Vonage Avoids the Death Penalty, But Can't Sign up New Customers

Michael Lindenberger

Vonage's 2.2 million phone customers won't have dead lines after today, thanks to a ruling by a federal judge that allows the company to continue servicing existing customers while it appeals a $58 million patent infringement verdict it lost last month to Verizon.


That's good news for current customers, but the ruling could have dire consequences for Vonage, which is now barred from seeking any new customers unless it can do so without infringing on Verizon's patents, according to news.com. The article reports that Vonage says it is currently losing about 2.5 percent of its customers per month.


An attorney for Vonage, Roger Warin, said U.S. District Judge Claude Hilton's order was like "cutting off the oxygen as opposed to a bullet to the head," news.com reported. In effect, he said, "what you are doing is slowly strangling Vonage because it cannot preserve that customer base."


The judge could have ruled, as Verizon initially requested, that all services be stopped immediately -- an order that would have been tantamount to putting Vonage out of business. Instead, he agreed to wait until today to officially enter the ruling, and when he did so offered a modified injunction that provides some hope for Vonage.


Hilton reminded both sides they are free to appeal to the U.S. Court of Appeals -- something they could do immediately to challenge the injunction, or as part of the slower appeal Vonage is sure to make challenging the original verdict. Meanwhile, it's possible that Vonage could develop a technological workaround that would allow it to somehow add new customers in a way that would not would infringe upon Verizon's patents.


As fellow IT Business Edge blogger Carl Weinschenk has pointed out, it's the injunction that carries the sledgehammer in this courtroom defeat. $58 million for a company like Vonage is no chump change, but it's easier to swallow than a put-you-out-of-business court order. As for the wider impact of the decision -- with or without the killer injunction -- observers are still waiting to see. Jon Arnold of J. Arnold & Associates told IT Business Edge in an interview that the impact won't be known for sure until after the judge hears from Vonage on Monday.

Verizon is going after Vonage probably for legitimate reasons in terms of patent infringement. [But], if you uphold all these patents, it gives Verizon a very strong position in the market for controlling the technology. A lot of other pure-play VoIP providers operate much like Vonage. ... It's hard for me to conclude that Vonage is the only one that is at risk.

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