Verizon slaps Vonage with patent suit

Just four weeks after going public, Internet telephony provider Vonage Holdings Corp. faces the threat of being shut down by a judge, following a lawsuit filed by telecom giant Verizon Communications Inc.

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The suit claims that Vonage relies on seven of Verizon's patented technologies to make its voice over Internet protocol (VOIP) system work. It was filed June 12 in U.S. District Court for the Eastern District of Virginia.

Verizon's suit asks the judge to hold a jury trial, and seeks payment for damages and a permanent injunction stopping Vonage from using those technologies, said Verizon spokeswoman Bobbi Henson.

In response, Vonage said it intends to vigorously defend the lawsuit, since its services have been developed with its own proprietary technology and technology licensed from third parties.

Newcomer Vonage has been making inroads against its much larger competitor. The company has gained 1.1 million customers in the last 15 months, including many former Verizon subscribers, the lawsuit says. Vonage now has 1.6 million subscribers in the U.S., Canada and the United Kingdom.

Vonage, of Holmdel, New Jersey, has 1,400 employees. The company raised US$500 million through an initial public offering on May 24, although its stock has plummeted since then, dropping from $17 to $8.65 Monday.

Verizon, of Arlington, Virginia, has 53 million customers in its U.S. wireless network alone, and also sells broadband IP and wireline services. The company was formed in June 2000 through the merger of Bell Atlantic Corp. and GTE Corp., and today employs 250,000 people.

Verizon alleges that Vonage has infringed its patents for technology that breaks speech into digital packets and routes them over the Internet, instead of using a dedicated electronic circuit that stays open throughout the duration of a call on a traditional telephone network.

Specifically, the lawsuit cites seven Verizon patents including: gateway interfaces between packet-switched and circuit-switched networks, billing and fraud detection in VOIP, methods for using WiFi handsets on a VOIP network, and how to provide services such as call waiting and voicemail in VOIP.

Vonage is also facing a shareholder lawsuit concerning the IPO, as well as another suit alleging that it failed to disclose information about its management team and its service.