringed technology, a decision that could force the Holmdel, N.J.-based Vonage out of business.

In appealing the March 8 decision in Verizon's favor, Vonage wrote in its appeal that the Supreme Court's April 30 ruling in KSR v. Teleflex provides the appeals court with the legal firepower and guidance to invalidate Verizon's patents.

In that case, the justices ruled the federal appeals court is "too rigidly" applying the standard of deciding whether a claimed invention is obvious to those "skilled in the art." The Supreme Court decision came a little more than a month after Verizon won its infringement case against Vonage.

"KSR does not give [Vonage] a second bite at the apple," Verizon wrote in its appeals brief to the U.S. Court of Appeals for the Federal Circuit. "Vonage does not dispute that it failed to preserve its obviousness arguments at trial…Its failure precludes a judgment of obviousness from this court."

The Verizon patents, filed in 1997, cover the translation of domain names and IP addresses to telephone numbers when Internet calls are passed off to the traditional telephone system. Vonage claims the solution was obvious to those skilled in the art and the U.S. Patent and Trademark Office should have never issued the patents to Verizon.

"Vonage… failed to object to – in fact it proposed – the jury instructions on obviousness that it now challenges," Verizon wrote in its brief. "Vonage is simply wrong in asserting KSR introduced a 'functional' approach that repudiated the obviousness decisions of this court available to Vonage at trial."

Verizon further pointed out the Supreme Court agreed to hear KSR v. Teleflex in June of 2006, approximately the same time Verizon sued Vonage for infringement. By the time the Verizon-Vonage trial began, the KSR case had been fully briefed.

"KSR could not reasonably blind-sided Vonage," Verizon wrote. "The highly publicized debate about possible adjustments to obviousness doctrine was open for all to see. Yet Vonage never suggested to the district court (or to Verizon) that it believed KSR had any bearing on this case or required different jury instructions from those given."

Verizon also argued in its brief the permanent injunction barring Vonage from signing up new customers should be enforced the appeals court. After the jury trial, Vonage filed for an emergency stay of the injunction, which the appeals court granted.

As the June 25 oral arguments approach, Vonage is paying Verizon a 5.5 percent royalty fee until an appeals decision is reached.

"Without injunctive relief, Verizon will suffer substantial hardships -- increasing numbers of lost customers, lost sales of existing and future products and services, and eroded profit margins -- that are not remedied by the 5.5 percent royalty," Verizon wrote. "By contrast, the only hardship that Vonage has identified is the possible retirement of its infringing VoIP system."

In the brief, Verizon claims Vonage has already acquired nearly 600,000 Verizon landline customers. The loss, Verizon said, has resulted of more than $300 million in revenue.

"Moreover, by using Verizon's patented technology without payment – rather than investing in research and development – Vonage has been able to undercut Verizon's prices, reducing demand for Verizon's own products," the brief states.