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Summary:

You know things are getting pretty grim when even we start having sympathetic thoughts for Vonage, the residential VoIP service provider that got KO-ed by Judge Hilton who gave the company two weeks to stop infringing on Verizon’s patents. Today the company is getting hit by […]

You know things are getting pretty grim when even we start having sympathetic thoughts for Vonage, the residential VoIP service provider that got KO-ed by Judge Hilton who gave the company two weeks to stop infringing on Verizon’s patents.

Today the company is getting hit by a class action suit that alleges that Vonage over promised and under-delivered on its VoIP service. On its legal troubles with Verizon, the company issued a press release, promising to soldier on, and fight Verizon in the courts.

“Friday’s events represented one small step in what is sure to be a long legal battle. The fact is we’ve been preparing for this verdict and the possibility of an injunction for months. Anyone who’s counting Vonage out is making a huge mistake.” Mike Snyder, Vonage’s chief executive officer.

These are three likely scenarios facing Vonage.

  1. If Judge Hilton grants a stay, then Vonage can continue operating and will have to pay royalties on an ongoing basis.
  2. If no stay is granted, then Vonage will seek a stay from the appeals court.
  3. If Vonage fails to get a stay from either of the two courts, then it will have to develop a work around, which is not that far off in the future, and thus avoid any shut down of the service.

Whatever the outcome, Vonage’s financials are going to take a hit. Furthermore, the Vonage decision will basically tip the balance of VoIP power in favor of cable operators who are watching this legal drama with the same attention Lost gets from television junkies.

  1. Om, there is no way the govt/FCC would allow Vonage customers to be cut off without phone service.

    That being said, the patient is in the ICU and things don’t look good. May be time to pull the plug.

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  2. How long will it be until we see the headline “Verizon buys Vonage”?

    Anyone taking bets?

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  3. Vonage should already have had a contingency plan solution for option 3.

    Just shows the stupidity + lame arrogance of the Vonage executive management.

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  4. Om, What makes you think Cableco’s in any better position than vonage regarding VoIP patents? Vonage uses the same off-the-shelf equipment and open standards as everyone else – Cable, other independents. Patents will prove a quagmire for everyone.

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  5. Moshe,

    those are long odds, though I am sure they might find some other buyer – who knows. but this is going to be one nasty fight.

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  6. Strikes me that Vonage has done everything wrong when it comes to building the public support it now needs. Everyone loves an underdog fighting against the incumbent “man”, but with its dreadful customer service and denial of QoS issues Vonage has managed to become the underdog everyone loves to hate.

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  7. Om, look at the numbers, they are currently at a market cap of about $250- $300 a sub. Definitely a fair price!
    Methinks that buyers are waiting in the wings to scoop them up after they fall a couple of more times.
    A smart buyer would stop the crazy advertising expense of $1m a day and he then have a very profitable company, I calculated Vonage profits per customer a year are Gross Profit = $203.85!
    If you want to see my calculations go to http://flatplanetphone.com/wordpress/?p=15

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  8. I’ve always thought that Vonage was just hanging around long enough to be bought out by someone larger.

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  9. Maybe there is also the possibility of some fair use. Take unfair competition, the necessity of standards, some pints of unjust enrichment et voila: option 1 above. Vonage did take only an element of Verizons technology, property right or not, lets imagine Vonage did at least that, and did create something new, a completely new product, thing. IP in a networked environement where everything depends on the other is special.

    Sort of an analogy would be to use a short Michael Jackson sample in a new summer hit. This new summer hit, Kiss me baby or whatever, would be something new. Allthough it would have its special fun from the Michael Jackson sample, he would not be able to destroy it, but they would have to pay, maybe one cent pro sale.

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  10. I think the biggest threst for Vonage is software applications for PC and Mobile like http://www.barablu.com – these applications also work on IP Phones so why the need to get a subscription.

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