Vonage 'Workarounds' May Ease Patent Pain

A source close to Vonage Holdings Corp. (NYSE: VG) says the VOIP provider has technologies at the ready that will keep it from "borrowing" anymore technology from Verizon.

A District Court in Virginia Thursday found Vonage guilty of infringing three Verizon Communications Inc. (NYSE: VZ) patents. (See Jury Rules on Vonage.) The court ordered Vonage to pay Verizon $58 million in damages, plus 5.5 percent of revenues related to the patents going forward. (See Jury Rules on Vonage.)

Vonage claims it won't be hurt by the case. And in a news release issued late Friday, the company said it had the "utmost confidence" that "Vonage is not going out of business." [Ed. note: Well, investors appreciate that kind of swagger.]

Our source close to Vonage says the company has completed "workarounds" that replace the VOIP technology it's accused of borrowing from Verizon. In anticipation of a possible defeat in the patent infringement case brought by Verizon, Vonage engineers began work on the technology weeks before the verdict, our source says.

Hence, Vonage says it plans to appeal yesterday's verdict and says it has no plans of licensing any VOIP technology from Verizon. (See Vonage Slams Verizon Lawsuit .)

If Vonage loses its appeal (its court appeal, that is), the workaround technology takes center stage, UBS AG analyst John Hodulik says.

"What effect do the workarounds have on their business? Are they expensive, does it require a change in their systems, does it hurt call quality or that kind of thing?" Hodulik asks.

The three patents in question in the Verizon case cover technology that enables voice mail and call waiting for VOIP, translates IP address identifiers into telephone numbers, and moves VOIP calls from wireless networks to the PSTN. The patent related to wireless technology will prove especially important to Vonage, which says developing VOIP for wireless devices is a big part of its future.

Shares of Vonage, which debuted at $17 last May, were down today $0.69 (14.20%) to $4.17.

— Mark Sullivan, Reporter, Light Reading

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