April 6, 2007 8:16 AM PDT

After setback, Vonage wins temporary relief

(continued from previous page)

Even before the jury found that Vonage was infringing on Verizon's patents, the company was struggling to add new customers. In the fourth quarter of last year, Vonage added 166,000 new subscribers. That was down from 204,591 subscribers in the third quarter and 256,000 in the second quarter of 2006. This drop in new subscriber growth occurred despite the fact that the company spent $365 million on marketing in 2006, a 50 percent increase from the previous year.

The high marketing price tag has translated into hefty losses for the company. During 2006, Vonage lost $286 million on revenue of $607 million.

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

"The good thing for Vonage is that there are many options for getting VoIP technology as evidenced by the hundreds of other providers in the marketplace. Thus, this is disruptive, but not fatal."
--Albert Lin, analyst, American Technology Research

Despite its losses, Vonage has a strong cash position. The company ended the fourth quarter with almost $500 million in cash, which means that the $58 million in damages it was ordered to pay to Verizon accounts for about 12 percent of its total cash.

Analysts say there is a glimmer of hope that Vonage could still come out of this situation all right.

"The good thing for Vonage is that there are many options for getting VoIP technology as evidenced by the hundreds of other providers in the marketplace," Lin said. "Thus, this is disruptive, but not fatal."

In its original court complaint filed in June 2006, Verizon accused its growing rival of infringing on seven of its patents, but it later scaled back the scope to include only five patents.

The patents Vonage was found to have infringed cover technologies that deal with connection of VoIP calls to the regular phone network, some features for implementing call-waiting and voice mail services, and VoIP calls using Wi-Fi handsets. (The jury found Vonage had not infringed two other patents, which involve billing systems designed to detect fraud.)

Vonage has maintained that it did not infringe on any of the Verizon patents and that its service rests on commercial, off-the-shelf technology.

The company has also said that even if the verdict is upheld, its subscribers will not encounter disruptions because it is developing a technological workaround.

But it's unclear how far along Vonage is in that process. In a recent government filing, the company reported signing a licensing agreement with a VoIP wholesaler that appeared to provide a replacement for two of the Verizon-patented technologies. Vonage said Thursday that the deal actually has nothing to with its patent woes.

The Internet phone provider's remaining options are all uphill battles, said Rebecca Arbogast, an analyst with the firm Stifel Nicolaus. The technical workaround Vonage claims to be preparing, for instance, is not a sure thing, as the judge's broad reading of Verizon's patent claims could imperil any replacement technology as well, she said. Another path could be to work on negotiating a settlement with Verizon to license its patents, but it's not clear that either company is interested in that route.

Verizon "may be more interested in putting (Vonage) out of business," she said. And given the string of legal setbacks for Vonage in this case, she added, "the price tag could be getting so high that Vonage is going to have a hard time making it."

The court could hear Vonage's appeal on the injunction next week, said Susan Pan, a partner who specializes in patent law with the firm Sughrue Mion. She said Vonage likely has a 50-50 chance of winning its case on appeal.

"If you think of a patent as a fence, the lower court has viewed it as covering a large area like an entire acre," she said. "It's possible on appeal that the federal circuit will say that the patent actually only covers two-thirds of that acre. And the other one third could be the area where Vonage is operating, which would mean Vonage isn't infringing."

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29 comments

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Fair
Thats not fair come on now
Posted by vernschaefer (4 comments )
Reply Link Flag
Not a surprise
This morning, my vonage account went down and started forwarding all my calls to my cellphone. That's cool, that's what I have set up.

What got me was: 1)a box on the account home page saying that they were aware of an issue with customers not being able to use their service. Okay, about an hour and a half after I read that, my service came back up - after I had rebooted the adapter twice thinking that a small powere glitch we had here might have caused it.

2) If you try to log into your Vonage account now, either a)it takes forever before you get there, or b)you get a page that says they are upgrading.

Personally, I'd start checking into the judge's qualifications to deal with cases like this. Not all judges are technologically savvy enough to understand patents, VOIP, etc. And I'd start checking into the patents that Verizon alleges that Vonage infringed on, especially after Verizon lowered the number of patents.

All this smells of Verizon wanting to kill off the competition and they'll use whatever they can to do so.

And for the conspiracy folks...I wonder if the judge has Verizon stock or an interest in Verizon.

Just my three cents worth.
Posted by iggysnitx (2 comments )
Reply Link Flag
Customer Service & Features
I now have both my home phone lines on Vonage and really hope they can work things out. I would be willing to pay $5-10 more to keep Vonage. My phone rolls over to my cell phone if I'm not home, I get an email with voice mail messages, I used a softphone when I was travelling in Asia for several weeks, and many more features that Verizon doesn't offer.

For many years I had an issue when we'd get a heavy rain. One or the other line, sometimes both, would stop working for a day. By the time Verizon got there, they worked OK again. Sometimes they'd rerun one of my connections, sometimes they'd just say, call us when it breaks again. They insisted the problem was in the wiring in my house. Funny thing, Vonage connects to the same lines and I haven't had a problem since I switched a couple years ago!
Posted by dhrlimited (12 comments )
Reply Link Flag
Vonage Up, Verizon Down
I switched over to Vonage about 4 years ago and have not looked back since.

