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Appeals Court Gives Vonage a Reprieve

Company Can Continue Signing New Customers Pending Oral Arguments

By Truman Lewis
ConsumerAffairs.com

April 24, 2007

Vonage • Appeals Court Gives Vonage a Reprieve • Vonage CEO Exits as Company Struggles to Survive • Vonage Gets a Reprieve but its Future is Murky • Judge Orders Vonage to Stop Signing New Customers • Class Action Charges Vonage Deceived Consumers • Vonage Settles New Jersey Charges • FTC Drops Vonage 911 Inquiry But Continues Telemarketing Probe • Vonage Accused Of Violating Securities Laws • Vonage Customers Chafe Under Stock Purchase Plan • Vonage IPO Fails To Meet Expectations • Vonage 911 Caller Put On Hold While House Burns Down • Consumer Complaints

Vonage CEO Jeffrey Citron declared it "business as usual" today after a federal appeals court allowed the Internet phone company to continue signing new customers.

Vonage will still have to make its case before the appeals court on June 25, but today's action removes the threat that the company would starve to death while awaiting oral arguments.

U.S. District Judge Claude Hilton had ordered Vonage to stop signing new customers after a jury found that it had infringed on several patents held by telecom giant Verizon.

The U.S. Court of Appeals for the Federal Circuit in Washington issued a temporary stay of Hilton's order on April 7 and today extended the stay until oral arguments can be heard.

Verizon sued Vonage in June, claiming that Vonage had illegally used key technologies owned by Verizon to connect Internet calls to regular telephone networks and claimed it had lost hundreds of thousands of customers to Vonage as a result of the infringement.

Hilton's order that the company stop signing new customers was the equivalent of standing on a comatose patient's oxygen line, as Vonage needs to keep signing new customers to make up for those it loses.

Vonage attracts customers eager to save money on their phone bill but loses many of them when they have difficulty figuring out how to make the sytem work. Others aren't happy with the quality of the Internet calls.

Billing disputes are also a common theme in the more than 400 Vonage complaints filed with ConsumerAffairs.com.

"I had dropped calls, couldn't call or receive calls, etc. So, I decided to go back to my land line," said Ashby of Forest Hill, Md.

"Vonage promised service that could not be delivered, stalled for several months and have billed me for service not delivered," said Peter of Big Bear Lake, Calif. "I have called for a resolution on this matter many times, they simply shuttle the calls from one nincompoop to another until the customer gives up."

Vonage also faces a consumer class action filed in U.S. District Court in California which charges that it misled consumers about the quality and reliability of its service and engaged in false advertising and deceptive business practices.

Citron Confident

Although it still faces what may be a difficult day in court, Citron was feeling optimistic.

"We have not infringed on any of Verizon's technology and remain optimistic that we will ultimately prevail," he said in a statement. The company's stock jumped 29 percent, the biggest one-day jump since its went public in May 2006.

Tough Competitors

Like many companies that try to capitalize on new technology, Vonage has attracted numerous competitors, including the huge telephone and cable companies it had hoped to displace. Much of the growth Vonage had hoped for has instead gone to the cable companies, which have aggressively rolled out telephone service packages bundled with high-speed Internet and video services.

Between them, Cablevision and Time Warner have signed more than 3 million customers, business that Vonage had been counting on to meet its projections.

Vonage has also run afoul of the regulatory thicket that is the telecom market. It has been required by regulators to add many of the very fees and surcharges already collected by its old-line competitors. That has taken away much of the low-cost advantage Vonage had been counting on.

Defenders

Not everyone is critical of Vonage. The president of CompTel, a telecommunications trade association, says Verizon is using its market dominance to stamp out competition.

"We're seeing a still-dominant monopoly aggressively using its monopoly revenue to pursue and drive out of the market competitors," Earl Comstock told The Washington Post. "This isn't about protecting their patents. It's about crushing their competitors."

Comstock predicted Verizon will use the same tactic to go after other competitors.

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