Telecosm - Ike Elliott

Patent Pigs Join Forces

The Wall Street Journal reports that several of the largest patent holders are joining together to try to defend themselves from patent lawsuits, in part by acquiring potentially dangerous patents before they can be used against members of the group.  The group is called Allied Security trust, and initial members are rumored to be Verizon Communications, Google, Cisco, Ericsson, and HP.

These companies are some of the biggest patent-holders around.  Why are they worried about being sued for patent infringement?  Can't they just agree to cross-license some of their intellectual property when they are faced with a particulary scary or expensive patent lawsuit? 

They are afraid of patent trolls, such as NTP (who won $612M in a settlement with Research In Motion).  Sometimes, the patent-holder that is suing you is not interested in getting a license to your other technology.  Sometimes, they just want your money.

Patent lawsuits have been growing, as shown by research by Michael Meurer and James Besson of Boston University, in this research paper.  Here is a chart from their paper showing the growth in patent lawsuits from 1984 through 1999:

Okay, so that's interesting, but the data runs out 9 years ago.  What has happened since then? 

The Coalition for Patent Fairness says this about that:

"Nationwide, the number of patent litigation cases more than tripled between 1990 and 2007, and the number of defendants sued for patent infringement quadrupled, with a total increase of +404%. In 2007 alone, there has been a 30% increase in patent litigation cases since 2006, fueled primarily by the rising number of suits filed in the Eastern District of Texas."

So, the spike in patent lawsuits has continued and is getting worse.  It's gotten so bad that even the big boys are worried about getting sued.      

Patent Warning Shots for 8x8

2007 was the year that Vonage surrendered much of its time and treasure in the form of patent license royalties and settlements paid to Verizon, AT&T, and Sprint.  Now, 8x8 has heard the first warning shots of what may become a similar assault.

8x8 just filed their 10-K with the SEC, and thanks to a heads-up from a Telecosm reader, my attention was drawn to this disclosure:

"For example, on May 2, 2008, we received a letter from AT&T Intellectual Property, L.L.C. ("AT&T IP) expressing the belief that we must license a specified patent for use in our Packet8 broadband telephone service, as well as suggesting that we obtain a license to its portfolio of MPEG-4 patents for use with our video telephone products and services. We have just commenced our evaluation of this letter and have not determined whether AT&T IP's suggestions have merit. At the same time, we have begun an evaluation of whether AT&T IP's affiliated entities may need to license any of our patents or other intellectual property. We are unable at this time to state whether we will enter into any license or cross-license agreements with AT&T IP or whether we ultimately anticipate any material effects on our operating results or financial condition as a consequence of these matters. "

And so, it begins. 

Of course 8x8 is not so defenseless as Vonage was, since 8x8 has 70 patents of their own.  We may see a cross-licensing deal or a license agreement long before a lawsuit is filed.  Still, here we have yet another example of the incumbent telco sumo wrestlers pushing around the independent VoIP junior high debate team.  I'm hoping that 8x8 has a better go of it than Vonage did.

Interesting, though, that 8x8 didn't mention this on their conference call...

Organization Formed to End Software Patents

Given all of the patent litigation going on these days, you might be interested to know that Tim Lee has an interesting post on the Technology Liberation Front, discussing the formation of a group called the End Software Patents coalition.  With a name like that, the group is obviously advocating that software patents be abolished. 

I checked around the End Software Patents website, and learned a few things:

• Tim Lee wrote a very interesting editorial for the New York Times last year, titled A Patent Lie, describing how Bill Gates was once very against software patents, back in 1991.  Microsoft has since changed their tune after bulking up their patent arsenal in the intellectual property arms race.  Highly recommended reading.
• Ars Technica wrote a good overview of the ESP launch, and says the coalition claims that companies waste over $11B a year in litigation over software patents.  Another place on the ESP web site estimates the cost at over $30B a year.   Not sure which number is right, but either way, it is a staggering figure.   
• There is hope on the horizon for software patent reform (that is, abolishing software patents).  There is a Patent Reform Act meandering through congress right now, but so far the act doesn't really abolish software patents.  Of greater interest is the fact that a Federal Appeals Court is working on redefining what is patentable...and might actually do something wonderful a lot sooner than congress.

More power to you, ESP.  Maybe we'll finally see an end to all of this Vonage/Verizon/AT&T/Limelight/Akamai/Level3/Research In Motion/etc. nonsense.

Akamai to Limelight: All Your Base Are Belong To Us

Akamai won a big patent infringment case against Limelight Networks on Friday, and the jury awarded damages of over $45.5M to Akamai.  Akamai has also asked the court to stop Limelight from selling their infringing CDN services.  Of course, Limelight immediately appealed the verdict, and the ruling has spawned predictions about the future of Limelight in particular and content delivery networks, in general:

• Dan Rayburn is predicting an imminent sale of Limelight to either Level 3 or AT&T
• Rayburn also thinks the Akamai patent is broad enough to endanger all content delivery networks, and that Limelight will form a CDN consortium to fight the Akamai patent
• Rayburn thinks Limelight may already have a workaround that avoids infringing the Akamai patent.
• GigaOm has a more measured view, pointing out that a settlement is one of the possible outcomes, which is exactly what happened when Vonage lost several patent suits last year.
• I feel the need to point out that the verdict has been appealed, so it is also possible that the verdict could be overturned in the appeals court.

While this verdict is big news, and certainly Limelight could be sold soon or could form a consortium to fight the patent, I am inclined to believe that the most likely near-term outcome is for Limelight to begin working on its appeal while simultaneously working on a settlement agreement with Akamai. 

Limelight's most pressing need is to restore some certainty to its business, because it will have trouble making any additional sales until customers are assured that Limelight will stick around.  If the uncertainty continues, then existing customers will begin to migrate away as well.  The current uncertainty also damages the potential value of the company in an acquisition.  After all, any buyer would inherit Limelight's damage liabilities, and may possibly inherit an injunction preventing Limelight from continuing to offer its services, which may destroy the rationale for an acquisition.  This creates huge pressure on Limelight to settle with Akamai, so that it can preserve some value for its shareholders.  Of course, Akamai doesn't have to cooperate.

The patent in question is 6,108,703, titled "Global Hosting System", and is actually owned by MIT, but was exclusively licensed to Akamai.  Limelight was found guilty of infringing four out of the 34 claims in the patent.  The patent is broad, though not so broad that "Akamai has essentially patented all forms of delivering content on the web," as Rayburn speculates. 

