Vonage Ordered To Pay Verizon In Patent Case

By Alan Sipress
Washington Post Staff Writer
Friday, March 9, 2007

A federal jury in Alexandria yesterday ordered Vonage Holdings, an Internet telephone company, to pay $58 million to Verizon Communications for infringing its patents in a case that raised the possibility that Vonage could be barred from conducting much of its business.

Verizon asked the court yesterday to issue a permanent injunction preventing Vonage from using the technology for connecting its Internet network to the public telephone system. If the order is granted, Vonage's 2.2 million customers could be limited to using the service to communicate only with one another. A federal judge has scheduled a March 23 hearing on Verizon's request.

Vonage's phone calls run over high-speed Internet lines and are marketed as a cheap substitute for traditional local phone service, which is a large part of Verizon's business. Vonage argued that Verizon filed the suit in an attempt to stifle competition.

"We are proud of our inventors and pleased the jury stood up for the legal protections they deserve," said John Thorne, Verizon's senior vice president and deputy general counsel.

In ruling against Vonage, the jury found that the New Jersey company had violated three patents, most notably one for the technology linking the Internet telephone network with ordinary telephones. The jury also ruled that Vonage had infringed Verizon patents related to call forwarding and wireless handsets.

In addition to the award for past damages, the jury ordered Vonage to pay future royalties of 5.5 percent for the patented technologies if the company is allowed to continue using them.

Rebecca Arbogast, an analyst with Stifel Nicolaus, said an injunction against Vonage was likely, though a Supreme Court ruling last year gave judges in patent cases more latitude not to impose such severe measures. She predicted that the jury's verdict would have little effect on companies other than Vonage but that the ruling might offer an opportunity to smaller Internet competitors if Vonage is forced from the market.

Verizon sued last year, alleging that the Internet challenger had violated five patents, including two related to billing, and asked the court to award triple damages on the grounds that the infringement was willful. The jury ruled that the violation was not willful and awarded Verizon far less than the $197 million it had sought.

In a written statement, Vonage spokeswoman Brooke Schulz said the company was "delighted" that the jury had found no violation of the two billing patents and would appeal the rest of the verdict.

"If the trial court does impose an injunction, we will seek an immediate stay from the Federal Court of Appeals," she said. Schulz said Vonage customers could expect their service to remain unaffected.

The company's stock fell to a record low close after the verdict. Vonage, which went public last year at $17, closed at $4.86 yesterday on the New York Stock Exchange, down nearly 4 percent.

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