Court Bars Vonage From Signing New Customers

UPDATED: VoIP provider tells judge decision will have the effect of slowly strangling the company.

By Roy Mark | Posted Apr 6, 2007
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UPDATED: ALEXANDRIA, Va. - Vonage is barred from signing up new customers during its appeal of a March 8 jury decision that the Internet telephone company infringed on three Verizon patents.

U.S. District Judge Claude Hilton, who issued a permanent injunction against Vonage from using the infringed Verizon technology two weeks ago pending Vonage's full stay appeal, said he viewed his ruling as a compromise.

"[The injunction] effects only new customers and allows Vonage to operate with its current customer base," he said. "It keeps [Vonage] from taking more clients from Verizon."

Vonage attorney Roger Warin told Hilton the partial stay is as "harmful as no stay at all. It's like cutting oxygen as opposed to a bullet in the head." Noting Vonage's churn rate of 650,000 a year, Warin said the partial stay would "in effect slowly strangle Vonage. You have not preserved the status quo."

The technology in question allows Vonage to connect its Voice over IP (VoIP) calls to the public telephone system. Warin said Vonage would appeal the partial stay, along with its appeal of the jury decision and damage award of $58 million, to the federal court of appeals.

Hilton also ordered Vonage to post a $66 million appeals bond. Verizon also wants Hilton to force Vonage to post an additional $168 million bond that would cover potential losses to Verizon while Vonage uses the infringed technology during its appeal. Hilton said he would rule on that motion next Thursday morning.

"[The partial stay] allows Vonage to infringe our patents over the next 18 months or so. We are entitled to that amount," Verizon attorney Daniel Webb told Hilton. "We should be secure during the period of appeal." Warin dismissed Verizon's claims as based on "speculative profits."

In lieu of the Verizon's proposed $168 million bond, Warin said Vonage was willing to pay a 5.5 percent royalty for each of the company's 2.2 million customers into a quarterly escrow account.

Verizon praised the decision and predicted victory in the appeals court. John Thorne, Verizon's senior vice president and deputy general counsel said in a statement Hilton found a "middle path" protecting Verizon from ongoing infringement while allowing Vonage to continue serving it customers. Vonage is studying the decision before issuing a statement.

Verizon sought a full permanent injunction, since it claims money alone doesn't make the nation's second-largest telephone company entirely whole from Vonage's infringement. Verizon contends Vonage's service has drained more than a million customers away from Verizon, and that Vonage's precarious financial situation might put it in a position of being unable to pay the infringement judgment.

In June, Verizon filed suit against Vonage, claiming several instances of infringement, including inventions relating to "gateway interfaces between packet-switched and circuit-switched network, which is critical to implementing viable VoIP telephony."

Other patents named in the suit include solutions for fraud detection, services such as call forwarding and voicemail, and methods relating to the use of wireless handsets over a VoIP network. The jury ultimately decided Vonage infringed on three of the five patents cited by Verizon.

This story was updated to add a comment from Verizon.

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