Does Akamai have a patent-based monopoly on the CDN space?  No, though Akamai's patents are powerful.  Others CDN players have broad patents as well, most notably Level 3 Communications, who made news last week when they announced a cross-licensing agreement with IBM.  A quick search on Google Patents shows IBM has 183 granted or pending US patents that contain the phrase "content delivery."  Level 3 had already sued Limelight in December for infringing four Level 3 CDN patents. 

So, Akamai and Level 3 both have nukes and aren't afraid to use them against rivals with weaker arsenals.  I expect neither Akamai nor Level 3 to target a well-armed foe, though...they would negotiate an arms-control treaty (patent cross-licensing agreement) before wasting munitions on each other. 

Meanwhile, Akamai hasn't finished off Limelight yet, hence the reference to the badly-translated Sega Mega game Zero Wing in the title to this post.  "All your base" has come to mean "a premature proclamation of victory" according to the Urban Dictionary. 

Still, I wouldn't want to be Limelight at this stage of the game. 

"Somebody set up us the bomb."

Level 3 Cross-Licenses Patents With IBM

This morning, Level 3 Communications and IBM announced a patent cross-licensing agreement, giving Level 3 a non-exclusive license to IBM's enormous portfolio of over 42,000 pending and issued patents, and giving IBM a license to Level 3's 850.  Other terms of the deal were not disclosed, but you can bet that Level 3 is paying IBM some money in the deal, given the disparity in the sizes of the patent portfolios.  IBM reported $958M in intellectual property and custom development income in 2007, and I suspect it was mostly patent licensing income. 

Verizon Strikes Again: Patent Lawsuit Against Charter

The VoIP patent wars are accelerating, with Verizon now suing a second cable company, Charter Communications, for patent infringement.  Last month, Verizon sued Cox Communications. 

Add this to the Net2Phone VoIP suit against Skype, and we have the makings of VoIP World War I. 

The latest Verizon lawsuit against Charter is identical to the one brought against Cox, so it may portend similar lawsuits against every cable company that has deployed the PacketCable architecture for VoIP, developed by CableLabs. 

I'd give the cable companies a hint on finding prior art, and point them at my patent 5,867,495 which was about a year earlier than the Verizon patents in question, but there is a problem: Verizon bought MCI, and I was working for MCI at the time and MCI owned the patent, so now Verizon has that patent, too.  Oops!  Still, there should be enough prior art around to mount a good fight.

For those of you keeping score at home, here's the list of VoIP-related patent suits in progress:

1. Verizon versus Cox
2. Verizon versus Charter
3. Net2Phone versus Skype
4. Sprint versus Broadvox, Nuvox, Broad River Telephone, and Paetec

These active lawsuits follow the recently settled lawsuits:

1. Verizon versus Vonage
2. AT&T versus Vonage
3. Sprint versus Vonage, VoiceGlo, and theglobe.com
4. Vonage versus Nortel

The huge number of VoIP patents out there are like mines and unspent ordinance laying around a tense border area.  Maybe it was inevitable that someone would use one of these weapons and then war would erupt.  Most of the patents being used as ammunition in this war have at least ten years of life left, so we could be in for a long one. 

More Patent Insanity

GigaOm's Stacey Higginbotham posted yesterday about a new Amazon patent on displaying browser errors, such as the common 404 error pages that various web sites display.  (One of the most inventive 404 pages I've seen is here). 

The patent, which was granted on Tuesday this week by our all-knowing patent office, is just the latest example of why the USPTO is clueless.  Does anybody in the patent office know or care that there is an Internet Engineering Task Force that invented this stuff long before Amazon filed their patent in 2003?

...think I'll file a patent on blogging...

Wounded Sprint Wields VoP Patents In Fight For Survival

On the same day that Sprint announced a house-cleaning in its senior executive ranks, the struggling carrier announced the next phase of their "Voice over Packet" patent war.  Sprint won the first phase of the patent battle with a victory over Vonage last year, resulting in a $69.5M damage award to Sprint.

Sprint is suing Broadvox, NuVox, Big River Telephone, and Paetec for "ongoing infringement" of their VoP patents.  The lawsuit comes just a week after Verizon announced a VoIP patent lawsuit against Cox Communications. 

Encouraged by their wins against Vonage last year, the Verizon and Sprint patent trolls are going back to the bridge to waylay more VoIP travellers. 

I'm guessing that this new batch of patent targets are largely using off-the-shelf VoIP vendor solutions, and that several of these vendor contracts will contain indemnification clauses that obligate the vendor to defend against intellectual property lawsuits.  It will be interesting to see how this plays out!

Verizon Sues Cox For VoIP Patent Infringement

Like a shark in a feeding frenzy, Verizon tasted blood last year when they won a VoIP patent lawsuit against Vonage, and now they are back for more.  Verizon has filed a patent lawsuit against one of their cable rivals, Cox, in Virginia, claiming that Cox is infringing eight Verizon patents.  Four of the patents in the Cox lawsuit were also in the Vonage lawsuit.  Phone+ has the details, here.

All of the big US cable service providers use the CableLabs PacketCable architecture for VoIP service, including Cox, Comcast, Time Warner, and others.  So, it is conceivable that if Cox is found to be infringing by using that CableLabs architecture, then Verizon would go after all of the rest of their cable voice competitors for license fees and damages.

I think that Verizon will find a tougher fight with Cox than they had with Verizon.  The engineers at CableLabs are real subject matter experts on the development of VoIP protocol standards, and will likely supply Cox with lots of prior art to use in the case.

Does this mean that Cox now has a second shot at invalidating the patents that Vonage supposedly infringed?  And, what does that mean for Vonage, if they have already paid damages on a patent that is later revoked? I'll check with some patent lawyer friends and report back. 

Another Theory For Why Vonage Pulled Their WiFi Phones - Patent Violation

Garrett Smith opined this morning that Vonage pulled their WiFi phones because they didn't work well, and that theory sounded very plausible to me since my experiences with VoIP over WiFi have been inconsistent at best.  However, reading the comments on Garrett's blog this evening, Jim Smith offered an equally plausible theory: Vonage pulled the WiFi phones because they violated Verizon's patent "6,359,880 - Public wireless/cordless internet gateway," one of the same patents that Verizon used to sue Vonage in the now-famous law suit. 

