Original URL: http://www.theregister.co.uk/2007/08/10/vonage_q207_earnings_call/

Vonage works around Verizon patents

But customers stay away

By Cade Metz

Posted in VoIP, 10th August 2007 03:42 GMT

Vonage is still smarting from that legal tete-a-tete with Verizon, but after throwing together a trio of patent workarounds, it's confident that a full recovery is on the way.

Today, during an earnings call with inventors and industry analysts, the pioneering voice over IP company said that, thanks to its ongoing patent battle with the nation's second largest telco, it stomached $6m in litigation costs during the second quarter and struggled to attract new customers.

Of course, CEO Jeffrey Citron believes there's light at the end of the tunnel.

"I am very excited about our accomplishments this quarter and am confident we are taking the appropriate steps to turn our business around," he said. "The second quarter was one of transition for us, and I believe that we are turning the corner on one of the most difficult periods in Vonage's history."

In March, after a federal jury ruled that Vonage was infringing on a trio of Verizon patents, Judge Claude Hilton ordered the company to pay $58m in damages and slapped it with a permanent injunction preventing it from using the three Verizon technologies.

But the permanent injunction wasn't all that permanent. Vonage appealed, and the ruling was put on hold - though the VOIP maven still had to pay Verizon a 5.5 per cent per customer royalty on the patents as it waited for a new ruling from the U.S. Court of Appeals.

With today's call, Citron was pleased to tell analysts that the company has developed workarounds for all three of the offending technologies, and that two are already in place.

"The company has taken steps to ensure that the workarounds do not infringe on the Verizon patents as construed by the court," he said. "The deployment of the workarounds is a significant step toward moving ahead with our business in the wake of the Verizon litigation."

But this doesn't mean Vonage expects the Court of Appeals to side with Verizon. "While having the workarounds in place mitigates the impact of a potential negative verdict from the court, we look forward to the court's ultimate ruling and remain confident in the strength of our appeal."

Meanwhile, the company added only 57,000 customers in the second quarter, compared with 166,000 in the first. Folks may have been turned off by the Verizon row - the district court originally ruled that Vonage wasn't allowed to add new customers while infringing technologies were still in place - but the company was also forced to slash its marketing budget in Q2, from $91m to $68m. ®