Judge Bans New Customers from Vonage

U.S District Judge Claude Hilton has issued an injunction barring VoIP operator Vonage from signing up new customers unless it stops infringing on Verizon patents.

U.S. District Judge Claude Hilton has issued an injunction against VoIp operator Vonage preventing the company from signing up new customers until it has ceasedinfringing on three patents held by Verizon Communications. The injunction goes into effect April 12; Vonage plans an immediate appeal.

The option of barring Vonage from signing up new customers was apparently offered to the court by Verizon itself as an alternative to shutting down Vonage’s entire operation. Nonetheless, Vonage attorneys are characterizing the decision as equally disastrous to the company: “It’s the difference of cutting off oxygen as opposed to the bullet in the head,” Vonage lawyer Roger Warin told the Associated Press.

In early March a federal jury found Vonage was infringing on three Verizon patents and ordered the company to pay Verizon $58 million in damages and a royalty on future sales; on March 23, Judge Hilton announced he would issue an injunction barring Vonage from using Verizon’s patented technology, but gave the company two weeks to change his mind. Vonage said it would appeal the ruling; in the meantime, the company has made network arrangements with VoIP Inc. to carry Vonage traffic.

If Judge Hilton’s injunction holds, Vonage will likely have to scramble to transition its service to VoIP, Inc., proprietary network, which in theory would enable the company to sidestep infringing on two Verizon patents involving connecting VoIP calls to standard telephone networks. Vonage would then have to prove to the court that it was no longer infringing on Verizon patents before it could begin signing up new customers.

Update 07-Apr-2007: Vonage has won a temporary stay of Judge Hilton’s injunction from the U.S. Appeals Court in Washington D.C., enabling it to continue signing up customers until the court can hear (and rule) on Vonage’s request for a permanent stay of Judge Hilton’s order. The upshot is that Vonage can currently sign up customers and conduct business as usual, although both the injunction and the patent infringement rulings continue to cloud over the company’s future.