Nice theory, but there are more details to consider.  The appeals court in the Verizon/Vonage fight vacated the lower court's decision that Vonage was infringing the '880 patent, and said it would have to be retried.  So far, Vonage hasn't really been found to infringe that one.  It was the other two patents, 6,104,711 and 6,282,574, that had the claims that even the appeals court upheld as being infringed by Vonage, and neither of those patents describe VoIP over WiFi. 

So, it could be that Vonage is not taking chances and trying hard not to infringe the '880 patent, or it could be that Vonage made a settlement deal with Verizon and agreed not to do things that might infringe the '880 patent.  At this point, though, I think it is more likely that Vonage simply stopped selling the WiFi VoIP phones because they weren't working well. 

There IS a Software Prior Art Database for Patent Research

On the topic of creating a database of prior art, I just heard from an old friend and colleague who is an intellectual property lawyer, and he pointed out that there is already a prior art database for software: www.spi.org, a software prior art database developed for just the purpose Daniel Berninger mentioned in his post today, as is Greg Aharonian's source code database found at www.bustpatents.com.   Thanks!

A "Prior Art Database" for Software Patents?

Daniel Berninger has a good patent post over on GigaOm today, talking about some of the history behind the technology that Verizon patented and used to sue Vonage.  Daniel worked for VoIP innovator VocalTec back then, so he knows that Verizon learned much from VocalTec, and then patented it.  The truth is that the ITU H.323 standard, developed in the early 1990s, incorporated much of the technology that Verizon patented, and was well developed well ahead of the Verizon patent.

Daniel suggests that Vonage lost the Verizon lawsuit because it couldn't find enough evidence of prior art, and suggests that a potential remedy is for software engineers to contribute their code and design documents to a prior art database so that future lawsuits can be appropriately rejected.   

While this prior art database may be helpful on a purely practical level, if it had existed it still may not have prevented Vonage from losing.  I, for one, believe that the prior art that would have exploded the Verizon patents is out there and that Vonage just didn't hire the right expert witnesses to help them find it.

What's more, the existence of a prior art database won't solve all that is wrong with the current patent system. (To be fair, Daniel never claimed it would solve everything).  For example, even with a prior art database, the patent office would still have a huge backlog of software applications, and no rational plan for catching up.

Brough Turner recently found a research paper by a professor who found that a similar problem in the US patent system was solved about 100 years ago only when the problematic category of patents was eliminated.  This path holds the most promise, in my view.

So, without patents, would software then have no intellectual property protection?  Of course not!  I'd be kicked out of the "software engineer's club" for suggesting it.

Instead, I'd like to see software rely on copyright as its primary form of intellectual property protection, as suggested by Tim Lee.  Then, the "prior art database" becomes the copyright database, which already exists and is searchable, online. 

I see the prior art database idea as an innovative and straightforward attempt to address the symptoms of a greater problem, and I congratulate Daniel on recognizing the problem and trying to address it.  However, I hope we don't settle for treating the symptoms...we also need to try to correct the root cause of the problem. 

How The Patent Backlog Was Built

Rome wasn't built in a day, and neither was the backlog of 1,112,517 patents at the US Patent and Trademark office.  The backlog is not a new problem...people were grousing about it years ago. 

Here's how the patent backlog was built:

(click on it to enlarge the image.  Source, USPTO web site)

I don't think it is any coincidence that the knee in the patent backlog curve happens to line up with the advent of software patentability.  It's clear that the USPTO hasn't been able to hire and retain enough patent examiners to keep up with demand since then, according to a General Accounting Office report published this fall.  The USPTO has put together a five year plan to try to address the issue, but nobody is sure if it will work, since it is clear that the plan for the past five years hasn't worked. 

Maybe it is time to address the root cause, and reverse the decision to make software patentable?

Drowning in Patents

IFI Patent Intelligence has announced their annual top 25 patent pigs for 2007, and IBM tops the list for the 15th straight year, with 3,148 patents.  And that's just for 2007.  If that doesn't blow you away, remember that last year IBM had over 3,600 patents issued.  These guys are a machine that makes the New England Patriots look like amateurs. 

IBM is looking like they are a little off their game, though.  Samsung Electronics is gaining on them, and only lost this year's game by 423 patents.  Could IBM be in for an upset in next year's intellectual property frenzy?

The US Patent Office is drowning in patent applications, with 1,112,517 backlogged patent applications.  At the current rate of application processing, it will take 7 years to work through the current backlog.  Ain't no way they are going to catch up without

1. drastic increases to staffing levels at the USPTO,
2. overdue changes to patent policy (like, maybe too many things are patentable?), or
3. a sudden onset of stupidity in global corporations resulting in a drop in patent applications.

While none of these seem likely, I'm betting number three has the best chance.

I might try to dig up some historical research that shows the correlation between numbers of patent applications to the change in "software patentability" policy that happened in the mid-1990s.  You can't convince me that the patent application boom is due to successful experimentation with human genetic engineering in the 1960s and 1970s.  We didn't get THAT much smarter.

The (Recent) History of CDN Patent Lawsuits

Last month, Level 3 sued Limelight Networks for infringing its CDN patents.  This continues a rich history of CDN patent lawsuits involving all of the major CDN patent-holders:

1. In 2000, Akamai sued Digital Island for infringing a patent.
2. In 2001, Akamai won an injunction against C&W.  Digital Island was owned by Cable & Wireless at the time.
3. In 2002, Cable & Wireless sued Akamai for violating two of its patents. 
4. Akamai counter-sued Cable & Wireless for violating another Akamai patent.
5. Akamai also sued Speedera Networks, a small competitor, for patent infringement.
6. In 2003, C&W and Akamai settled the patent lawsuits and called a truce.
7. In 2004, Savvis bought C&W
8. In 2005, Akamai bought Speedera Networks.
9. In 2006, Akamai sued Limelight Networks for patent infringement.
10. In early 2007, Level 3 completed the acquisition of Savvis' CDN assets, including its CDN patents.
11. In July 2007, the Akamai/Limelight court issued a report that was reported in the press as being favorable to Limelight, and Limelight's stock jumped.  I went back and read the report, though, and the report was not as one-sided as the report made it sound.  The report dealt with the interpretation of key phrases in Akamai's patents, and interpreted some of the claims in favor of Limelight and some of the claims in favor of Akamai.  The lawsuit is expected to go to trial in 2008.
12. In December, 2007, Level 3 sued Limelight for patent infringement.

