VoIP Patents: Innovation—and Lawsuits

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Improved Service

A new technology embedded in Intel processors could allow for improved quality of PC calls, using services such as eBay's (EBAY) Skype, an Intel partner, or Microsoft's Windows Live Messenger (MSFT), says Richard Doherty, director of the Envisioneering Group (see BusinessWeek.com, 9/29/06, "Skype's Mobility Problem"). "For Intel, it's a clear differentiator from AMD," he says. In fact, Doherty expects Intel to make the feature available as early as 2007. Intel was unable to make available an executive to discuss its plans.

Other new VoIP patents focus on improving network reliability and maximizing network capacity for Web calling. That's a critical need since VoIP is increasingly used as part of bandwidth-hogging video applications. Nortel's new patent, for instance, protects a technology ensuring that VoIP phones don't take up any network capacity when the devices are disconnected (see BusinessWeek.com, 7/10/06, "Internet Telephony: Coming in Clear").

Patent Battles

But even as the wave of patents and possible investment in VoIP spawns innovation and new sales opportunities for tech titans, it's also likely to breed something else: litigation. Since 2005, VoIP pioneer Vonage (VG) has been battling five patent infringement lawsuits, including those from Sprint Nextel (S) and Verizon (VZ).

An outfit called Klausner Technologies has already sued AOL over VoIP and received a settlement. In June, Klausner filed a multimillion dollar lawsuit in the U.S. District Court for the Eastern District of Texas against Vonage, which denies any patent infringement.

Lawsuits brought by deep-pocketed traditional telecom companies could be particularly nettlesome for newer VoIP players. "This patent litigation is just a tool in this market-share battle," says Greg Dovel, co-founder of Dover & Luner law firm in Santa Monica, Calif. "The stakes are extremely high. Telecoms want to dominate their competitors who are ahead in VoIP."

Chances are, many patent battles will be fought outside the courtroom. Patent holders are likely to use their intellectual property portfolio to extract concessions on cross-licensing deals, where one company may share its VoIP expertise in exchange for use of another company's patented technology, says VoIP expert Jeff Pulver. "It's certainly going to be something somebody could use against somebody."

Kharif is a reporter for BusinessWeek Online in Portland, Ore.