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March 8, 2007

Hang Up

Losing business because of lousy service, Goliath Verizon nailed David Vonage for infringing three patents. The immediate damage to Vonage: $58 million, 70% less than the $197m sought, and an ongoing 5.5% royalty if Vonage doesn't figure a workaround. The infringement was found not willful. Verizon is seeking a permanent injunction. This is but the first patent attack which Vonage must weather, or wither.

Verizon originally filed a seven-patent suit in the Eastern District of Virginia, the other four asserted having fallen by the wayside.

Dan Webb, a Verizon attorney who just fell off the bumpkin truck, tooted: "This is a significant victory for Verizon. It shows that companies that infringe patents can be held liable."

The decision came from an eight-person jury. Vonage plans to appeal.

There is a March 23 hearing on Verizon's request for a permanent injunction. Being direct competitors, Verizon has a shot at an injunction, which Vonage would immediately seek a stay of, pending appeal.

Verizon has indicated that it has a workaround redesign, but there have been no confirmed reports of that being something more than cooing sounds to skittish investors.

Holmdel, New Jersey-based Vonage laid a goose egg with its IPO last year, but business has been decent, revenue growing from $269 million in 2005 to $607 million in 2006. Vonage has less than 2,000 employees.

Verizon has heard a huge sucking sound, losing customers because of its bloated bureaucratic service ethic. In seeking damages, Verizon had complained about losing customers to Vonage.

Verizon's revenues climbed from $65.5 billion in 2005 to $88.1 billion a year later. Verizon has nearly a quarter of a million employees. New York-based Verizon had merged with MCI in January 2006. Verizon owns and operates over 270,000 domestic route miles of fiber optic cable, and 360,000 international route miles in 140 countries.

Vonage has other patent woes, from Sprint, and patent troll Klausner Technologies; those cases are pending. Verizon faces its own infringement suit from C2 Global Technologies. The VOIP patent wars are just heating up.

Pioneer Vonage has taken arrows in the back from the investment community. Some analysts think that Vonage will be pounded until its stock price drops enough to be a cheap pickup for a competitor like Verizon.

Vonage did not have patents of its own, but purchased a tiny portfolio of three from Digital Packet Licensing in mid-2006; not much of a counterclaim punch.

As a Vonage customer for over two years, formerly a Verizon customer, Vonage service has been just shy of excellent, with several features not found with other phone services, and at a nicely lower price.

Posted by Patent Hawk at March 8, 2007 4:10 PM | Damages