I don't know if Akamai, Level 3, and Limelight are making much money on their CDN businesses, but their lawyers certainly are!

While it seems unlikely that Level 3 and Akamai will be suing each other, given the long history of C&W and Akamai lawsuits that ended in a truce in 2003, in today's litigious world you never know.

Meanwhile, Limelight is left to defend itself against patent infringement lawsuits from both Akamai and Level 3, while Limelight has no issued patents of its own.  Limelight appears to be hoping that its fourteen patent applications in the US will grant soon, giving it some ammunition for counter-suits against Level 3 and Akamai.

It's a good thing for Limelight that they went public in 2007 and raised over $200M in the process, because they will need some of that cash pile to pay their lawyers.   

Andy Abramson has mentioned how Limelight reminds him of Vonage, and the parallels are interesting: 

• Both companies were sued for patent infringement at around the time they went public
• Both companies raise over $200M in their IPOs.
• Both companies have been sued by multiple competitors
• Both companies need to use (or have used) a chunk of their IPO proceeds to pay lawyers to fight off patent attacks

However, that's where the similarities end.  Limelight has a stronger base business than Vonage, and if they can fight off these patent attacks then they appear to be viable going forward.  Limelight's patent pipeline is also stronger than Vonage's was at the time each company was sued.  Vonage, on the other hand, is struggling to survive, and I think would have been struggling even if they didn't have to fight off patent lawsuits.

Vonage and Nortel Settle Patent Dispute

Vonage and Nortel settled their patent dispute yesterday, agreeing to cross-license three patents apiece and drop all the remaining charges, with no money changing hands.  The dispute started when Vonage bought some VoIP patents from Digital Packet Licensing in 2006, and DPL had already sued Nortel over infringement of these patents.  Vonage continued the suit, and later Nortel counter-sued Vonage.

In earlier posts, I criticized Vonage for continuing the suit against Nortel after buying the patents from DPL.  Most of the time telecom vendors don't sue their potential service provider customers for patent infringement, preferring to sell them technology instead, and service provider's don't usually sue telecom vendors because the vendors usually have a much larger arsenal of patents with which to fight.  I argued that Vonage was wasting its money and potentially provoking an attack from Nortel. 

So, a cost-free settlement with a license of three patents is a good outcome for Vonage, given where things stood in December.   

It looks like Vonage is finally learning how the patent game is played.  I hope for Vonage's sake that it is not too little, too late.

Limelight's IPO Patent Disclosures

Andy Abramson, whose excellent VoIP Watch blog I read regularly, has raised some interesting questions triggered by my recent posts on the Level 3 patent suit against Limelight Networks.  Andy wondered whether Limelight fully disclosed the pending Level 3 patent infringment letter in their S-1 form, filed in March, 2007, ahead of their June IPO, and wonders if Limelight's investment bankers discovered the Level 3 letter in their pre-IPO due diligence.  Limelight raised $240M in that June IPO, and Level 3 alleges in their patent court documents that they sent their letter to Limelight in February.

I went back and read the Limelight S-1, and while I did not find a specific disclosure about the Level 3 letter, I did find this general disclosure on page 13:

<snip> We may need to defend our intellectual property and processes against patent or copyright infringement claims, which would cause us to incur substantial costs.

Companies, organizations or individuals, including our competitors, may hold or obtain patents or other proprietary rights that would prevent, limit or interfere with our ability to make, use or sell our services or develop new services, which could make it more difficult for us to operate our business. From time to time, we may receive inquiries from holders of patents inquiring whether we infringe their proprietary rights. Companies holding Internet-related patents or other intellectual property rights are increasingly bringing suits alleging infringement of such rights or otherwise asserting their rights and seeking licenses. <snip>

The question, of course, is whether the above disclosure is good enough, since Limelight had factual knowledge of the Level 3 infringement letter at the time.  I'm guessing that the above disclosure is adequate, but I don't have direct experience in the nitty gritty of this kind of SEC matter, so I'm interested in hearing readers' opinions.

While trolling through the Limelight S-1, though, I did find some other interesting information:  Limelight claims to have 14 pending patents in the United States, and another 36 regional and national patent applications pending outside of the United States.  If any of these patents are granted in the near term, then they could help Limelight mount a defense against the Level 3 patent suit.

Also, Limelight has been mounting a defense against a patent infringement suit from Akamai and MIT, which is expected to go to trial in 2008.  Apparently, Limelight's defense in this suit has been effective, since the court found in July that Akamai was trying to patent a process rather than a technology, and rejected Akamai's claim.  The case will still go to trial, though.

More Details About Level 3's Patent Suit Against Limelight

Dan Rayburn has posted the links to the court documents for Level 3's patent suit against Limelight Networks, on his Business of Online Video blog, and it turns out that Level 3 is asserting four patents against Limelight.  As I suspected in my post a few days ago, patent  6,654,807, "Internet Content Delivery Network", is one of the patents named in the lawsuit. 

The other three patents are: 

• 6,185,598, Optimized Network Resource Location (filed 2/10/1998 by Sandpiper Networks)
• 6,473,405, On-Demand Overlay Routing for Computer-Based Communication Networks (filed 6/25/2001 by Digital Island)
• 7,054,935, Internet Content Deiivery Network (filed 3/13/2002 by Cable & Wireless)

Level 3 owns all of these patents by virtue of a long history of mergers and acquisitions.  Sandpiper, who filed the first patent, merged with Digital Island in late 1999.  Digital Island filed the second patent in mid-2000, and then was purchased by Cable & Wireless in 2001.  C&W filed the third and fourth patent applications in 2001 and 2002.  Savvis acquired the assets of C&W in 2004, and Level 3 completed its acquisition of Savvis' CDN business in January, 2007. 

Level 3 must have had a very clear idea of the value of these patents at the time of acquisition, because within just a few weeks of completing the Savvis CDN acquisition, Level 3 sent a letter to Limelight to ask them to stop infringing the four patents. 

