Vonage: Verizon patent suit could bankrupt us

Vonage: Verizon patent suit could bankrupt us

Summary: Vonage said the Verizon patent suit could force the VOIP provider into bankruptcy. Vonage made that statement in its annual report filed with the Securities and Exchange Commission.

TOPICS: Verizon

Vonage said the Verizon patent suit could force the VOIP provider into bankruptcy.

Vonage made that statement in its annual report filed with the Securities and Exchange Commission. While the Verizon patent suit was expected to be a risk factor for Vonage bankruptcy goes a little beyond the standard boilerplate fare.

An adverse ruling--Vonage says it'll appeal Verizon's lawsuit as long as it can (probably two years or so)--would set off a chain reaction that doesn't bode well for the company or its customers. If Verizon were to win its lawsuit it could:

  • "result in the loss of a substantial number of existing customers or prohibit the acquisition of new customers;                   
  • lead to an event of default under the terms of our convertible notes, which could accelerate the payment of approximately $253.6 million of principal and interest under our notes;          
  • cause us to accelerate expenditures to preserve existing revenues;                     
  • cause existing or new vendors to require prepayments or letters of credit;                      
  • cause us to lose access to key distribution channels;                  
  • result in substantial employee layoffs or risk the permanent loss of highly-valued employees; 
  • materially and adversely affect our brand in the market place and cause a substantial loss of goodwill;                
  • cause our stock price to decline significantly or otherwise cause us to fail to meet the continued listing requirements of the New York Stock Exchange, which could result in the delisting of our common stock from the Exchange;           
  • materially and adversely affect our liquidity, including our ability to pay debts and other obligations as they become due; and                       
  • lead to the bankruptcy or liquidation of the company."

That's quite a mouthful. Now some folks would say these risk factors lay out scenarios that rarely come to fruition. Wrong. You'd be surprised how many times these risk factors turn out to be prophetic. Vonage better hope that Sprint is interested in the company. After that SEC filing, the price tag for Vonage probably just fell. 

Topic: Verizon

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  • Verizon,

    I know you're going to sue SunRocket, Packet8, AT&T CallVantage, Comcast (DigitalVoice), Time Warner, etc. because you don't want any competition.

    Go ahead! Bully off Vonage! Bully off SunRocket! Suck off the money from VoIP providers!

    You love money!

    And you know what???

    I won't be able to use my TTY (teletypewriter for the deaf -- used for sending/receiving text after translation from sound) so I will just throw my TTY away. I'm sorry but I'm hearing impaired.

    I will just have to pay $50 for a phone service...

    Sorry ZDNet, I'm very disoppointed to see Vonage go bankrupt...or maybe not?
    Grayson Peddie
    • If you want to be angry

      be angry at the people that caused it, Vonage. They KNEW they were wrong when they did it and they know it now.
      • No. I'm angry at Verizon.

        Grayson Peddie
      • Thier patent is so vague

        If the original DNS specification was that bland the ISC could sue Microsoft for WINS.

        Verizon, like the oil companies is just doing ANYTHING to protect their bottom line.
        • How about the other way around

          Would it be different if it were Vonage suing Verizon?

          Is there any reason why Verizon shouldn't protect their bottom line? They are after all a business.

          If they didn't ever take any action to protect their bottom line then they themselves would have gone bankrupt by now.
          • They can't compete?

            Seems that way to me. I use Vonage because they offer a better price. I also know my Telco could offer the same thing but chose not to. They'd rather charge me per minute for long distance and $3 a calling feature. But back in 1999 I could unlimited long distance from my Telco but not now. Why? Greed! They tried to turn into an income trust so you can't say it was R&D as income trusts don't that. There is no reason I need to pay $200+ a month for phone service to phone some who live 15 minutes away.

            No, Verizon is about maximizing profits. I can't fault them for doing that. I can point out to thier heavy handed tactics to kill competition. That's I don't agree with.
          • Have you really look at their long distance plan?

            Or would you rather not sign one up? I have AT&T/Bellsouth and they have plans where you pay a monthly rate and you make all the long distance calls you want. I think it is $19.99 per month on top of your local service.
            It is also hillarious that people would want to use a service like Vonage for phone service. First you HAVE you get broadband to be able to use Vonage. If you need DSl, guess what you need a phone line? For cable, You are adding additional costs just to get cable service and then you are willing to add an additional $25.00 for Vonage? Sounds like a lot of waste to me. I am paying about $50.00 a month for local and all the long distance i want and that is without broadband. To add DSL would be an additonal 25.00 to 46.00 per month depending on speed. OH yeah, if a storm hits and you lose power, Guess what else goes? Yep. Vonage. But for people with HOME phones with long distance, their phones still work.
            Last point, is business is business. If a company offers a products or service, They better make sure it doesnt affect another companies IP. If it does pay now and license or pay later but do not try the Poor Oliver twist business strategy where if you try to fight it, you will go out of business.
          • Bogus argument

            I find it hillarious that people use such flawed reasoning in calculating their costs. You claim that users must pay an additional cost for broadband in order to get Vonage (or any VoIP service). But, most people that I know already have broadband - it's not an "additional" cost. I had broadband before getting VoIP, I'll still have it if/when I get rid of VoIP. Also, there are (in this area at least) options to get DSL without paying for phone service, and most cable companies offers broadband without TV service, or locally a new option was just added with ClearWire being available. So again, no extra cost. Your argument of needing to add that cost into the calculation is entirely bogus.

            For power outages, it depends on the VoIP service. Some offer built-in battery backup in their hardware - gives about 30 mins (admittedly not all VoIP providers have this, and I don't think Vonage has this in their hardware) . Of course, if people wanted to spend extra they could buy secondary battery backup for longer up-time in case of outages; but I can't recall the last time I lost power for that long ... 5+ years ago at least.

