Verizon Services Corporation, et al. v. Vonage Holding Corp. and Vonage America, Inc.

Appellants Vonage Holdings Corp. and Vonage America, Inc. ("Vonage") appeal from the judgment of the United States District Court for the Eastern District of Virginia in favor of appellees Verizon Services Corp., Verizon Laboratories Inc., and Verizon Communications, Inc. ("Verizon"). The judgment awarded $58,000,000 in compensatory damages and a royalty of 5.5% on any future infringing sales, based on a jury verdict that Vonage infringed claims of U.S. Patent Nos. 6,282,574 ("'574 patent"), 6,104,711 ("'711 patent") and 6,359,880 ("'880 patent"), and that those patents were not invalid as obvious. Vonage also appeals from the injunction entered by the district court barring Vonage from further infringing the asserted claims, including provisions that bar the use of certain methods and devices.

We hold that the district court did not err in its construction of disputed claim terms of the '574 and '711 patents. Therefore, we affirm the judgment of infringement with respect to those claims. However, we hold that the district court improperly construed one of the disputed terms in the '880 patent, and accordingly vacate the judgment of infringement with respect to the '880 patent and remand for a new trial.

We hold that the district court did not commit prejudicial reversible error in instructing the jury on the law of obviousness with respect to the '574 and '711 patents, and therefore affirm the judgment that the asserted claims of those patents would not have been obvious. However, in light of the error in the construction of the claims of the '880 patent and the possibility of error in the jury instruction on obviousness, we remand to the district court to determine whether prejudicial error occurred with respect to the jury instructions that would affect the obviousness verdict with respect to the '880 patent.

We vacate in its entirety the award of $58,000,000 in damages and the 5.5% royalty and remand to the district court for further proceedings. We affirm the injunction as to the '574 and '711 patents. We vacate the injunction insofar as it pertains to the '880 patent.

BACKGROUND

I Vonage's system

Since 2002 Vonage has provided telephone service to its subscribers through Voice over IP ("VoIP") technology. Vonage's system allows subscribers to place and receive telephone calls to and from parties that are Vonage subscribers and to and from parties that have traditional telephones without Vonage service. The principal difference between Vonage's service and traditional telephone service is that Vonage's system uses the internet to transmit telephone signals, rather than using the traditional public switched telephone network ("PSTN"). When Vonage subscribers place calls to non-subscribers on the PSTN, Vonage's system transmits the signals through the internet, and then relays them to the PSTN. Vonage's system uses subscribers' existing internet connections to transmit telephone signals electronically.

There are three ways for Vonage subscribers to connect to Vonage's system. First, subscribers can use a traditional telephone, which is connected using a standard telephone cord to a terminal adapter (the user agent), which then converts analog voice signals to digital signals and communicates with the Vonage system to send or receive telephone calls. Second, Vonage subscribers can also use Vonage telephones that have an integrated, built-in terminal adapter. Third, Vonage subscribers can install certain software on their computers that allows their computer to be used as a telephone. Under this option, the subscriber simply speaks into a microphone attached to the computer, and hears responses through the speakers.

II Verizon's patents

Three Verizon patents are relevant to this appeal: the '574, '711, and '880 patents. These patents do not claim the invention of the internet telephone; rather the basic purpose of the '574 and '711 patents (which share a specification) is to provide a server for enhanced name translation, which can be useful in implementing an internet telephone but is not limited to that purpose. The specification describes how the invention enhances the existing Domain Name System ("DNS"), which translates domain names (such as "www.fedcir.gov") into Internet Protocol ("IP") addresses. The invention enhances that system by allowing for a greater number of translations, including translations to and from telephone numbers. The invention is said to be "particularly advantageous for processing of voice telephone communications through the [internet]." ‘711 patent col.6, ll.48-50. The specification describes how users can use their computers' speakers and microphones to conduct conversations where the voice signals are carried in digital form through the internet.

The '880 patent describes a localized wireless gateway system that allows wireless telephones to register with the system and make calls. '880 patent abstract. According to the specification, cordless or wireless telephones can be registered with base station transceivers, which are then connected to the internet and the gateway. Id. col. 4 ll. 6-17.

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Verizon alleges that features of Vonage's system correspond to limitations described in Verizon's patents. The first relevant feature of Vonage's system relates to transmission of the telephone number dialed by a Vonage subscriber. The Vonage system transmits this telephone number in a string of text known as a SIP Invite. The telephone number is later extracted and reformatted by Vonage's server. Verizon alleges that this extraction corresponds to the "translation" required by each of the asserted claims of Verizon's '574 and '711 patents. The asserted claims of those patents specify translation of a "name" into a telephone number or into an internet address. Vonage does not agree that the extraction of a telephone number from a SIP invite can be a translation and argues that translation within the meaning of Verizon's patents must involve a change in protocol (or language) from a higher-level protocol -
apparently meaning one that is closer to everyday expression than a native computer language - to a lower-level protocol - apparently meaning the opposite. Vonage concludes that the conversion from SIP invite to telephone number performed by its system cannot infringe because it does not involve a translation from a higher-level to a lower-level protocol.

Vonage also argues that several other terms in the asserted claims of Verizon's '574 and '711 patents should be limited based on language in the specification of those patents, and that if so limited, Vonage's system does not satisfy those limitations. Vonage argues that the "conditional analysis" of claims 15 and 20 of the '711 patent must be responsive to the called party's needs. Vonage argues that, by contrast, in its system the conditional analysis merely results in redirecting calls involving a delinquent Vonage subscriber and thus is not related to the called party's needs. Vonage also argues that the "server" of claims 26 and 27 of the '574 patent and claims 15 and 20 of the '711 patent should be restricted beyond its ordinary meaning and must manage an enhanced name translation service. Finally, Vonage argues that the "destination" address of claims 15 and 20 of the '711 patent must refer to the final destination on the network and that the address of certain intermediary points on Vonage's system called RTP relays do not qualify as destinations under the proper construction of the term.

Verizon argues that several Vonage devices infringe claims 1 and 6-8 of the '880 patent. These devices include traditional cordless telephones that interact with a base station owned by the Vonage subscriber (such as the V-Tech IP 8100 and Uniden UIP1869V cordless telephones) and wi-fi devices that can be used at wi-fi hot spots throughout a city. Vonage makes a number of arguments with respect to the '880
patent. It argues that the patented "localized wireless gateway system" must be read as limited in several ways. First, Vonage argues that it should be limited to a system that operates with a range of only a few feet, whereas the Vonage devices operate with a range of several hundred feet. Vonage also argues that the gateway itself compresses/decompresses and packetizes/depacketizes voice signals. These functions in the conversion of analog voice signals to digital signals are required to operate a hybrid system such as Vonage's where calls are transmitted through the internet but also through normal telephone lines when the called party is not a Vonage subscriber. But Vonage contends that these functions are performed at the subscriber's terminal rather than at the gateway as required by the '880 claims. Finally Vonage argues that the patented "localized wireless gateway system" and "Wireless Telephone Terminal," requirements of the '880 patent, must provide more than one base station and allow users to roam among different base stations, whereas users do not roam on Vonage's system.

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