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Verizon Sues Vonage in Patents Dispute

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Vonage, the Internet telephone startup, said today that it was being sued by
Verizon Communications in a dispute over the underlying technology that
allows voice calls to be delivered over the Internet.
The lawsuit adds a new challenge for Vonage, which has seen its stock price
slide precipitously since it went public last month.

Vonage's shares, which were initially sold for $17, fell as low as $8.45
this afternoon, more than 11 percent below Friday's close.

In its latest challenge, Vonage is being accused by Verizon of violating "at
least" seven patents, according to the complaint, which was filed June 12 in
Federal District Court in the Eastern District of Virginia.

Among its claims, Verizon alleged that Vonage was using some of its
technology that enables voice calls to be transferred from the Internet onto
the conventional telephone network.

It is unclear whether the technology covered by those patents is being used
in Verizon's consumer Internet phone service, called VoiceWing.

Significantly, the lawsuit - as is sometimes the case in patent suits - does
not ask the court to immediately stop Vonage's operations. But it does ask
the court to do so if the matter is resolved in Verizon's favor. Lawyers
said it could take more than a year for the case to work its way through the

In a statement, Vonage said that it respected the valid intellectual
property rights of others and that it believed its services were built on
technology it developed itself or licensed from other companies.

"Vonage intends to vigorously defend the lawsuit," the statement said.

Brooke Schulz, a Vonage spokeswoman, declined further comment. Vonage
officials have declined comment since the public offering, citing a quiet
period mandated by the Securities and Exchange Commission, but that period
expired today.

The lawsuit compounds the challenges for Vonage, which, despite becoming the
early leader in the Internet phone market and enjoying relatively strong
name recognition, faces growing pressures from much larger competitors.

In particular, cable companies like Time Warner and Comcast, and telephone
companies like Verizon, are investing more heavily in developing and
marketing service that delivers voice traffic over Internet lines.

Telecommunications industry analysts have said the steep slide in Vonage's
stock reflects not just rough market conditions but also a perception by
investors that Vonage will be unable to fend off competition from larger
companies with deeper pockets and longer-standing customer relationships.

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