The Mad Scramble over VoIP Patents

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Good-Bye to Open Standards?

Wherever the litigation plays out, the view of Web calling will change. It's long been viewed as an open-standards, off-the-shelf technology, rather than one protected by patents. While Web calling does use Internet Protocol (IP), an open standard, "that doesn't mean that anything that touches Internet Protocol isn't protectable," says Glenn Woroch, executive director of the Center for Research on Telecommunications Policy at the University of California Berkeley's Haas School of Business. Verizon's patents, for instance, apply to older technologies such as call-waiting and a method of ensuring call security. Others say they hold patents on wide-ranging capabilities such as how to make traditional phone and IP networks talk to one another, and for enabling wireless Web calls.

Some Web-calling outfits might now find themselves surrounded by patent holders demanding royalties. "Part of what's happened here is the VoIP industry has met with the real world," says David McClure, president and CEO of the U.S. Internet Industry Assn., representing Internet service and content providers. "In the real world, there are patents. Before, this was about running around, thumbing your nose at big, bad phone companies."

And when big, well-funded phone companies thumb their noses back, smaller players may pay dearly. "You will see more companies exiting the business," says McClure. "There's no question that VoIP is the future. The question is to what extent a new company can go head to head with a telco that's been around for 100 years." Not only do smaller Web-calling providers have potential legal fees to contend with, but the business is becoming increasingly price-competitive. On Feb. 28, AT&T cut rates for its Web-calling service, CallVantage.

Other by-products of the decision in the Vonage case include patent filings and acquisitions. "The message this sends to the VoIP industry is, if you build a patent portfolio, it helps you negotiate in these situations," says Rabena. Engineers at telecom-services provider Jajah regularly discuss what features they might be able to patent, says company CEO Trevor Healy. "Intellectual property will always be important in telecommunications."

Kharif is a senior writer for BusinessWeek.com in Portland, Ore.