Limelight has certainly known about these patents ever since they received that letter, and Level 3 claims they have done nothing to stop infringing in the intervening ten months.  Why would Limelight not respond?  I can think of several potential scenarios:

1. Limelight might believe they can get the patents thrown out because they are aware of "prior art" that would prove that the ideas in the patents were well known prior to the patent filing date.
2. Limelight might believe they are not infringing the patents due to some loophole in their implementation.
3. Limelight might know they are infringing, and may have tried to license the technology from Level 3, and Level 3 may have refused the license request and may have insisted that Limelight shut down their infringing CDN.  Limelight may have felt that such a move would be too damaging to their business, so they fell back to a plan B (as in scenario 1 or 2).
4. Limelight might have filed competing and improved patent applications that we don't know about yet (because the patents have not yet been granted), and once these patents grant, Limelight will have ammunition for a counter-suit and possible cross-licensing settlement. 

Having looked at the claims in these patents, they are very broad, so I would assume that Limelight is infringing them. 

The court documents clearly accuse Limelight of willful infringement, and if Level 3 wins then it could include an award of treble damages.  Level 3 is also asking the court for an injunction to prevent Limelight from continuing to sell the infringing services.

If Level 3 wants to play hardball and insist on shutting down the infringing Limelight CDN, it could severely damage Limelight's business. 

Licensing The Blues

In case you haven't spotted them yet, there are some excellent comments on my post from a few days ago, "Should Software Be Patentable?", from Tim Lee and Brough Turner.   Tim Lee's post on the Technology Liberation Front motivated me to ask the patent question on this blog in the first place.

Tim points out that he thinks

" it's a mistake to assume that the people getting the patents and the people doing the innovation are the same people."

...and that

"More often than not, software patents seem to be an alternative to innovation, not a reward for it."

My own experiences bear out the truth of these statements.  While I did receive some additional compensation from MCI through their patent program, it was hardly commensurate with the potential value of the resulting patents.

On the other hand, I drew a salary from both MCI and Level 3 while working on these patents, and I understood from my employment agreement that MCI and Level 3 would own anything I invented while employed by them.  So, I'm not bitter about their owning the patents...the rules were understood from the start of the game.  And my employers could certainly be justified in believing they played by the rules and "paid" for those patents in my salary and bonuses.  So, I think that Tim's "fairness" argument doesn't hold up well.

But that is hardly the centerpiece of Tim's argument.  Tim asserts that copyright should be adequate protection for software, and that patents for software are harmful because they inhibit innovation.  I find that argument far more fascinating. 

I found myself comparing software to music.  Music is not patentable, but it is subject to copyright.  So, at the risk of oversimplifying, Tim is proposing that we treat software in the same way that we treat music.

Imagine if music were patentable...what kind of changes would it have caused in the music industry?  I imagine that somebody along the way would have patented the twelve-bar blues, the classic blues form that frames so many great blues songs.  For the ensuing twenty years, nobody else could have written a twelve-bar blues song without "licensing the blues" from the patent holder. 

To me, the patentability of music would have created a grave inhibitor to creative expression, and would have deprived the world of many great musical works.  I would definitely not favor patenting music.

Then why should my attitude about patenting software be any different?  I don't know...I want to think through the analogy a bit more, to see if software really mimics music, to see if this little analogy holds. 

What do you think?  Should software be treated in the same way as music?

Level 3 Files A Patent Suit Against Limelight

Level 3 is flexing its muscles in the growing patent wars, asserting that Limelight Networks is infringing  content delivery patents that Level 3 acquired when it bought SAVVIS' CDN business about a year ago. Dan Rayburn reports on his Business of Video blog that Level 3 has over 850 worldwide patents and patent applications.  That certainly puts them in the big leagues in terms of size of patent portfolio, though they would have a long way to go to catch up with IBM. 

Level 3 hasn't announced which patents they think are being infringed, though one of them could be 6,654,807, "Internet Content Delivery Network", filed in late 2001 by Cable & Wireless.  SAVVIS bought most of the assets of C&W back in 2004, so Level 3 may now own this patent. 

The patent contains some very interesting claims describing the caching of information on "repeater servers" around a network, and delivering that information from a selected repeater server to  a client upon request.  This kind of caching is at the heart of most Content Delivery Network solutions.

Limelight says on their web site that "Limelight has built a global network of logical CDN locations with extensive storage capacity across the United States, Europe, and Asia that is capable of rapidly delivering digital media worldwide."  If Level 3 is asserting that the "repeater server" patent is being infringed, then Limelight's task is to prove that their implementation somehow avoids caching. 

I'd lay odds that Limelight is infringing and this one will settle before trial, with Limelight paying a royalty to Level 3 to license the technology. 

This continues Level 3's aggressive push into the CDN business.  In October, Level 3 announced that they were pricing CDN services at the same rate as normal Internet access, which hurt both Akamai and Limelight. 

Should Software Be Patentable?

Tim Lee has a thought-provoking post over on the Technology Liberation Front, about software patents, questioning whether anybody should have been allowed to patent software. 

If you are interested in learning more about the detailed history of the patentability of software, you might want to check out the bitlaw site.   I'll summarize some key historical points here:

1. Before the 1980's no software was patentable
2. In 1981, the Supreme Court allowed for software to be patented when the software was incorporated into a process that included non-software elements.  (The test case had to do with heating rubber under computer control).  At that point, many in the industry weren't sure if software was patentable or not.
3. In the early 1990's a federal circuit court decided that some clarity was needed, and tried to come up with new definitions for patentable vs. unpatentable software.  It was still about as clear as mud. 
4. In 1995, the US PTO tried to define patentable software vs. unpatentable software along the same lines as the earlier court decision, with no improvement.
5. In 1998, the circuit court considered another case and basically decided that all software is patentable.

Is having patentable software a good thing, though?  I can see pros and cons.  In the case of the VoIP patents that I've blogged about on this page, I can see some bad effects, as it has created a lot of uncertainty in the VoIP industry about who is infringing up on patents, and who could sue whom.  In Vonage's case, it has certainly hurt their business and may eventually deny them freedom to operate their business. 

Basically, these VoIP patents grant a temporary (20-year) monopoly to the patent holder over some of the basic algorithms and message exchanges used in VoIP.  This can't be good for encouraging competition and ensuring consumer choice, both of which can be seen as good for the public.

On the other hand, don't innovators need the chance to be rewarded for their inventions?  Isn't the chance for remuneration a powerful incentive to innovate?  And it costs money to do research and try out new ideas.  Shouldn't a company be allowed to recover its costs? 

I can certainly see the argument from both sides, having been an inventor on 18 patents, all of which are assigned to my former employers.  I've seen the damage that software patents can cause in the VoIP industry, so I do think that some patent reform is in order, but I also think that some intellectual property protection should be preserved.

