Verizon Sues Vonage in Patents Dispute

Vonage, the Internet telephone startup, said today that it was being sued by Verizon Communications in a dispute over the underlying technology that allows voice calls to be delivered over the Internet. The lawsuit adds a new challenge for Vonage, which has seen its stock price slide precipitously since it went public last month.

Vonage's shares, which were initially sold for $17, fell as low as $8.45 this afternoon, more than 11 percent below Friday's close.

In its latest challenge, Vonage is being accused by Verizon of violating "at least" seven patents, according to the complaint, which was filed June 12 in Federal District Court in the Eastern District of Virginia.

Among its claims, Verizon alleged that Vonage was using some of its technology that enables voice calls to be transferred from the Internet onto the conventional telephone network.

It is unclear whether the technology covered by those patents is being used in Verizon's consumer Internet phone service, called VoiceWing.

Significantly, the lawsuit - as is sometimes the case in patent suits - does not ask the court to immediately stop Vonage's operations. But it does ask the court to do so if the matter is resolved in Verizon's favor. Lawyers said it could take more than a year for the case to work its way through the system.

In a statement, Vonage said that it respected the valid intellectual property rights of others and that it believed its services were built on technology it developed itself or licensed from other companies.

"Vonage intends to vigorously defend the lawsuit," the statement said.

Brooke Schulz, a Vonage spokeswoman, declined further comment. Vonage officials have declined comment since the public offering, citing a quiet period mandated by the Securities and Exchange Commission, but that period expired today.

The lawsuit compounds the challenges for Vonage, which, despite becoming the early leader in the Internet phone market and enjoying relatively strong name recognition, faces growing pressures from much larger competitors.

In particular, cable companies like Time Warner and Comcast, and telephone companies like Verizon, are investing more heavily in developing and marketing service that delivers voice traffic over Internet lines.

Telecommunications industry analysts have said the steep slide in Vonage's stock reflects not just rough market conditions but also a perception by investors that Vonage will be unable to fend off competition from larger companies with deeper pockets and longer-standing customer relationships.

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