The Vonage Trilogy: A Case Study in 'Patent Bullying'

Abstract

This Article presents an in-depth case study of a series of infringement suits filed by “patent bullies.” Unlike the oft-discussed “patent trolls” — which typically sell no products or services and perform no R & D — patent bullies are large, established operating companies that threaten or institute costly patent infringement actions of dubious merit against smaller companies, usually in order to suppress competition or garner licensing fees. In an ideal world of high-quality patents and optimal patent licensing and litigation, infringement suits by aggressive incumbents would have a cleansing, almost Darwinian effect. Yet, defects and distortions in patent examination, licensing, and litigation — the very problems that are raised constantly in the context of patent trolls — generally apply with equal and, often, greater force to patent bullies. Nonetheless, patent bullies have scarcely been discussed in the academic literature or popular press, especially in recent years.More specifically, this Article examines three patent infringement suits filed by incumbent telecommunications carriers — Sprint, Verizon, and AT&T — against Vonage, then an early-stage company providing consumer telephone services over the Internet. Based on a detailed analysis of the patents-at-issue, prior art, court documents, and news accounts, it shows that the incumbents were able to exploit defects in the patent system in order to prevent disruptive technologies from competing with their outmoded products and services. Because startups like Vonage typically lack the resources to vigorously defend against even weak patent suits, patent bullying can result in severe anti-competitive effects. The incumbents in the Vonage suits achieved their intended result — drastically reducing Vonage’s stock price, severely weakening its position in the market, and placing it at the brink of insolvency. This case study demonstrates that further theoretical and empirical study is warranted to assess the full extent of the patent bullying problem.