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Chronicles

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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.

GigaOM Daniel Berninger

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.