            We'll see in appeals if Verizon's case trully has any merit. The lower courts side with them; but as has been pointed out, the patents are surprisingly broad and there is legitimate question on the lower courts interpretation of the scope of the patents.
          • You have got to be kidding!!!!

            Guess you should have been in Buffalo during our October suprise. My in-laws were with out phone service for almost two weeks. Power was out for 2 1/2 days, also cable was out for three days. Hum let's put this all together, if they vonage they would have been out of phone service for 3 days vrs 14 days. If the wires fall down you don't get phone service either. Oh yea I have vonage! All my equimpent is on a ups. We lost power about 2 weeks ago and never lost service. Cable company has UPS of their amps too....
          • Remember Lotus 1-2-3?

            I seem to recall about 15-20 years ago, there was a spreadsheet called Lotus 1-2-3 that was the class of the genre. Borland then announced their spreadsheet product, "Quattro", which, among other things, had software-driven menus which allowed you to make your own command structures if you didn't like theirs. As an example of how to do the software-driven menus, they sent a menu system that was a Lotus look-alike.

            Well, Lotus went crazy, and their lawyers went after Borland with a vengeance. While those two companies were litigating themselves into oblivion (something I actually heard Phillippe Kahn, CEO of Borland at the time, say!), another spreadsheet that was cumbersome, buggy and looked and acted nothing like its competitors began to make inroads into the marketplace. This was largely driven by IT managers that were afraid of Lotus and/or Borland's future.

            Eventually, this competitor got somewhat better and less buggy. It [b]purposely[/b] made its menu system to look like other products the company also marketed.

            Today, Excel or something that looks like it is probably on 90% of all business computers currently in operation. Lotus 1-2-3 and Quattro are but vague memories to us old timers.


            So, Verizon, before you try to litigate Vonage out of business instead of trying to INNOVATE them out of business, be careful what you wish for!
        • Sorry,

          the courts disagree with your legal opinion.
          • Still in court

            Actually if the courts agreed with your opinion there wouldn't even be a case. So I'd say the courts disagree with you. They want to take a look at this because it is confusing. They may find in favor of Verizon as the first court(s) did but it's still in appeal. That's actually very normal as lower courts often rule in a manner that will be appealed as they feel it really isn't for thier court to decide so they rule the status quo and let the defendant appeal to a higher court. Means the lower court judge decided not to make the ruling is all.

            One issue that can occur at lower courts is lower court A rules one way and later lower court B rules another. Then it has to go to higher court anyways. So a ruling could go one way this side of the country and the other else where. Then they take both ruling to the higher court to decide which is right. The judge here can decide to leave it as is in his rule and actually advise an appeal to a higher court. It sort of works like that. If you ever sit in on court cases you see this is quite common.
      • No_Axe I finally agree with you on something .

        Vonage should have known better than to use technology that wasn't theirs to begin with , now I don't know if this is possible at all , but why not go to a discussion table with Verizon and see if something can be worked out . Then again if I were Verizon , I'd bury you in a flash . Business is business .
  • This is an excellent example of using patents to INHIBIT

    rather than PROMOTE innovation and competition.

    Software patents are illogical and anti competitive.

    Ideas must be kept free for development by all. The software should, however, be copyrighted. copyright and patent time limits should be no longer than 5 years. Patents must be prohibited for incremental changes in the product.
    Update victim
  • Vonage has to go!

    Verizon is doing the right thing...Vonage has perfect service, outstanding customer service, it is the best company I have ever dealt with and (we and Verison) cannot allow that.

    Think of it, if we allow Vonage it could set off a chain reaction of great service and price, who the heck wants that....
    We need to maintain the bottom line of high price and horrible serve like Verison, If Verizon were to allow Vonage to go on or merge with them they would have to adhere to Vanage's high standards...that is repulsive.

    If verizon merged with Vonage it would elevate Verizon to almost a half way decent company...What would people think, what would the world think....What would God think...I shutter at the thought.

    Giving Good service....you people sicken me. ;-)
    • your subject line misled me

      ack !!
      good tongue-in-cheek, but your subject line aggregates your post on the opposing side's stats :(
  • Rates Technology dropped its $1 billion lawsuit against Vonage

    I noticed this story was never covered or even mentioned by the media. It was reported in Vonage's recent 10-K, but the media was only interested in the new bankruptcy potential-risk gore versus facts. Here is the important fact:

    "Rates Technology. On October 6, 2005, a lawsuit was filed against us by Rates Technology Inc. in the United States District Court for the Eastern District of New York. Rates alleged that we infringed two patents in connection with the least cost routing of telephone calls over the public switched telephone network. Rates sought injunctive relief, attorney?s fees, compensatory damages in excess of one billion dollars and a trebling thereof. On March 9, 2007, Rates dismissed the lawsuit without prejudice."
  • Monopoly

    This appears to be a dubious plan to control the digital phone business in order to create a higher price to the consumer. If Verizon is successful watch for higher prices in a short period of time. JDC
  • mixed bag

    Vonage may or may not have infringed, may or may not have done so knowingly, but it is clear that Verizon is not just interested in protection of intellectual property -- it is out to squash an upstart competitor with a blizzard of litigation.

    Full disclosure: I am partial to Vonage, because I am a customer, and find their service to be great value, and there is no love lost between me and Verizon, even with James Earl Jones giving them the "Barry White" sound :)

    I applaud Verizon's taking the initiative to put fiber optic direct to the home (because the cable companies need to have their bell rung through some competition for future internet hyper-bandwidth), but I don't think Verizon putting Vonage out of business is a good use of their resources.
  • your subject line misled me

    good tongue-in-cheek, but your subject line aggregates your post on the opposing side's stats :(