Judge Offers Plan to Keep Vonage Afloat

By Kim Hart
Washington Post Staff Writer
Tuesday, June 26, 2007

Vonage, an Internet phone company, may receive a temporary lifeline as it struggles to survive a patent dispute with Verizon Communications.

In the final minutes of oral arguments yesterday, a federal judge suggested a compromise that could allow Vonage to sign up customers while it develops technologies that do not infringe Verizon's patents.

"When the injunction could put a company out of business, shouldn't [the court] allow time for a work-around?" asked Timothy B. Dyk, one of three judges considering Vonage's appeal before the U.S. Court of Appeals for the Federal Circuit. "Shouldn't the court consider whether the injunction should be framed in such a way that would allow reasonable time for this?"

The panel is expected to issue a decision by early August.

The proposal came after Vonage made its latest plea to reverse a March jury verdict that found that the company had infringed three Verizon patents. Vonage was ordered to pay $58 million and future royalties. In April, a U.S. district court in Alexandria ruled that Vonage could no longer use the crucial technology that connects its online network to the public telephone system and barred the company from signing new customers -- a decision that could destroy Vonage, which has yet to turn a profit.

Vonage has said it is working to design a work-around technology that would allow it to keep operating without treading on Verizon's patents, but it warned that it could be a lengthy process. The New Jersey company, which has since laid off 10 percent of its staff and lost its chief executive, also told the court that it faced "a real risk of insolvency" if barred from acquiring new customers.

Richard G. Taranto, an attorney for Verizon, said that such a compromise should come with a time limit and that Vonage should have to prove that additional time would produce an acceptable alternative that does not infringe Verizon's patents.

Roger Warin, representing Vonage, said the company could accept the allotment of more time but emphasized that Vonage wants the jury's verdict thrown out. He argued that the wording used to describe the disputed patents during the trial was ambiguous and that as a result, the jury did not have enough information to return a valid verdict.

Taranto said Vonage should have objected to the wording during the trial.

With the exception of Dyk's proposed injunction, yesterday's hour-long hearing centered on the language of the patent claims -- a sign that Vonage's future may hinge on semantics.

"I think the fact that they spent so much time on this extremely arcane procedural issue suggests the case could turn on that," said Rebecca Arbogast, an analyst with Stifel Nicolaus.

She said she does not expect the court to grant a new trial but said it could grant a stay on the injunction, "which would give Vonage ample time to come up with a work-around."

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