VoIP Patents: Innovation—and Lawsuits

New patents scored by Nokia, IBM, and others should revolutionize Internet-calling, and breed legal battles for control of that red-hot market

11/17/2006 By Olga Kharif

The Patent & Trademark Office is approving patents aplenty for Internet-based calling. On Nov. 14 alone, it handed out a patent on what IBM calls a "conversations computing system," and granted chipmaker Intel a patent for a computer-based phone "eliminating the need for a telephone set."

Those were among dozens of patents granted on two separate days in November to companies including Texas Instruments (TXN), Motorola (MOT), and Nokia (NOK). In October, the PTO gave an additional 76 patents to the likes of Qualcomm (QCOM), Nortel (NT), Broadcom (BRCM), Time Warner's AOL (TWX), and NTT DoCoMo (DCM) of Japan.

In all, the U.S. has to date issued 2,049 patents related to Voice over Internet Protocol (VoIP), a technology that enables low-cost or free calling using the same method that zips e-mail around the Internet.

Up-and-Coming Market
The bumper patent crop indicates the proliferation of a technology that began trickling into the mainstream only around 2004. In-Stat predicts that IP phone shipments will rise to 146 million units in 2010, from 10 million in 2006. "It's an up-and-coming market, and it's a good place to invest" research and development dollars, says Brian Glinsman, general manager of the communications infrastructure and voice business at Texas Instruments. He says Texas Instruments usually devotes about 15% of sales to research and development—though the figure is higher when it comes to the percentage of VoIP sales devoted to VoIP-related R&D.

Those investment dollars are likely to translate into a range of VoIP-related computer chips, devices, and services in the coming years—good news for a technology that's still riddled by glitches like echo and static that undermine consumer and corporate confidence in VoIP (see BusinessWeek.com, 11/28/06, "VoIP Providers: Heeding the Call?").

Chipmaker Intel (INTC) has received a handful of VoIP-related patents recently. At first glance, a push into VoIP may seem odd for a company that recently threw in the towel on another communications business when it sold a wireless-chip operation to Marvell (MRVL) (see BusinessWeek.com, 9/06/06, "Intel Digs Out From a Pile of Chips"). But in order to revive growth and fend off accelerating competition from Advanced Micro Devices (AMD), Intel needs to integrate new capabilities into its own semiconductors. Why not weave in Web calling?

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.