Verizon Communications, Inc. v. Vonage Holdings Corp: a Victory for Vonage or a Retreat by the Courts?

November 14, 2007 by Anna Stubley

In March 2007, the district court in Alexandria, Virginia held that
Vonage, a company which uses voice over IP technology, had infringed claims
of three patents owned by Verizon Communications, and that those patents were
not invalid as obvious. The judgement awarded $58,000,000 in damages and a
royalty of 5.5% on any future infringing sales to Verizon.

Following a denied request for retrial by Vonage, The US Supreme court
allowed Vonage to appeal the decision, based on the allegation that the District
Court had interpreted the claims of the patents too broadly. On appeal the court
partially remanded the March verdict, holding that only two of the three
patents were infringed, and vacated the royalty and damages award and directed
the lower court to retry those parts of the original case.

The outcome of this case can be viewed from many perspectives. Some claim
partial victory for Vonage, focusing on the withdrawal of damages. Others see
the confirmation of two infringements dealing a deadly blow to Vonage. But as
far as the world of patent law goes, the decision sends out mixed messages.

The most notable of these messages was outlined by Circuit Judge Dyk at
page 16 of the decision, where he reinforced the attorneys need to take care what
is included in the submissions to an examiner in successfully prosecuting a
patent. He outlines that in claim construction and interpretation the
courts will look at all statements – not just the claims, description, and
specification – in other correspondence and statements made in relation to
the patent, which may have the consequence of limiting the patent beyond the
actual language of the claims. Through such a procedure patent 880 was excluded
from the infringement allegation.

Is such an increase in the scope of claim interpretation appropriate? A
strong dissent was provided by Chief Judge Michel, who noted that the courts
relied on snippets of language used by the applicants in a patent that, albeit
related to this case, was not asserted in the case at hand. According to Michel,
such reliance by the majority on this disclaiming language does not rise to the
level of a ‘clear disavowal of claim scope’, as required from precedent. He
goes as far as to say that ‘this case is yet another example of our court
needlessly upsetting judgments by finding legal error in Markman rulings
that, while perhaps less than perfectly explained, are correct and that follow
the methods for claim construction as explained in our precedents. Requiring
more is not justified’. I have to say I agree, and it seems the majority
blurred the defining lines of claim construction, and that although favourable to
Vonage in this case, such uncertainty in the long term, alongside the
restrictions placed on companies in not only the drafting of claims, but
all correspondence, can only cause unrest in the land of patent law. An
increased pool of material aiding interpretation also runs the risk of paving the
way for the scope of previously affirmed claims to be called into question once
again, likely leading to more litigation.

What is interesting is that, despite the recent decision KSR International
Co. v. Teleflex Inc., which expanded the test for obviousness in patentablity,
the obviousness issue never arose on appeal. Vonage did not anticipate such an
omission and Brooke Schultz, a spokeswoman for the company had actually
stated that “We believe our appeal is strong, and are pleased the court has given
us the option to use the expanded obviousness test for patent validity in our
arguments before them.” While some have praised the KSR decision,
suggesting it offers the opportunity for examiners to weed out patents or
applications that are not worthy of getting patents, and that it will help
re-establish patent quality, the KSR decision has not been without itès critics,
with others arguing the decision has loosened a crucial legal standard, the economic
implications of which may throw the patent system into a state of
confusion.

The evasion of the obviousness issue on appeal may simply be a crafty
escape by the Supreme Court. By placing emphasis on claim interpretation,
are they purposefully avoiding the necessity to discuss the obviousness issue in
light of the controversial new more flexible test for obviousness? Despite the
controversy surrounding the KSR case, it supplied us with a clear, albeit slight
revised, standard for the fulfillment of the non-obvious requirement, and perhaps
applying this in the Vonage case would have been preferable to the
hotchpotch method used to construe the claims through interpretation of other
sparsely related patents.

Amidst such confusion, perhaps one should pay heed to the comments of
Judge Dyk, who at the hearing for an injunction against Vonage queried,
´isn’t there kind of a middle ground in these cases where the injunction would
put someone out of business? Shouldn’t that be a consideration?´ Judge Dyk may
be implying that resorting to the courts in patent infringement cases is becoming
routine, and that a middle ground must be found in favour of excessive litigation, in
order to protect the needs of the parties. One thing is clear. When the life
of a company is on the line, so is that of its employees and customers, and
applying a too formalistic approach can risk sacrificing that of the public
interest.

Only with clear decisions and guidelines in this area of patent law can
non-infringement be ensured and innovation encouraged, and the decision in
Vonage is a formalistic retreat from the first step toward reform offered in
KSR.