VoIP versus the Patent System

by on March 27, 2007 · 14 comments

Mike Masnick warns that the future of VoIP is in jeopardy:

You have to wonder how many times fans of the patent system have to repeat the mantra that “patents encourage innovation” before they can actually believe it. There continues to be new evidence on nearly a daily basis of patents doing the exact opposite that it’s hard to believe the patent system retains as many supporters as it does. The latest is that a ton of patent holders are preparing to sue over various VoIP-related patents, following the news of Verizon’s big win over Vonage for VoIP patents. The problem, of course, is that tons of companies (some big, some small) all claim patents on various aspects of VoIP — creating the very definition of the “patent thicket.” That is, there are so many patents around the very concept of VoIP that no one company can actually afford to offer a VoIP service, since the cost to license all the patents is simply too prohibitive. Expect plenty more lawsuits in the near future as this all comes out in court. The big players will use their patents to keep out competition, and the small players will use the patents to try to create an NTP-style lottery ticket. The lawyers will all win — but consumers who just want to use VoIP will lose big time. What’s wrong with letting companies simply compete in the marketplace and letting the natural forces of competition encourage innovation? Instead, we get patent holders trying to hold back competition and hold back innovation.

I think critics of the patent system need to be careful about over-stating our case. I don’t think software patents will destroy the VoIP industry. Rather, they will serve as a steady drag on the industry, raising the cost of doing business and forcing innovative upstarts to spend their money hiring lawyers rather than engineers. This will, in turn, tilt the playing field to Verizon’s benefit.

Most likely the result will be that small, entrepreneurial firms will be squeezed out of the market, leaving a bifurcated market between large, deep-pocketed incumbents on the one hand, and decentralized open source projects and overseas firms on the other. Tech-savvy Americans will have no trouble finding and installing innovative VoIP solutions, but for the vast bulk of Americans, they’ll have to use whatever Verizon and other patent-heavy firms choose to dish out. (It’s an interesting question what will happen to firms like Skype, Apple, AOL, and Google that offer “pure Internet” voice calling and have not, to date, made a significant dent on the telephone market)

What this case makes crystal clear is that there’s no appreciable connection between which innovating and getting patents. No one would argue that Verizon has been more innovative than Vonage in the VoIP market, yet because Verizon has spent more money filling for patents in recent years, Vonage is placed in the ridiculous position of paying Verizon for the privilege of using Verizon’s “inventions.”

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About Tim Lee

Timothy B. Lee (Contributor, 2004-2009) is an adjunct scholar at the Cato Institute. He is currently a PhD student and a member of the Center for Information Technology Policy at Princeton University. He contributes regularly to a variety of online publications, including Ars Technica, Techdirt, Cato @ Liberty, and The Angry Blog. He has been a Mac bigot since 1984, a Unix, vi, and Perl bigot since 1998, and a sworn enemy of HTML-formatted email for as long as certain companies have thought that was a good idea. You can reach him by email at leex1008@umn.edu.

Read more articles by Tim Lee.

  • http://techdirt.com/ Mike Masnick

    Yeah, I should have been clearer… I didn’t necessarily mean that it will “kill” VoIP — as VoIP won’t go away. My worry, though is about what new VoIP-related innovations are not going to be created thanks to this mess.

  • http://techdirt.com/ Mike Masnick

    Yeah, I should have been clearer… I didn’t necessarily mean that it will “kill” VoIP — as VoIP won’t go away. My worry, though is about what new VoIP-related innovations are not going to be created thanks to this mess.

  • http://bennett.com/blog Richard Bennett

    What this case makes crystal clear is that there’s no appreciable connection between which innovating and getting patents.

    I missed the proof for that proposition.

  • http://bennett.com/blog Richard Bennett

    What this case makes crystal clear is that there’s no appreciable connection between which innovating and getting patents.

    I missed the proof for that proposition.

  • http://www.techliberation.com/ Tim Lee

    Richard, my point was that Vonage appears to be far and away the more innovative company in the VoIP marketplace, and so if the patent system were working well we’d expect Vonage to hold key patents and Verizon to have to pay them for them. Instead, we have the reverse situation: the sclerotic incumbent using its legal firepower to slow down a more nimble competitor.

  • http://www.pff.org Noel Le

    Tim, you assume that patents and innovation have a 1-1 correlation. Nobody argues that, however, this assumption underlies most of your patent of the week series as far as I see.

    Your assumption actually would lead to the conclusion that the more patents, the more innovative a firm is. In other words, you assume that nuclear stockpiling represents a well functioning patent system.

  • http://www.techliberation.com/ Tim Lee

    Richard, my point was that Vonage appears to be far and away the more innovative company in the VoIP marketplace, and so if the patent system were working well we’d expect Vonage to hold key patents and Verizon to have to pay them for them. Instead, we have the reverse situation: the sclerotic incumbent using its legal firepower to slow down a more nimble competitor.

  • http://www.techliberation.com/ Tim Lee

    Noel, I’m assuming that patents are supposed to reward companies that invent things that lead to the creation of useful products. Although it’s certainly conceivable that Verizon made some breakthrough inventions but was unable to bring them to market in a timely manner, that doesn’t seem very likely. Verizon’s not exactly a cash-starved startup. More likely, I suspect, is that Verizon has a lot of patents because it has a lot of lawyers, not because it has invented anything particularly novel or useful.

  • http://www.pff.org Noel Le

    Tim, you assume that patents and innovation have a 1-1 correlation. Nobody argues that, however, this assumption underlies most of your patent of the week series as far as I see.

    Your assumption actually would lead to the conclusion that the more patents, the more innovative a firm is. In other words, you assume that nuclear stockpiling represents a well functioning patent system.

  • http://www.techliberation.com/ Tim Lee

    Noel, I’m assuming that patents are supposed to reward companies that invent things that lead to the creation of useful products. Although it’s certainly conceivable that Verizon made some breakthrough inventions but was unable to bring them to market in a timely manner, that doesn’t seem very likely. Verizon’s not exactly a cash-starved startup. More likely, I suspect, is that Verizon has a lot of patents because it has a lot of lawyers, not because it has invented anything particularly novel or useful.

  • http://bennett.com/blog Richard Bennett

    Tim Lee, you appear to be blissfully unaware of the fact that Verizon sells a VoIP product in connection with its FiOS service. If it appears to you that Vonage is more “innovative” with its me-too VoIP service than Verizon is with its cool network, you’re probably not seeing a whole lot of the big picture.

  • http://bennett.com/blog Richard Bennett

    Tim Lee, you appear to be blissfully unaware of the fact that Verizon sells a VoIP product in connection with its FiOS service. If it appears to you that Vonage is more “innovative” with its me-too VoIP service than Verizon is with its cool network, you’re probably not seeing a whole lot of the big picture.

  • http://www.techliberation.com/ Tim Lee

    I will admit I haven’t used either offering, so my judgment could be off. Did Verizon roll its VoIP offering out before Vonages? Does it have features Vonage’s offering doesn’t?

  • http://www.techliberation.com/ Tim Lee

    I will admit I haven’t used either offering, so my judgment could be off. Did Verizon roll its VoIP offering out before Vonages? Does it have features Vonage’s offering doesn’t?

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