Verizon service is atrotious (sp?) at best. Any time I had a problem or wanted to change something it would take like two weeks. So once I switched over I called Verizon to let them know I would no longer need their services. After hanging up I decided to make a call on what should have been the rest of my months service Verizon and found to my suprise that my phone had been turned off within seconds.

CRAZY!!!
Posted by darcydj (74 comments )
Link Flag
Interesting...
I had a similar problem in (far) upstate NY. We lived 8 miles from the exchange physical site. We learned from one of the repairmen that their were dozens of splices in the line between. We just kept hounding them. Finally one of the repairmen took the time to poke around in the cable and found an unused line that was not spliced, Voila' No more problem.

The moral of the story is that outside cable splices are subject to moisture penetration. Unless it rains in your house, I wouldn't look for a problem there. (although jacks & such can go bad) It's easy enough to test at the entry point.

A dedicated Vonage user.
Posted by coureurd (5 comments )
Link Flag
as Verizon patent-trolls its competition into oblivion...
Sad, just sad.

I do believe that if Verizon ends up buying Vonage (I suspect it will), I'll just have to go somewhere that isn't Verizon to get phone service... and meanwhile not patronize Verizon for anything else.

/P
Posted by Penguinisto (5042 comments )
Reply Link Flag
I Fear Verizon
They are trying to head the industry back to the good old days of monopoly. Just compare their rates across the board to other telecom providers and you'll see how they gouge the customer to keep up their old world way of doing business. I'll never got back to them for certain now.

I begged my wife not to get a mobile phone from them, but she said they have a monopoly on providing service in the subway.
Posted by WJeansonne (480 comments )
Reply Link Flag
I use AT&T VOIP Service
I too hate Verizon and pulled the pin on them almost two years ago. After testing several VOIP services I settled on AT&T's Call Vantage. It is reasonably priced and offers a service none of the others do. I can call the same number I use to retrieve voice mail from another telephone and access my VOIP service directly. This is great when I need to make an international call from my cell or I am at someone else's home and want to make an international call.

The calls go over AT&T lines. I don't think Verizon will take on SBC/AT&T on this crappy patent thing.
Posted by dhughes248 (3 comments )
Link Flag
Ironic
Ironic that the ad accompanying this article right now is a verizon one. Yeah I know its probably some system similar to adsense that detects what it is I am looking at, though funny none the less, news papers never let that happen.
Posted by orbital318 (34 comments )
Reply Link Flag
Verizon is horrible...`
I just cancelled my verizon voicewing service this morning. Their customer service is useless, their web interface for voicewing is horribly slow, and the voip service in general was very unreliable, with outages at least once every three months. I had a caller id problem that they promised to fix for months, and I finally just gave up and cancelled it. Beware...
Posted by mikebegert (15 comments )
Reply Link Flag
Verizon losing money, bottom line !!
Figures, Vonage has provided a service I enjoy and can really rely on, that is why I dumped Verizon in the first place, overcharging and not giving me the options I paid for in the first place, switching options whenever they felt it necessary and then sending me a letter stating what was changing and why.. No thanks Verizon.
Any techno geek out there knows, that Cable Modem is faster then DSL, regardless of what analysts say.
Verizon it must really stick in your crawl, that you as a company have invested all that time, effort and money into a VoIP system that is slower then your competitor can provide, or has provided, they just used the existing technology that was there...

In the long run saving themselves and there customers lots and lots of money..

Serves you as a company right..
As a company you guys will probably not go belly up, but I hope my comments will fuel others to think and dig deeper on issues and things dealing with business dealings..

You guys got bested by another company, providing a better service, sucks doesnt it?

Well seems you got what you wanted for the time being anyways...

Anyways, he is another question:

How does Verizon corporate people sleep at night?
And Judge I wouldnt be surprised to see your interests in this case have something to do with a financial gain, and nothing to do with law or justice for that matter..

Money, good ol greed, who has it, or wants it, and how to get more of it..

Forget the customer paying for the service..

Verizon did, that is why people dont like Verizon as a provider anyway, rofl..

Go Vonage
Posted by Redwulffe (2 comments )
Reply Link Flag
Ideas for an unbiased judgement
Heres an idea Verizon initially stated that Vonage was violating 7 of there patents, then that number dropped to 5, the judgment finally settled on only 3..

Now had I been the judge in this case and having listened to all this rabble from both sides for almost the past year, here would have been my final judgement on this matter..

If there really is a problem, and Vonage is doing what Verizon has said, and then I have Verizon retract 4 of those initial patent infringement charges, I would judge this way..

Neither Vonage or Verizon should be able to enlist new customers at all, until said appeals, judgements and the whole case can be heard over its proper channels..

But hey that is just my opinion..

