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End of the VOIP line for Vonage?

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KAI RYSSDAL: Vonage will surely be in the history books when they write about telecommunications in the early 21st century. It put something called VOIP on the map and in the public consciousness. Voice over Internet Protocol. Using the internet to make phone calls. For practically nothing, too.

But today U.S. District Judge Claude Hilton might have truncated the company’s eventual entry into those history books. No new customers while Vonage appeals his ruling that it stole some ideas from wireless giant Verizon. Marketplace’s Lisa Napoli looks at whether the decision might mean the end of the line for Vonage.

LISA NAPOLI: Today’s ruling could have been even worse for Vonage. The judge could have just banned the company from using the technology that allows it to connect calls altogether.

Vonage’s lawyer argued that would have been a bullet to the head. As opposed to just cutting off oxygen.

Doug Mahoney follows the industry for VON News. He says even before today, Vonage was already in big trouble.

DOUG MAHONEY: If they’re having churn, i.e. they’re losing customers at 2.5 percent a month. So over the next 12 months, they’re gonna lose 30 percent of their customer base.

Vonage has also been bleeding something else: cash. But the fact that this relative newcomer made the strange jumble of letters called VOIP an everyday technology is likely what made it a target.

I asked telecom analyst Rebecca Arbogast of Stifel Nicolaus whether Verizon versus Vonage is a case of Goliath versus David.

NICOLAUS: Yes, yes it is.

VOIP expert Jonathan Askin says this particular drama is a poster child for a patent system that’s as outdated as the rotary phone. He says as the case continues to play out in the courts, there’s somebody else who stands to lose.

JONATHAN ASKIN: It’s going to be devastating to consumers. I think relatively little innovation in the marketplace for fear that people are going to run afoul of everyone else’s patents.

In the meantime, innovation isn’t completely dead at Vonage. The company’s reportedly been trying to figure out how to connect calls without using the technologies Verizon claims it developed.

In Los Angeles, I’m Lisa Napoli for Marketplace.

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