Setback for Vonage in U.S. Court

Apr 08, 08:51 AM

Current Headlines: A U.S. judge has banned Vonage, the Internet telephone company, from signing up new customers while it appeals a ruling that it infringed on three patents held by Verizon Communications. The decision Friday also requires Vonage to post a $66 million bond.

In March, a jury found that Vonage, based in Holmdel, New Jersey, had infringed on the Verizon patents and should pay $58 million. Verizon, a telecommunications company based in New York, said that Vonage had lured away 600,000 customers by copying technology like voice-mail features, as well as the method for allowing Internet calls to reach traditional phone lines.

The latest ruling is like "cutting off oxygen as opposed to a bullet in the head," a Vonage lawyer, Roger Warin, said, adding that it would "in effect slowly strangle Vonage."

Rebecca Arbogast, an analyst with Stifel Nicolaus, said the order was a blow to Vonage and its existing 2.2 million customers. "If they can't get new customers, I think it's going to be tough to attract capital," she said.

Vonage has said it expects to get a 120-day stay from a U.S. District Court judge or an appellate court. The company is certain to immediately appeal Hilton's ruling, lawyers said.

Winning a stay would give Vonage time to develop technology that handles the same tasks as the inventions at issue in the lawsuit without infringing on Verizon's patents.

That may help assure customers and investors that the company can endure its legal battle with Verizon.

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