Recent Lawsuit Decision Threatens US Prepaid Wireless Market.

Yankee Group revealed that the May 2005 decision against Boston Communications Group Inc. (BCGI) and its codefendants, Cingular Wireless and Western Wireless—and the subsequent $128 million awarded to the plaintiff, Freedom Wireless—has severely hobbled the development of prepaid cellular phone service in the US.

According to the Yankee Group Report, Emerging US Prepaid Market Takes Major Blow from Patent Infringement Lawsuit Damages Award, the US prepaid wireless market and its vendors, already behind international counterparts in total market penetration, received a significant setback by the recent lawsuit decision.

BCGI was found guilty of patent infringement for its prepaid billing process even though no Freedom Wireless designs were employed or referred to in the development of BCGI’s systems. The ruling awarded to Freedom Wireless, a four-employee company with no business operations, services, software or products for sale, affects one-fourth of BCGI’s prepaid business and threatens the company and its 400 employees with bankruptcy. This is merely the beginning for Freedom Wireless and its lawsuits. It has already filed suit against Nextel and Alltel, and the May 2005 decision could lead to action against other vendors and service providers, including Ericsson, Telcordia, Lucent, VeriSign, Alcatel and Intervoice.

“The US prepaid wireless market landscape has been severely altered from this recent decision,” said Keith Mallinson, Yankee Group, executive vice president, Wireless/Mobile Technologies. “The example set by this broad interpretation on Freedom Wireless’ patents will not only harm prepaid billing vendors and wireless providers but it will also languish consumer adoption.”

Yankee Group suggests that the Court recognize the small role Freedom Wireless’ intellectual property plays in the overall billing capacity and the even smaller role it has in the entire cellular service offered to customers by wireless operators. In addition, carriers and technology vendors must fight vigorously to eliminate or minimize royalty charges on infringing billing processes if Freedom Wireless’ patents cannot be proven invalid.