The problem with patenting software is that our industry moves very quickly, and patents can act as a brake on progress.  A twenty-year patent life for software seems excessive to me.  Why not cut that in half, to ten years?  If you can't monetize your software invention in ten years, then it may be that either the software has little value, or that the invention is valuable but is owned by a corporation or individual that is having difficulty leveraging it, and in somebody else's hands the invention could be truly useful. 

Looking at the VoIP industry, I think a ten-year patent life would have worked well.  Many of the big VoIP patents that have made news this year would have been expiring right about now.  A Vonage might have paid back royalties on a patent judgment, but would be free to operate in the future without paying further royalties. 

What do you think?  Is the current patent framework ideal?  Or, should software patent law be revised?

Feisty Vonage Should Have Let Sleeping Nortel Dog Lie

Friday's news that Nortel has sued Vonage for infringing a dozen patents is really just the latest battle in a patent war that Nortel has been fighting since 2004.  Over three years ago, Digital Packet Licensing sued Nortel in a Texas court for infringing three patents.  DPL was a patent troll and was just trying to shake Nortel down for some cash on three patents that DPL themselves had acquired from Republic Telcom Systems Corporation/Netrix Telcom Systems Corporation. 

Fast forward two years to June, 2006, when Verizon sued Vonage for patent infringement.  A month later, as Vonage began to realize the precarious situation they were in, Vonage acquired three patents from DPL in an effort to bolster their VoIP Patent portfolio.  Yes, these were the same three patents that DPL had already used to sue Nortel.  Owning those patents didn't change the outcome of the Verizon case - Vonage still lost that, and also ended up paying AT&T and Sprint Nextel to settle additional patent suits out of court.  I don't really know, but I'm guessing that Vonage did some cross-licensing of their DPL patents with AT&T and Sprint Nextel in order to reduce their settlement fees.

Vonage could have dropped the lawsuit against Nortel back when they acquired the DPL patents in 2006, but they elected to continue that lawsuit.  This suit is different from the other Vonage patent lawsuits of the past year, in two big ways:  Vonage is the one doing the suing, and they are suing an equipment/sofware manufacturer and not a service provider.  Usually in these kinds of cases, service providers don't sue manufacturers, and vice versa, because there is an unwritten understanding that manufacturers don't sue their potential customers, the service providers, and service providers return the favor. 

Vonage, being a new player in the old telecom world, may not have understood the rules of the road, and having been repeatedly targeted by big service providers for lawsuits for the past 18 months, may have figured "They're all out to get us!"  Not only did Vonage continue the Texas lawsuit on the DPL patents, Vonage filed another lawsuit in Delaware in August, trying to invalidate three Nortel patents.

Vonage exacerbated their own intellectual property problem when they didn't drop the Nortel suit for 18 months, and eventually provoked a retaliatory countersuit from Nortel.  It seems to me that Vonage is acting like a wounded animal, lashing out at any target within reach.  Did Vonage really think they could nab Nortel on patent infringement without provoking Nortel to check their deep trove of VoIP patents to see if the could counter-sue?

The comedy of intellectual property errors at Vonage continues.  This comedy, though, is looking more like a tragedy all the time.

Vonage Takes Another Patent Hit

The patent woes continue for Vonage, and this time they are being sued by Nortel.  However, Vonage is dealing from a stronger hand than in past lawsuits from Verizon, AT&T, and Sprint Nextel.  Vonage acquired three VoIP patents last year from Digital Packet Licensing, and DPL had already sued Nortel for violating those patents, and Vonage just continued that lawsuit.  Now, Nortel has retaliated and claims that Vonage is violating 12 Nortel patents. 

According to court documents from the US District Court in Delaware, Vonage actually sued Nortel in August this year to get three Nortel patents disallowed.  Nortel now claims that Vonage is violating those three patents, and nine others.  The original three Nortel patents in question are:

1. 6.091,808 - Methods of and Apparatus for Providing Telephone Call Control and Information
2. 6,445,695 - System and Method for Supporting Communications Services on Behalf of a Communications Device Which Cannot Provide Those Services Itself
3. 7,050,861 - Controlling a Destination Terminal From an Originating Terminal

The three patents that Vonage acquired from DPL last year are:

1. 4,782,485 - Multiplexed Digital Packet Telephone System
2. 5,018,136 - Multiplexed Digital Packet Telephone System
3. 5,444,707 - Packet Switching Communication System

These three patents are in the area of compression technology frequently used in VoIP services.

It's good for Vonage that they are on the offensive in this fight, though it is likely that Nortel has more ammunition than Vonage.  At least Vonage has some patents to fight back with, now. 

I'll keep digging to try to find all the other nine Nortel patents involved in Nortel's counter-suit, and will report on them when I find them.

Why Doesn't Verizon Pick On Somebody Their Own Size?

I had a comment on yesterday's post about the validity of Verizon's VoIP patents, asking why Verizon sued Vonage, rather than the gatway-manufacturer Cisco, or softswitch manufacturer Broadsoft?  This is one of the easier questions on the "Big List of VoIP Patent Questions" post from a few days ago, so we'll tackle it today.

How does a patent holder decide who to target?  They usually consider the following:
1. Are we pretty sure the target is infringing our patent?
2. Are we infringing any of the target's patents?
3. Can we win a lawsuit if it goes to court?
4. Is it important to maintain positive relations with the target?
5. Is the target a competitor that we would like to impair?

In the case of Verizon and Vonage, they came up with the right answer to all of the above questions.  Verizon was pretty sure Vonage was infringing.  My searches on the patent search engines didn't turn up any patents that have been granted to Vonage (at least, not yet), so Verizon was pretty confident they wouldn't run into a counter-suit.  Verizon knew they had a good chance of winning in court because they could afford really good lawyers, and maybe Vonage wouldn't hire really good lawyers.  Most importantly (to Verizon), Vonage was a sworn enemy and Verizon liked the idea of impairing Vonage's business.  Check marks on all the criteria.

Compare this checklist to Cisco, now.  Cisco may be infringing Verizon's patent, check.  However, Cisco has one of the largest VoIP patent portfolios in the industry, and Verizon is probably infringing a bunch of those patents, so a counter-suit would be probable.  Cisco can afford great lawyers, so Verizon might not win in court.  Cisco is a big supplier to Verizon, so Verizon would want to maintain good relations there.  And Verizon has no reason to want to hurt Cisco's business.  Only one check out of five, so it's not likely that Verizon would sue Cisco.

