A verdict is expected by tomorrow as to whether or not Vonage owes Verizon nearly $200 million in patent infringement penance, and almost $5 per customer in royalties. If so, Verizon blasts a very large hole in an already sinking ship.
There are five patents in question, which Verizon staked claim to in the mid-Nineties, for technologies making Internet telephony services possible. Vonage leans on the argument that Verizon’s patents are invalid, and even if so, their technology is different. In addition, Vonage has flung allegations that Verizon is acting to destroy competition.
And it certainly may work if the verdict comes back in favor of Verizon. It hasn’t been the best year for Vonage. Already staring down a patent infringement suit from Sprint, the debt racked up by the VoIP service’s online advertising blitz caused the company’s IPO price to tumble, quite unexpectedly, from $17 to $5.13 per share by the next day. Six months later, the stock is stagnant at $5.04.
That type of plummet would have been bad enough, but Vonage offered customers a chance to buy ahead of the IPO. When the stock dropped, so did the early birds’ will to pay for the stock they bought, and a class action lawsuit was soon filed against the company claiming Vonage had falsely represented its value to pay for its exorbitant advertising. In advance of the IPO, Vonage raised nearly $600 million.
Competitor Skype didn’t help matters, launching a major promotion offering new customers their service for free for six months, just ahead of the IPO. And then there’s those filing suit over the inability to dial 911, which is just another nail in the coffin of a flagging startup. Suffice to say it would be a sucker bet to assume Vonage will be around in 2008.
But what’s bad news for Vonage is good news for Verizon, and if they can score a victory here, they may just succeed, as Vonage’s attorney accused, in obliterating a competitor. TechDirt’s Mike Masnick speaks of the irony of a patent system intended to protect smaller players from corporate giants:
In this case, it was Vonage, the smaller player, that innovated in the market while the bigger company was slow to act. Verizon did later copy Vonage’s offering, but was unable to succeed in the marketplace, despite having a lot more money, much better brand recognition, and many more telephony customers already in place…
Vonage continued to innovate, while Verizon was unable to compete. And then, rather than competing in the marketplace, the big company used patents to try to hamstring Vonage, adding additional fees.
