The Patent System

Broken?

Vonage, a leading Internet telephony company, appears before a federal appeals court today to argue that it should be allowed to continue signing up new customers while it appeals the recent verdict that its products infringe three of Verizon's patents. A Virginia jury last month ordered Vonage to pay Verizon $58 million for infringing the patents, and Vonage was barred from signing up new customers. Given Vonage's precarious financial position, a permanent ban on signing up new customers would effectively be a death sentence for the company.

The case raises some troubling questions about America's patent system, which seems to allow a deep-pocketed incumbent to drive an innovative competitor out of business. Vonage pioneered the Internet telephony market, and has enticed more than two million customers away from Verizon and other telephone industry incumbents. But while Verizon hasn't been able to stop Vonage's momentum in the marketplace, they've found more success in the courtroom.