If you do the same analysis with softswitch-maker Broadsoft, you'd find some similar results.  Broadsoft has a couple of patents (6,625,274 and 7,213,073), and Broadsoft is a supplier to Verizon (see Broadsoft's home page).  Broadsoft might not be able to afford as much legal counsel as Verizon, but with only two checks out of five, Verizon has no reason to pick a fight with Broadsoft.

Another competitor in the consumer VoIP market, Packet 8, has a dozen US patents.  They wouldn't be an easy target, either. 

The painful truth for Vonage is that they were a big, easy target, and didn't pay enough attention to protecting their business with key patents.  I'm sure they've learned their lesson now, but is it too late?

Are Verizon's VoIP Patents Valid?

One of the readers of this blog asked if Level 3 Communications VoIP Patents would be considered prior art when analyzing the Verizon VoIP Patents.  I think the broader question is also interesting:  was there enough prior art laying around at the time that Verizon filed for their patent that Verizon's invention should have been "obvious to one of ordinary skill in the art"?  The court obviously didn't think so, or they wouldn't have found Vonage to be infringing.  Not being a patent lawyer, I couldn't tell you with certainty if the court was right or not.  I can provide some background on what was known at the time the patents were filed, though.

These are the Verizon patents that Vonage was initially found to infringe:

6,104,711, filed March 6, 1997
6,359,880, filed July 30, 1999
6,282,574, filed February 24, 2000

Now, the filing date is not necessarily the "date of invention", so you can't really go on the filing date by itself.  A company could have compelling evidence (in engineering notebooks and email records, for example) that the technology was invented somewhat earlier than the filing date, and that they only got around to filing the patents later on.  However, there are limits on how big this lag time between invention and filing can be, so filing date is a decent proxy for invention date for our little analysis here.

Also, patents can be filed in such a way that they are associated with patents that were filed earlier, and therefore get the benefit of the earlier filing date.  In Verizon's case, for example, the 574 patent was related to the earlier 711 patent, so both patents could claim the 1997 filing date. 

So, what kind of prior art was laying around in early 1997?  I already mentioned in yesterday's post that Jeff Pulver had already published a book about his Free World Dialup project and how it worked, even before Verizon's patents were filed.   Also, companies like VocalTec and NetSpeak already had VoIP gateway products on the market and in use at that time.   The ITU had already developed the H.323 VoIP standards by then, publishing their first specs in November, 1996.  These specs included a mechanism for translating names or phone numbers into IP addresses, of the sort described in the Verizon patent.  The first drafts of the Session Initiation Protocol (SIP) had already been submitted to the Internet Engineering Task Force in February, 1996. 

My own first VoIP patents were filed in November of 1996, while I was at MCI, so these patents could come into consideration as prior art when analyzing the Verizon patents.  My Level 3 VoIP Patents were filed in November, 1998, so their filing dates are later than the earliest Verizon patents. 

Were the Verizon patents obvious?  Timothy Lee, publishing on the Ars Technica blog, seemed to think so, as did Jeff Pulver.  I also was aware of the kinds of signaling protocols being developed for VoIP at the time, and would have found the sorts of things claimed in the Verizon patents to be obvious.  The question is whether folks like Jeff Pulver or myself would be considered by a court to of "ordinary skill in the art", or having somewhat greater expertise. 

So, this leaves an impression that Verizon saw a threat in the development of VoIP technology, and tried to mitigate that threat by patenting as much as it could, as early as it could, around the use of that technology in real networks.  They weren't alone in that effort as demonstrated by the long list of other carriers with lots of VoIP patents.  I think what strikes most people as wrong is the perception that these carriers patented the technology defensively, with no intention to aggressively develop and use the technology, instead allowing others, like Vonage, to try to build a customer base.   

This is the same thing that we find offensive about patent trolls.  Shouldn't an inventor of a technology (or their company) be required to provide reasonable and non-discriminatory licensing terms for their technology, if they aren't going to use and develop the technology themselves?  Shouldn't the patent office establish a higher standard for granting a patent, so that companies can't go out and patent what is already in the public domain in an effort to corner a piece of the market? 

One consolation in all of this is that utility patents such as these have a life of 20 years from the filing date, after which anyone can use the technology.  So, the Verizon patents dating back to 1997 have less than 10 years of life left.   

If patents are going be used primarily to defend the market position of incumbents, maybe it is time to reduce patent duration from 20 years to something lower, say 12 years? 

The VoIP Patent Landscape

Yesterday, I posted a big list of VoIP Patent questions that friends have been asking me ever since I started blogging.  Since I've got clients who retain me as an expert witness in patent lawsuits, and since I'm an inventor on 18 patents, they figure I might know the answers to questions like "Don't other companies have VoIP patents, too, not just Verizon, AT&T, and Sprint?"   

The truth is, anybody can find out just by doing some targeted searches on either the patent office web site, or on Google Patents.  I'll save you a little searching though...there are on the order of about 1,000 VoIP patents out there, and many, many companies own little corners of the VoIP intellectual property universe. 

Is there really that much to patent about VoIP that we need 1,000 patents?  No, of course not.  The US Patent Office reported a 3.5% patent allowance error rate last year, meaning that of the over 164,000 patents the office allowed last year, close to  6,000 of them shouldn't have been granted.  That's just the ones the patent office knows about. 

The truth is that the patent office does grant patents that it shouldn't, because there is no way for the USPTO to employ true experts in every field as patent examiners.  So, patents are sometimes granted when there is already another patent on the same technology, or when there is a lot of "prior art" (evidence that the invention is already widely known before it was "invented").  Many times, this kind of error doesn't get sorted out unless and until there is a patent lawsuit to draw attention to the issue. 

I think that's the process that has started with the Vonage suits.  Vonage might have really been infringing some of these patents, but there is a question as to whether some of the patent claims should have been granted in the first place, since there was prior art out there, such as Jeff Pulver's book, "The Internet Telephone Toolkit."  In Vonage's case, either they did not present a clear enough case to invalidate the patent claims, or they didn't have very good legal representation, or they couldn't really find good prior art for the claims in question, and the were found to be infringing. 

