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Vonage stock falls on judge's decision

March 24, 2007|From the Associated Press

ALEXANDRIA, VA. — A federal judge ordered a permanent injunction Friday against Internet phone carrier Vonage Holdings Corp. for use of rival Verizon Communications Inc.'s patents.

But the injunction, which potentially could cause major disruptions to the service provided by Vonage to its 2 million customers, will not take effect for at least two weeks.

U.S. District Judge Claude Hilton said he would wait two weeks to officially enter the injunction while he considered Vonage's request for an extended stay.

Shares of Vonage shares fell $1.05, or 26%, on Friday to $3, a 52-week low. Verizon shares rose 11 cents to $38.12.

The injunction came after a jury verdict this month that Holmdel, N.J.-based Vonage -- a leader in the Internet phone marketplace -- infringed three Verizon patents.

The jury awarded New York-based Verizon $58 million plus 5.5% of Vonage's future revenue garnered from continued infringement of the patents. Hilton ruled that the additional measure of a permanent injunction was warranted.

Simply providing monetary damages "does not prevent continued erosion of the client base of the plaintiff," Hilton said.

Verizon lawyer Dan Webb argued that the company had already lost hundreds of thousands of customers to Vonage in a growing sector of the telecom industry.

Vonage has spent $425 million advertising its product so it "can lock up this emerging market, and we can't get a toehold in it," Webb said.

The exact effect of an injunction on Vonage's service is difficult to determine. Vonage filed its arguments on the issue under seal.

Vonage Chief Executive Mike Snyder said Friday, "We are confident Vonage customers will not experience service interruptions or other changes as a result of this litigation."

Even if Hilton refuses to stay the injunction, Vonage said it was confident that it could obtain a stay from an appeals court.

The two sides differ on how extensively the infringed patents are integrated into Vonage's system. Verizon's lawyer said the infringed patents were "embedded into their infrastructure." But Vonage said Verizon had overstated the importance of the disputed patents.

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