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3/8/2007
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Jury Finds Vonage Guilty Of Violating Verizon's VoIP Patents

Verizon had sought $197 million from Vonage, but the jury only awarded $58 million.

A Virginia jury ruled Thursday that Vonage will have to pay $58 million to Verizon Communications in a patent case with broad implications for all VoIP service providers. Vonage said it was confident the ruling would be overturned on appeal.

Verizon immediately sought a court order, which will be heard in a hearing scheduled for March 23, that would ban Vonage from using the VoIP technology going forward. Verizon had sought $197 million from Vonage, which was cheered that the $58 million amount awarded by the jury was lower.

"Vonage's customers should see no change to any aspect of their phone service," Vonage said in a statement. "In addition, we don't believe there is any basis to support Verizon's request for an injunction, and we will have the opportunity to present our position to the trial court shortly."

Verizon attorney Peter McCabe said the court order Verizon seeks would reduce Vonage's business to calls between its customers -- a development that would cripple the startup firm, according to media reports.

Verizon had charged Vonage with infringing on five patents and said the jury ruling upheld its position. Vonage, however, said Verizon had originally charged the company with infringing on seven patents. Verizon "prevailed on only three, and we expect that verdict to be reversed on appeal," Vonage said.

Vonage had maintained Verizon's charges were designed to put it out of business. Vonage has never been profitable, and the firm's stock has plunged since its IPO several months ago.

Verizon initially sued Vonage last June, claiming sweeping patent violations. Later the telecom firm charged that Vonage "has appropriated the results of years of research conduced by Verizon and its predecessors." Verizon was cobbled together by acquiring various local Bell telephone companies that once were part of AT&T, which was broken up more than two decades ago.

The trial got underway last month, with Vonage arguing that Verizon's claims were baseless.

Verizon had been seeking damages of $197 million and future payments of nearly $5 a month for each Vonage-supplied line. With more than 2 million subscribers, a complete victory by Verizon would be devastating to the young Vonage. If the jury verdict holds up, Vonage will likely be required to pay monthly royalties to Verizon, although they would be considerably lower than the $5 fee sought by Verizon.

Reports by Wall Street investment houses had raised the grim specter of Vonage being forced to shut down if Verizon prevailed in the litigation. However, toward the end of the trial, Vonage said its strong balance sheet would enable it to survive an unfavorable verdict.

"It is wrong and irresponsible to presuppose either the outcome or the impact this litigation would have on our business," Vonage CEO Mike Snyder said at the time. "Our financial reserves would allow us to continue normal operations regardless of the outcome. In addition, we are confident that regardless of how this litigation is ultimately decided, Vonage's customers will see no change whatsoever to any aspect of their phone service."

Vonage's service requires a Vonage-supplied box and a broadband connection. The firm's flagship service costs about $20 a month. Verizon also offers consumer VoIP at a similar price.

At issue in the case were billing patents to ways of transmitting landline and wireless calls to call-waiting technology.

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