Verizon Sues to Shut Down Vonage

Verizon (Quote, Chart) is claiming in a suit that Vonage (Quote, Chart) has stolen its patented voice-over-IP (VOIP)   technology and is asking the court to prevent Vonage from continuing to do so.

The filing is the latest legal headache for Vonage, coming in the wake of class-action suits from customers who claim Vonage violated stock security rules.

If Verizon prevails, Vonage would have to pay royalties to the phone service provider, find another way of providing its service or risk going out of business.

Verizon is not merely claiming that Vonage has infringed on patents allowing to offer value-added services; it is arguing that Vonage has stolen the nuts and bolts of the business.

Verizon cited several instances of infringement, including inventions relating to, “gateway interfaces between packet-switched and circuit-switched network, which is critical to implementing commercially-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.

Piling insult to injury, the complaint, filed with the U.S. District Court for the Eastern District of Virginia last week, uses information contained in Vonage’s own IPO filing to muster many of its arguments.

The lawsuit comes like a bolt out of the blue for Vonage. In a statement released today, Vonage noted that it was not confronted by Verizon before the suit was filed.

Observers said this in itself was surprising.

Bobbi Henson, media relations director with Verizon, told that she couldn’t comment beyond the words of the filing itself.

In the filing, Verizon noted that Vonage has gained 1.1 million new customers in the last 15 months, “many of whom are Verizon’s former customers.”

The complaint also noted that Vonage scooped up 350,000 new subscribers in the first quarter of 2006 alone, and has spent over $400 million on advertising and marketing since its inception — all of which it found in the May 24, 2006 filing.

Verizon also claims in the suit that Vonage has no patents or intellectual property of its own. But Vonage countered that its services “have been developed with its own proprietary technology and technology licensed from third parties.”

In addition to traditional telephony services, Verizon has been marketing its own VoIP product, VoiceWing.

Legal experts reached by would not be quoted directly because they are not familiar with the details of the case, but did say that plaintiffs in such cases can bolster their arguments by demonstrating that one of their products or services have been harmed as a direct consequence the infringement.

They also noted that Vonage would likely file a countersuit arguing that Verizon’s patents rely on previously existing knowledge, and that its use of that knowledge doesn’t constitute infringement.

Joe Laszlo, who follows the VoIP market for Jupiter Research, said that it’s hard to see how Vonage infringed on patents when most VoIP technology is derived from SIP .

“That’s the nice thing about having a standard,” he noted.

Verizon is asking the court for damages, in addition to a “permanent injunction… restraining and enjoining Defendants” from “making any further sales or use of their infringing products and services.”

Vonage said that it would “vigorously defend the lawsuit.”

Shares of Vonage fell almost 12 percent on the news, while those of Verizon lost just 1 percent, in line with the rest of the market.

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