Vonage, Verizon And a Patent Showdown

Verizon Communications’ patent lawsuit against Internet
phone company Vonage got underway this week with both
sides disputing whether the broadband phone service unfairly grew at the
expense of traditional telecommunications.

In court, Vonage refuted Verizon lawyer Daniel Webb’s charges that the disputed VoIP patents “lured” landline customers away.

“Verizon has lost millions of customers, and they’ve lost them for a
variety of reasons, not because of Vonage,” Vonage attorney Roger Warin
told the Virginia jury.

A person familiar with the situation, who asked not to be identified, told
internetnews.com that the company was developing a workaround for five VoIP patents Verizon claimed were infringed. The workaround would enable subscribers to continue using the service. Verizon is reportedly asking for more than $197 million in damages.

Verizon sued
Vonage last year, asking a federal court to stop Vonage using patents that the phone company claims were stolen. “Vonage has
gained 1.1 million new customers — many of whom are Verizon’s former
customers,” the New York telecom wrote in amended court papers filed
last month.

Whatever the trial’s outcome, subscribers won’t be hurt, insisted Vonage.

Yankee Group analyst Pat Monaghan disagrees. The trial
“could eventually mean the end of Vonage,” he said. If the legal battle
detracts from Vonage’s goal for profitability in 2008, investors could
dump the stock, Monaghan told internetnews.com. “Vonage is in a race to become profitable.”

Vonage controls about one-fifth of the 8.5 million VoIP subscribers in
2006, according to Yankee Group. Compared to the growing number of cable
companies entering the Internet phone market, “Vonage is the smallest
fish in the pond,” said Monaghan.

As VoIP is predicted to nearly double to 14.5 million U.S. subscribers,
Verizon finds its landline business stagnating, IDC research director
Will Stofega told internetnews.com.

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