Vonage Wins Stay in Verizon Dispute

By Alan Sipress
Washington Post Staff Writer
Wednesday, April 25, 2007

A federal appeals court ruled yesterday that Vonage Holdings, the leading Internet telephone provider, can continue doing business as usual while it seeks to overturn a lower-court ruling that it violated three patents belonging to Verizon Communications.

Roger Warin, an attorney for Vonage, told the court that the company faced a "real risk of insolvency" if barred from selling its service to new customers, as a lower court ordered earlier this month. He asked the three-judge panel to extend an emergency reprieve allowing the company to continue adding new customers.

Less than two hours later, the appeals court ruled in favor of Vonage and scheduled a June 25 hearing on the appeal itself.

"We thank the appellate court for its thoughtful consideration of the merits of our case," Vonage chief executive Jeffrey A. Citron said in a statement. "We remain focused on growing and strengthening our business and driving toward profitability."

The decision by the U.S. Court of Appeals for the Federal Circuit, a special court established to hear patent case appeals, marks the latest chapter in Vonage's struggle to survive after a U.S. district court in Alexandria ruled last month that the company could no longer use a crucial technology that connects its online network to the public telephone system.

The district court judge had granted Vonage a partial reprieve, saying it could temporarily continue serving existing customers but could not sign up new ones.

While Warin told the appeals court that Vonage's viability was on the line, he added that Verizon could benefit if his company were allowed to continue signing up new customers. The reason: Vonage could pay Verizon royalties on the new business under the district court ruling.

Most of the nearly two-hour hearing centered on a dispute between the companies over how the lower-court judge defined the language in Verizon's patent claims.

Vonage's appeal is based on its contention that Verizon's rights were defined too broadly in instructions to the jury. Though the appeal has yet to be heard, Vonage had to persuade the judges yesterday that it has good prospects for overturning the lower-court ruling and is thus deserving of a temporary reprieve.

In a filing with the Securities and Exchange Commission last week, Vonage said it could face bankruptcy and liquidation if its appeal fails.

Vonage also reported that it was continuing to work on designing an alternative technique to avoid Verizon's patented technology but that this approach may take months to put in place, if it succeeds at all. The company warned that such a work-around could disrupt service for existing customers and may not be compatible with all current features.

© 2007 The Washington Post Company