Think about it.
Posted by Redwulffe (2 comments )
Reply Link Flag
Vonage SUCKS!
They will reap what they've sown. They deserve everything they get!
Posted by jaysound55 (1 comment )
Reply Link Flag
WTF R U talkin' about???
I've been using Vonage for a couple of years. No problems whatever. I have every service I could want, for the price I was paying Bell South for JUST LOCAL calling. What I save on the phone, helps subsidize my HS internet service.

As far as I can see, this (VOIP)is the best thing that's ever happened to the consumer. The Bellophone monopoly is dying, and of course they are fighting for their life. Just like M$, they will do anything they can to destroy their competition.
Posted by coureurd (5 comments )
Link Flag
Patent Expiration
Anyone know when the disputed patents expire?
Posted by ccblue (7 comments )
Reply Link Flag
Stupid Greed
It's just Verizon being intimidated by vonage, a company actually out for the customer, not the big bucks. The judge should have locked BOTH the parties from enlisting new customers, so I feel there may be some bias there. I never had verizon and never will, they want too much so you can have too little, vonage had their issues with my phone going offline and being crackly, but it was worth the money. It seems to me all these bigger copanies are out for is money, no matter who they have to hurt or who pays more. What people should do is just stop using verizon and whatever companies are so greedy and put them in their place. They'll get their Karma sooner or later though.
Posted by erixgirl86 (8 comments )
Reply Link Flag
I agree erixgirl86
If Vonage losses this to Verizon, I will never-ever have them as provider. Greedy bastards. I will keep taking the ****** service from T-Mobile just to be able to say, that screw you Verizon. And for VOIP I'll get someone new. By the way, my friends have Verizon for wireless, and always complain about the crapy phones Verizon sells them. Verizon forgot about the hard-working people of America and pushes ****** phones that won't survive nothing but the catwalk. Verizon sucks, greed will kill them soon.
Posted by Csipa1 (170 comments )
Link Flag
Question for Software Patent holders, Patent Trolls, etc
Especially if the guy who hold the patent for exercising a cat is out there:

What is the diference between the technology Vonage uses and the major (read cash rich and with armies of lawyers) cable companies usefor VOIP?

FWIW, we have Verizon for our cell phones, as they have the best coverage of any of the major providers in our area. Can't speak to the quality of thier phones as we use ours as phones, rather than hockeypucks etc. However my next one will not leave the store without Sousa's "Stars and Stripes Forever" as an available ringtone, not just an empty promise from the store staff. (It's the little things ...)

<a class="jive-link-external" href="http://www.google.com/patents?id=OfwkAAAAEBAJ" target="_newWindow">http://www.google.com/patents?id=OfwkAAAAEBAJ</a>
Posted by Too Old For IT (351 comments )
Reply Link Flag
Vonage and software tech, will rise over the monopolies
Even with a cell phone you are still under control of ATT, Verizon etc. So now Vonage has to pay some tax on some minor patents. I still have a hard time seeing this although I feel companies should be compensated for any patents. 5% is way too much for such MINOR innovations that any software engineer can create. What about Microsoft's internet phone technology with Net Meeting etc. What about their call forwarding features in any of their communications software.
There is no end to this.
I do hope this is cleared up properly but i need to seem more solid proof of a real infringement that's special to Vonage.
It doesn't even seem like a hardware vs software issue.
Posted by Blito (436 comments )
Reply Link Flag
I wish Google would save the day...
The article says that Google is offering VoIP service of its own. I've been happy with Vonage's service, and I really wish that a powerhouse, like Google, would step in and help Vonage get through this. Vonage's service is superior to the phone companies and the savings to the customer are fantastic. Let's face it, this improved technology and the savings would have never seen the light of day if left to the big, fat phone companies or the pathetic cable operators. In the interest of innovation and sheer guts, I wish that Google would help or purchase Vonage entirely. I'd pay my money to Google anyday.
Posted by TBolt (70 comments )
Reply Link Flag
Even Comcast is at risk
Comcast uses the same VOIP and breaks the same patats as Vonage so it's sort of that that supports Vonage. But if Google did buy Vonage maybe it could help still who knows.
Posted by Blito (436 comments )
Link Flag
Google, Yahoo!...Help!!!
I've been using Vonage for almost two years and I love it. I recommend it to friends and family. I don't understand why anyone would overpay AT&#38;T or any of those money sucking, overpriced phone companies when there are alternatives like Vonage.
Posted by ngoron (1 comment )
Link Flag
If you can't beat...
... them in an honest market place do the American thing sue'm out of business. Way to go Verizon, I dropped them for Vonage because they've been gouging me for 40yrs. I'll go to Skype before I put the Verizon pairs back on my home phone.
Posted by I_aintNoTenderfoot (1 comment )
Reply Link Flag
Verizon is a Criminal corporation
I have had extremely bad experience with verizon service. Their policy is to get a customer to sign a contract and then rip that person off in every way possible. I hope Verizon would cease to exist in near future. Ivan Seidenberg - you have made verizon a monster.
Posted by hhaque (1 comment )
Reply Link Flag
 

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