TELECOM Digest OnLine - Sorted: The Truth Found Out: Vonage Has no 'Work Around' To Patent Dispute

The Truth Found Out: Vonage Has no 'Work Around' To Patent Dispute

Leslie Cauley, USA Today (
Mon, 23 Apr 2007 14:50:58 -0500

By Leslie Cauley, USA TODAY

NEW YORK - Vonage has finally confirmed what many had feared: The
embattled Internet phone company has no "workaround" in hand to sidestep
Verizon's patented Internet phone technology.

Moreover, Vonage (VG) isn't sure that such a plan is even "feasible,"
given the expansiveness of Verizon's (VZ) patents, which set out
methods for passing calls between the Web and conventional phone
networks. Vonage's chilly assessment, contained in a filing submitted
to a federal court Friday, marks the first time it has admitted that
it doesn't have a plan for getting around Verizon's technology. Vonage
couldn't be reached for comment.

A federal court recently ruled that Vonage had infringed on Verizon's
patented technology. As punishment, Vonage was barred from using the
disputed technology to support new customers. Existing customers are
not affected.

The company immediately requested -- and received -- an emergency stay.
Meanwhile, Vonage told investors and customers not to worry because a
"workaround" was in development.

In its Friday filing, Vonage, which is now trying to get a permanent
stay, painted a far different picture.

"Vonage currently has no workarounds that moot the need for a stay,"
the company said.

"While Vonage has studied methods for designing around the patents,
removal of the allegedly infringing technology, if even feasible,
could take many months to fully study and implement."

For investors, the lack of a viable workaround anytime soon is the
latest in a string of bad-news events.

Vonage, a pioneer in Internet telephony, has seen its shares plunge
more than 80% since it went public last year. This year alone, its
shares are down more than 45%.

Last week, Vonage CEO Mike Snyder abruptly resigned. Chairman and
chief strategist Jeffrey Citron is serving as interim-CEO until a
permanent replacement can be found.

Of more concern immediately is the outcome of the Verizon lawsuit. The
disputed technology goes to the heart of Vonage's business, making a
workaround critical if Vonage does not get a permanent stay.

In its Friday filing, Vonage offered its appraisal of the potential
consequences if it does not get the stay.

Even if Vonage "was somehow able to implement a design around, and was
able to ultimately prevail on appeal, it would have no hope of regaining
its lost customers, or its lost goodwill, and its loss of revenue would
be permanent ..."

It's unknown how the statement ends. Vonage redacted the rest of the
sentence, citing "confidential material." But the tone of the passage
suggests that these losses, in the aggregate, could help drive the
company out of business.

"Current Vonage customers will not wait that long for restored
service," the company writes. "Likewise, potential new customers will
not even consider Vonage."

Vonage, which has around 2.2 million customers, says that it loses
about 2.5% of its customers a month, or about 650,000 a year. That's
why it is imperative to add new customers constantly, the company has

While the 20-page document offers a rare peek into the company's
thinking, it can hardly be considered a complete record because
portions of it are redacted. Vonage submitted the filing in response
to a court order to prepare a public version of its sealed comments.

Copyright 2007 USA TODAY, a division of Gannett Co. Inc.

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