Judge Slaps Injunction On Vonage

A judge on Friday issued an injunction that effectively bars Internet phone carrier Vonage Holdings Corp. from signing up new customers as punishment for infringing on patents held by Verizon Communications Inc.

Vonage planned an immediate appeal.

Vonage's lawyers said the compromise injunction issued by U.S. District Court Judge Claude Hilton was almost as devastating as an injunction that would have affected Vonage's 2.2 million existing customers.

"It's the difference of cutting off oxygen as opposed to the bullet in the head," Vonage lawyer Roger Warin said.

Verizon's lawyers had suggested the compromise injunction as a way to avoid shutting down Vonage's entire network.

Last month, a jury in Alexandria found that Vonage infringed on three patents held by Verizon and awarded Verizon $58 million plus future royalties of 5.5 percent on revenue obtained through continued use of the infringed patents.

On March 23, Hilton went even further, issuing a permanent injunction barring Vonage from further use of the patented technology. But he delayed putting it into effect until Friday's hearing, where he replaced it with the compromise suggested by Verizon.

Hilton said he would wait until next Thursday to enter Friday's order, giving Vonage time to appeal.

Hilton has said that awarding royalties to Verizon was insufficient, given a competitive climate in which Vonage continues to gain subscribers at Verizon's expense.

If the compromise injunction stands, Vonage's existing customers won't have their phone service disrupted.

In court papers filed Wednesday, Verizon said that if a full injunction were implemented, it "would cause virtually all of (Vonage's) customers to leave for another provider."

Vonage officials have said that Verizon overstates the patents' importance and that they have a strong likelihood of getting the verdict overturned.

Rebecca Arbogast, a telecom analyst with Stifel Nicolaus, says Verizon was smart to offer the compromise because it is nearly as effective as a total injunction and is more likely to hold up on appeal.

"I think Verizon's legal strategy has been very aggressive and very effective," she said. "Vonage doesn't have very many attractive options except to hope for an emergency stay."