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Monday, July 10, 2006

Will Patent Acquisitions Help Vonage?

Vonage Holdings Corp. (VG), the most painful IPO of 2006, is trading up 4% pre-marketon patent news this morning. the company announced that it has acquired ownership of three patents from Digital Packet Licensing Inc. that enable VoIP. The three acquired patents, U.S. Patent Nos. 4,782,485, 5,018,136 and 5,444,707, are directed to the compression of packetized digital signals commonly used in VoIP technology, according to the company.

What is the most important aspect of the news here is if you look at the disclosures in the press release, and the potential deals are helping the shares.

Vonage's acquisition of these three significant patents now places Vonage in control of pending litigation against Sprint Communications LP and Verizon Communications, among others, in federal court for infringement of one of these VoIP patents. Vonage is presently in cross-licensing negotiations with regard to them. Leading telecommunications companies including Motorola, Time Warner, Qwest Communications and others have already settled with and/or taken a license from Digital Packet on these VoIP patents, and as a result of acquiring the VoIP patents, Vonage also assumes ownership and control over these agreements.

Financial terms were not disclosed. Some of this pop will no doubt be natural buyers and some short sellers covering, but are these patents going to help this company stop its slide. Patents alone may not be the answer, but IF this company that has been desperate for any good news it can get can secure these cross-licensing deal then you can imagine some may say the worst is over.

The company has a poor track record so far, so we'll have to see if they can deliver.

Jon C. Ogg
July 10, 2006

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