Vonage and Verizon head to court in patent dispute

The legal face-off takes place just as Vonage is struggling to continue signing up new customers.
Written by Marguerite Reardon, Contributor
A struggling Vonage goes to court this week to defend itself in a patent infringement case brought by Verizon Communications.

Verizon filed suit against Vonage in June claiming the company violated several of its patents. The suit focused on the technology Vonage uses to connect calls from its Internet Protocol service to phones on the traditional network.

Vonage denies that it has violated any patents. It claims that most of the technology it uses is standards-based and widely available throughout the industry. For example, Vonage uses voice gateways from Cisco Systems to route voice traffic over the Internet, connecting IP phone calls to the regular phone network.

Verizon has asked for monetary damages and an injunction. This means that if Verizon wins, Vonage could be forced to shut down its service, unless it can develop a work-around that does not violate the patents.

A Vonage spokeswoman said it is highly unlikely that service would be interrupted for Vonage's roughly 2 million customers.

"First of all, we don't think we have violated any of Verizon's patents," company spokeswoman Brooke Schulz said. "But if the court finds that we do, we will come up with a solution. And we won't have to shut off service to our customers."

The trial comes at a time when Vonage does not need any more distractions. Just last week, it announced during an earnings conference call that it was losing momentum in the Internet calling market.

In the fourth quarter, Vonage added only 166,000 new subscribers for its voice over IP service. That was down from 204,591 subscribers in the third quarter, and from 256,000 in the second quarter, of 2006. Despite its heavy marketing spend, many of Vonage's advertisements, designed to create more brand awareness, had been a flop, company executives have acknowledged. The company is now focusing on producing infomercials, which will highlight customer testimonials.

Vonage's slowing subscriber growth is in stark contrast to subscriber growth among cable operators, which have been setting records.

In an effort to diversify its business, Vonage has started to offer new services. It struck a deal earlier this year with EarthLink to resell wireless broadband in cities where the Internet service provider is building citywide networks.

Executives also said that Vonage will begin selling dual-mode handsets that will enable people to make Internet calls alongside cell phone calls. Some analysts speculate that Vonage is preparing to launch its own mobile virtual network. With MVNOs, as they are called, companies lease cellular network access from a provider such as Sprint and then rebrand the service. Virgin Mobile and Helio are examples of MVNOs.

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