VoIP Market Not Hit by Vonage Patent Woe

The legal trouble threatening Vonage Holdings Corp. doesn't yet appear to be rippling across the Internet phone industry, a stark contrast to last year's BlackBerry patent dispute that spooked existing and would-be users of the popular e-mail device.

So far, rivals haven't been aggressively targeting Vonage customers who may be unsettled by a jury's finding last month that the company's service infringes on patents held by Verizon Communications Inc. And other Internet telephone providers don't seem to be worried that Verizon might be emboldened to turn its intellectual property guns on them.

The worst case scenario, seemingly unlikely for now, could mean a disruption in phone service if Vonage loses its court appeal and either fails to reach a settlement with Verizon or deploy an effective substitute technology.

"There hasn't been a flood of Vonage subscribers coming to Packet8," said Huw Rees, vice president for marketing at 8x8 Inc. "People must be hearing little snippets of these issues going on between Vonage and Verizon, but most people not involved in the industry have not heard much about it."

The anecdotal reports have been similar at both SunRocket Inc., another standalone Internet phone company, and Cox Communications, a cable TV company that provides phone service using both Internet-based and traditional technologies.

"I would suggest that average consumers are unaware of the (Vonage) ruling, and that many may not understand the role of VoIP architectures in the delivery of their phone services," said Cox spokesman David Grabert, using the common acronym for the "Voice over Internet Protocol" technology employed in transmitting calls over broadband connections.

This backdrop contrasts sharply with the quandary that faced Research In Motion Ltd. a year ago as a small company sought a court order to shut down the BlackBerry e-mail service due to patent infringement.

RIM struggled mightily to reassure BlackBerry users that they wouldn't be cut off from their beloved e-mail lifelines, yet refused to cave in to the highly public threats and settlement demands of its accuser, NTP Inc.

Amid the standoff, RIM acknowledged that customers had put off placing new orders for the BlackBerry due to the threat of a court-ordered shutdown of the BlackBerry system. Trying to capitalize on those jitters, mobile e-mail rivals such as Good Technology, since acquired by Motorola Inc., struck deals with NTP so they could advertise that their services were not at risk of patent litigation or shutdown.

Verizon, though it has played hardball in court, hasn't taken to arguing its case in the media with the same vigor as NTP, cutting Vonage a break of sorts with its customers. Verizon declined to comment on its legal and public relations strategies.

Vonage has placed updates on its Web site "reassuring customers that the injunction doesn't impact them or their service," said spokeswoman Brooke Schulz, but "we haven't gotten many calls from customers on the litigation."

That's one of the few glimmers of good news for Vonage, which has seen its share price tumble more than 80 percent since its initial public offering of stock almost a year ago.

The past month's developments -- from the guilty verdict in the federal trial in Virginia to a pending injunction that could prevent Vonage from signing up new customers while using the disputed patents -- have dragged the stock from more than $5 a share to just $3.

The next step in the case, on Thursday, will be a hearing to determine how much bond Vonage will need to put up for potential compensation to Verizon while the case is appealed.

Then the appeals court will decide on Vonage's request for a stay of the trial judge's injunction barring new customer activations during the appeal. If it isn't granted, Vonage would have to deploy a workaround technology or stop signing up new customers.


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