Re: Judge Hits Vonage With Injuction; Stop Using Verizon Technology

By Peter Kaplan

> A federal judge dealt a blow to Vonage Holdings Corp. that sent its > stock reeling on Friday, when he agreed to bar the company from > usingInternet phonecall technology patented by Verizon > Communications Inc. > Vonage said it was confident its customers would not experience > service interruptions, but investors sent its shares down nearly 26 > percent. > U.S. District Judge Claude Hilton said he would delay signing the > order for two weeks to give Vonage time to try to convince him to stay > the injunction while it appeals the entire patent infringement > case. "I will sign the injunction at the time I rule on the stay," > Hilton said at a hearing. > Hilton agreed with Verizon that it would suffer irreparable harm if he > allowed continued infringement of the Voice-over-Internet Protocol > (VoIP) technologies that allow consumers to make calls over the Internet. > He rejected arguments by Vonage that the harm to Verizon, the No. 2 > U.S. telephone company, was outweighed by other factors, including > the public interest. > "I don't think it's going to kill Vonage," said Albert Lin, an analyst > at American Technology Research. But he said the legal costs and > management distractions were disruptive. > Vonage has been public for less than a year, and its stock has lost > value consistently since its initial public offering at $17 a share in > May. It reached a new low Friday, closing down $1.05 at $3 per share > on the New York Stock Exchange. > Vonage said the patent battle was far from over and the company would > vigorously defend itself. > "Despite this obvious attempt by Verizon to cripple Vonage, the > litigation will not stop Vonage from continuing to provide quality > VoIP service to our millions of customers," Vonage chief executive > Mike Snyder said in a statement. > OPERATING CHALLENGES > Vonage has previously said it is working on redesigned technologies to > avoid infringing Verizon's patents. > "It should likely continue as an independent company, but their > operating challenges will have increased," said Stanford Group analyst > Clayton Moran, who also warned that Vonage's subscriber growth could > slow. > A jury on March 8 found Vonage had infringed three patents owned by > Verizon. The jury said Vonage must pay $58 million plus 5.5 percent > royalties on future sales. > "They could not have been commercially successful if they had not > taken these patents we have and put them into their technologies," Dan > Webb, an attorney for Verizon, said at Friday's hearing on the > injunction request. > Webb also cited documents Vonage filed with the court under seal, > saying an injunction would cause "enormous business difficulties" for > Vonage. Webb said the Vonage filings suggested that Vonage "can't > live with an injunction because of the way their technology is > designed." > Vonage's chief lawyer, Sharon O'Leary, declined to comment on the > sealed documents. > "We will get the stay, either through the district court or the > Federal Circuit Court of Appeals," O'Leary told Reuters outside the > court. > One patent lawyer told Reuters that Vonage has a chance of winning an > appeal, but it was crucial to get a stay of the injunction. > "A one-and-a-half to two-year injunction, even if they win on appeal, > could be very significant to Vonage," said John Rabena, a partner with > the firm Sughrue Mion. > (Additional reporting by Ritsuko Ando in New York) > Copyright 2007 Reuters Limited.

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