Here Comes Trouble: An Antidote to Software Patents
The $250 million Vonage burned through as a result of the patent lawsuit brought by Verizon et al provides yet another example of why patents for business processes implemented on computers (a.k.a. software patents) deserve to die.
Context & Ripple Effects
Vonage spent 2007 fighting for its life over VoIP business-process patents: an April court ruling its own lawyer called a 'bullet to the head', followed by a summer of existential coverage in GigaOM's 'Last Stand' piece as lawsuits from Verizon, Sprint Nextel and Nortel stacked up.
The year ended with the legal pressure easing — a licensing deal with Sprint in October, then a December cross-license settlement with Nortel in which no money changed hands. This piece closes the loop by totaling the damage: roughly $250 million burned on litigation, which the author offers as Exhibit A for why patents on computer-implemented business processes deserve to die.
First-order effects
- Vonage enters 2008 with roughly $250 million less to spend on pricing and marketing against cable telephony rivals, after converting courtroom threats into settled licenses with Sprint Nextel and a payment-free cross-license with Nortel.
Second-order effects
- Every other young VoIP operator now faces the same playbook from incumbent carriers holding thick patent portfolios — settle and pay up, or burn cash defending claims — making patent litigation a structural entry tax on the sector.
Third-order effects
- If litigation-to-settlement becomes the default resolution path, defensive cross-licensing networks will favor deep-pocketed incumbents over startups, sharpening exactly the abolitionist argument about business-process patents this article makes.
The trend: Patent litigation over computer-implemented business processes is functioning as a cash-burning tax on young telecom companies, moving arguments for abolishing software patents from the fringes toward mainstream debate.