Vonage Sued by Verizon Over Internet Phone Patents

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The New York Sun

Vonage Holdings Corporation, whose stock has dropped 48% since an initial public offering in May, was sued by Verizon Communications Incorporated for infringing seven patents on Internet telephone services.

Verizon claims Vonage used its technology that allows Internet callers to reach traditional telephone customers, according to a lawsuit filed June 12 in federal court in Richmond, Virginia. Vonage, a pioneer in Voice over Internet Protocol, or VoIP, said it will fight the suit, which seeks cash compensation and an order to stop Vonage’s use of the technology.

“It just creates a level of uncertainty that investors have a hard time handicapping,” an analyst at American Technology Research in San Francisco, Albert Lin, said. He rates Vonage a “buy.” The two sides probably will agree to settle after a drawn out battle, Mr. Lin said.

Vonage shares dropped 11%, adding to criticism from investors and analysts who warned of competition by larger rivals before its $531.3 million initial stock sale, the worst so far this year. Vonage also faces a class-action lawsuit over claims it violated securities laws when it pre-sold 13.5% of its stock offering to customers of its service.

Verizon claims that Vonage infringed its patented VoIP technology, which allows sound to be sent over the Web between computers, to develop a service that lets the calls reach traditional phone lines.

“Vonage does not currently own any issued U.S. patents,” Verizon said in the lawsuit. “Instead, Vonage relies on the intellectual property developed byVerizon in delivering its infringing product and services.”

Vonage shares fell $1.09 cents to $8.51 at 3:27 p.m.in New York Stock Exchange composite trading. Verizon shares fell 17 cents to $32.36 and are up 8.7% so far this year.

New York-based Verizon, the second biggest American phone company behind AT&T Incorporated, said Vonage is “aggressively marketing” its services and targeting Verizon customers, with some 1.1 million switching to Vonage in the past 15 months, the suit said.

The complaint also claimed that Holmdel, New Jersey-based Vonage infringed patents for billing and fraud detection, call services including call forwarding and voicemail and the use of Wi-Fi handsets in a VoIP network.

Vonage spokesman Mitchell Slepian declined to comment beyond the company’s statement that it would fight the lawsuit.


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