By Alan Sipress
Washington Post Staff Writer
Saturday, March 24, 2007; D01
A federal judge yesterday dealt a potentially fatal blow to Vonage
Holdings, the Internet-phone service that offers one of the few
alternatives to traditional carriers, by ordering it to stop using a
technology that connects its network to the public telephone system.
U.S. District Judge Claude Hilton approved the request by Verizon
Communications for a permanent injunction two weeks after a jury in
Alexandria found that three of its patents had been infringed by
Vonage, including one for the technology allowing the Internet
company's 2.2 million customers to call regular phones.
Hilton said the ban would not take effect before he holds another
hearing in two weeks on Vonage's request for reprieve through a stay.
The company said customers will not be affected by the court's
decision, although analysts are skeptical the company will be able to
sustain service if the ruling is not overturned.
This is the latest setback in Vonage's troubled history, which has
included some regulatory losses and a shareholder suit stemming from
its public offering. Vonage, which has never generated a profit,
helped popularize online calling as a cheaper alternative to
traditional phone service, waging a flashy marketing campaign on
prime-time television and over the Internet. But some industry
analysts said its flat-rate service was already starting to lose its
luster next to new offerings from phone and cable companies selling
combined telephone, Internet and cable television services.
The impact of the court's decision on other providers of Internet
phone services, known as voice-over-Internet protocol, or VoIP,
remains unclear, analysts said. This could depend on whether Verizon
wants to shut down Vonage or sell its licenses for the technology.
Vonage, which was ordered by the jury to pay $58 million in damages,
has vowed to appeal the verdict and seek a stay from the federal
appeals court if Hilton does not grant one.
In his ruling, Hilton said that the financial award alone was not
enough because it "does not prevent continued erosion of the client
base and customer base" of Verizon.