And so, the dance of the elephants begins.  There are many large companies with large VoIP patent portfolios.  Having a large portfolio of good VoIP claims can really help you preserve freedom to operate a VoIP service, since you can cross-license your patents with other patent holders instead of paying royalties to each other.   Here is an informal table of some of the large VoIP patent holders:

	Voice over Internet Protocol	Internet Telephony	Total
Cisco	125	36	161
Nortel	79	77	156
AT&T	52	93	145
Lucent	26	59	85
Verizon	30	42	72
Ericsson	23	39	62
Siemens	14	19	33
Sprint	17	6	23
Level 3	15	6	21

*NOTE: above table contains results of a search on Google Patents for patents assigned to each company with either the phrase "voice over internet protocol" or "internet telephony" somewhere in the patent. The same patent could result from either search, meaning there could be some double-counting in the above table.  Also note that AT&T's total includes SBC's patents, Verizon's total includes MCI's patents, and Level 3's total includes Genuity's patents.

Without actually diving into the detailed specifications and claims of each of these patents, it is hard to say who is really well-protected against VoIP lawsuits.  I'd guess that most of the companies on the list above are pretty free to do what they want in the VoIP space by virtue of their patent portfolios, but it could be that some of the players have weaker claims than others. 

But when the elephants start dancing, it is usually the smaller animals that get hurt.  That's what happened to Vonage.

VoIP Patent Questions

A friend of mine saw yesterday's post about the bleak prospects for Vonage, and how one factor contributing to the uncertainty surrounding the company's future is potential for patent infringement.  Vonage has already paid over $240M to settle patent infringement claims from AT&T, Verizon, and Sprint Nextel. 

My friend proceeded to ask me about a jillion questions about VoIP patents, more than I can possibly answer in one post, and some of which I probably can't answer at all.  See, I am an inventor named on 18 patents, several of them in the VoIP space, but I'm not a patent lawyer, so I'm not really qualified to answer some of the questions.  I'll do my best, though.

I've adapted my friend's questions and added a few of my own here, and will commit to starting to answer some of these questions as best I can in a series of posts over time.  Drumroll, please....the questions:

1. Why is Vonage the target of all of these patent lawsuits?  Aren't there other VoIP infringers?
2. Don't other companies have VoIP patents, too, not just Verizon, AT&T, and Sprint?
3. Was Vonage really infringing, or did they just have inferior legal representation?
4. How broad are the patents that Vonage supposedly infringed?  Would any VoIP application also infringe?
5. Why haven't Verizon, AT&T, and Sprint gone after other infringers?  Are they allowed to be selective about who they target?
6. Why aren't VoIP software and equipment manufacturers also being targeted with VoIP patent lawsuits?
7. Is it now impossible for an independent VoIP service provider to make a go of it?  Can any VoIP service provider survive?
8. Some specific questions about Level 3 Communications:
   a) Would LVLT VoIP patents qualify as prior art and thus negate the Verizon, ATT, and Sprint suits?
   b) What keeps LVLT from coming to Vonage's defense... are LVLT's patents not strong enough?
   c) Is the LVLT Voice Termination business in jeopardy because of these patent wars?

I'm sure there are other questions that can be asked that are just as interesting as these, so bring 'em on! 

Meanwhile, here is just a little bit of background, just to get started, which might shed a little light on why some of the above questions may be hard to answer. 

I did some searching of online patent databases on a few key VoIP phrases, just to see how many patents mention these phrases, and here is what I came up with:

Phrase	Patent Count
Voice Over Internet Protocol	525
Internet Telephony	548
Packet Voice	476

Of course, many of the patents that mention "voice over internet protocol" might also mention "internet telephony", so I am sure theere is quite a bit of double-counting in the table above.  But I think it is safe to say that there are at least 600, and probably a lot more, patents that explicitly say something about VoIP or packet voice applications. 

The earliest patent in the above table is a Stanford University patent that was filed in 1981, patent number 4,503,533, and the patent specification explicity discussed the performance of packet voice applications on a certain kind of network design.   So, the fundamental idea of using packet networks for interactive voice conversations has been around for a long time.  Internet founder Vint Cerf once told me that they were thinking about using voice applications on packet networks way back in his DARPA days, which I think was as early as 1969.  Every little packet voice improvement, though, is patentable, and that's how we ended up where we are today.  More to come.

Vonage's Goose is Cooked

More bad news for a consumer VoIP player this morning: Vonage lost their appeals request in the Verizon Communications intellectual property lawsuit.  They now have to pay $120M, including $2.5 million to certain charities and the remainder to Verizon.  This is on top of $80M to Sprint to settle another patent lawsuit, and an estimated $39M to AT&T, for a total of $239M to settle patent lawsuits.  Vonage raised about $531M in last year's IPO and now they have handed nearly half of the cash over to their bitter enemies, the telcos.

And that's not even the worst of Vonage's problems.  Their cost per gross subscriber line addition of $206 is still too high as compared to revenue, and when you combine that with their churn rates of 3% per month (reported in their 3rd quarter earnings), Vonage is only barely hanging on.   My quick calculations show that if Vonage does not drastically cut their SG&A costs, they will run out of cash next summer.

This comes after SunRocket closed its doors this summer, and Skype disappointed their acquirer, eBay, with slower growth in subscribers and ARPU than they hoped.  What's going on?

Independent consumer VoIP players are facing some mighty tough headwinds:

1. It takes Vonage 18 months to make back its cost of customer acquisition on operating cash flow (not including SG&A)...its a bad business that isn't likely to attract much additional investment now.  Vonage is stuck, because adding more subscribers at $206 per sub is only going to make them run out of cash sooner. 
2. The big carriers have much deeper patent portfolios than the consumer VoIP players and are using them as a competitive weapon.
3. Beyond patents, consumer VoIP is a market with no barriers to entry, meaning constant competition will cause constant downward pressure on prices.  The only way to improve margins is through cost-cutting, which is hard to do when you don't own your own network.
4. In addition to the telcos, the cable companies are winning market share in consumer VoIP, armed with a deep customer database and a low-cost network that is already paid-for by other services.

Vonage's only real asset now is their 2.5 million subscribers.  I expect Vonage will sell that asset to the highest bidder within the next 9 months, and call it quits.

Skype stands to benefit from the rapidly dwindling supply of consumer VoIP competitors, and will survive because of their lower cost position and lower prices.  eBay paid too much for Skype, but at least the one they picked will survive the shakeout.