Vonage Wins Temporary Reprieve

Vonage can continue to sign up new customers for at least another week under a temporary reprieve granted late Friday afternoon by a U.S. Court of Appeals. The stay reverses a lower court decision earlier in the day that Vonage attorneys said amounted to a “bullet to the head.”

Friday morning, U.S. District Judge Claude Hilton said he would impose an injunction effective Thursday cutting off Vonage’s ability to acquire new customers during its appeal of a March 8 infringement judgment won by Verizon . The Court of Appeals will decide April 13 if it will keep the stay in place.

Hilton’s ruling was in response to Vonage’s motion to stay a permanent injunction against any infringement of the Verizon patents by Vonage ordered by Hilton two weeks ago. Hilton issued the injunction after a jury awarded Verizon $58 million and a royalty rate of 5.5 per cent for infringing on Verizon’s patents.

The infringed technology allows Vonage to connect its Voice over IP (VoIP) calls to the telephone network. Without use of the technology, which Vonage admits it can’t readily quit using and continue to serve its customers, the Internet telephone company would likely collapse.

Instead of imposing the full injunction sought by Verizon, Hilton decided to allow Vonage to continue servicing its existing customer base. “[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.”

Hilton also ordered Vonage to post a $66 million appeals bond. Verizon is also seeking an additional $168 million bond protecting its interests while Vonage uses the infringed technology during the appeals process.

Verizon claims the Holmdel, N.J.-based Vonage has taken away more than a million customers from the nation’s second largest telecom, which also operates it own VoIP service.

Attorneys for both Vonage and Verizon protested Hilton’s partial stay of the injunction.

Noting Vonage loses 650,000 customers a year, Vonage attorney Roger Warin said the inability to recruit new business is as “harmful as no stay at all. It’s like cutting off oxygen as opposed to a bullet in the head.”

Verizon attorney Daniel Webb said Verizon deserves to be protected during the appeal. “[The partial stay] allows Vonage to infringe our patents over the next 18 months or so. We are entitled to that amount,” he said.

In an official statement, Verizon praised the decision and predicted victory in the appeals court. John Thorne, Verizon’s senior vice president and deputy general counsel said Hilton found a “middle path” protecting Verizon from ongoing infringement while allowing Vonage to continue serving it customers.

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