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VONAGE FOUND GUILTY OF PATENT INFRINGEMENT

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					March 9, 2007

VONAGE FOUND GUILTY OF PATENT INFRINGEMENT

VONAGE FOUND GUILTY OF PATENT INFRINGEMENT RADIO BROADCASTERS SETTLE PAYOLA PROBE COMMENTS MIXED ON FREE BROADBAND NETWORK IN 2.1 GHZ BAND SUPREME COURT DENIES APPEAL OF EBBERS CONVICTION FCC TO RETURN $11.25 MILLION BOND TO RAINBOW DBS ADELSTEIN OFFERS VIEWS ON BROADBAND EXPANSION, NET NEUTRALITY AT NETWORK CONFERENCE AT&T ROLLS OUT CELL PHONE REMOTE CONTROL SERVICE

A U.S. District Court jury dealt a blow to Vonage Holdings, determining yesterday that the voice-over-Internet protocol (VoIP) pioneer had infringed three patents held by Verizon Communications related to VoIP technology and awarding Verizon $58 million in damages. The verdict constitutes a partial victory for Verizon, which had sought more than $197 million in damages plus royalties of 19%. After a day of deliberations, the eight-member jury concluded that Vonage had infringed two patents that cover the routing of VoIP calls over traditional phone networks as well as voicemail, call forwarding and other features. Vonage was also found to have infringed a third Verizon patent that pertains to the routing of Internet calls over Wi-Fi networks. Dismissing Vonage’s contention that the patents in question are invalid, the court ordered Vonage to forfeit $58 million and to pay Verizon a royalty of 5.5% on future Vonage sales. Upon receiving news of the verdict, attorneys for Verizon asked the court to impose a permanent injunction against future use of the patented technology by Vonage. A hearing on Verizon’s request is scheduled for March 23. While declaring Vonage guilty of infringing three patents, the jury also found that Vonage was not “willful” in its actions. Promising that its customers “should see no change to any aspect of their phone service,” Vonage vowed to appeal the verdict and fight Verizon’s motion for injunctive relief, asserting: “we don’t believe there is any basis to support Verizon’s request.”
RADIO BROADCASTERS SETTLE PAYOLA PROBE

Four of the largest radio broadcast chains in the U.S.—Clear Channel Communications, Citadel Broadcasting, Entercom Communications and CBS Radio—agreed tentatively to settle an ongoing FCC investigation into payola practices with a combined payment of $12.5 million. Together, the four broadcasters own more than 1,500 stations nationwide. The settlement would cap a probe begun in 2004 by former New York Attorney General and current New York Governor Eliot Spitzer that spurred the FCC to action. Payola—the practice by which broadcasters accept money or gifts for providing recording artists with airtime—is illegal unless such compensation is disclosed to radio listeners. Under the proposed consent decree with the FCC, the four broadcasters admitted to no wrongdoing but agreed to adhere to various corrective measures, such as better recordkeeping and the hiring of compliance officers, to prevent future violations. Through a separate agreement with the American Association of Independent Music, the companies also pledged to set aside 8,400 half-hour blocks of airtime for independent artists who are not affiliated with the major record companies. Praising the settlement as one that “wipes payola off the radio dial,” FCC Commissioner Jonathan Adelstein described the agreement as “a new opportunity for fresher, newer artists to be heard on the radio.”
COMMENTS MIXED ON FREE BROADBAND NETWORK IN 2.1 GHZ BAND

Comments filed with the FCC on M2Z Networks’ proposed free nationwide broadband network in the 2.1 GHz band were split into two camps, with wireless industry players united in opposition and with state and local governments and citizen organizations voicing support. Accepted for filing by the FCC in January, the M2Z application proposes a 20 MHz national broadband network in the 2155-2175 MHz band that would offer free

©2007 Paul, Weiss, Rifkind, Wharton & Garrison LLP. In some jurisdictions, this brochure may be considered attorney advertising. Past representations are no guarantee of future outcomes.

basic service to customers in exchange for the payment of a 5% “usage” fee to the U.S. Treasury based on revenues for premium fee-based services to be offered by M2Z. While maintaining that the FCC should authorize its network outside of the spectrum auction process, M2Z has also promised to commence service within 24 months of licensing and to reach 95% of the U.S. population within ten years. In a study commissioned by M2Z, Simon Wilkie, a former FCC economist, asserted that free and paid subscription services offered by M2Z “will increase the level of broadband competition in the country, providing significant savings to U.S. consumers.” Although several House Democrats also urged the FCC to give M2Z’s proposal “every consideration,” leading wireless carriers, with the backing of wireless association CTIA, called on the FCC to reject the application on the grounds that M2Z should not receive for free spectrum that other wireless entities are required to bid on at auction. As CTIA warned that M2Z’s plan “would create a number of legal and public policy problems without effectively serving the public interest,” T-Mobile USA told the FCC that M2Z’s proposed service, “at best, competes with other broadband wireless services” and, therefore, “does not merit special treatment outside the normal licensing process.” Motorola also pointed out that consideration of M2Z’s application might be premature “as the Commission has not yet established service rules for use of the 2155-2175 MHz band.”
SUPREME COURT DENIES APPEAL OF EBBERS CONVICTION

Without comment, the U.S. Supreme Court on Monday turned down the appeal of former WorldCom Chairman Bernard Ebbers, who was convicted in 2005 of conspiracy, securities fraud and other crimes that precipitated the bankruptcy of WorldCom in 2002. (After emerging in 2004 from the largest bankruptcy in U.S. history, WorldCom was renamed MCI and subsequently acquired by Verizon Communications.) Ebbers, who was sentenced to 25 years in prison, is now incarcerated in a Louisiana federal prison, and the Supreme Court action assures that Ebbers will serve at least 21 years as mandated by a New York trial judge. Appealing a Second Circuit court ruling that upheld the conviction, attorneys for Ebbers argued that the federal trial court had wrongly allowed prosecutors to deny immunity to key defense witnesses, thus enabling the government “to wield its power to grant or withhold immunity in a manner that grossly skewed the evidence, depriving Ebbers of a fair trial.” Attorneys also objected to instructions indicating that jurors could consider Ebbers’ “conscious avoidance” of details about the accounting scandal during deliberations. Noting, however, that Ebbers was convicted on actual knowledge of fraud as well as on conscious avoidance, the U.S. Solicitor General told the high court that “any error in instructing the jury on a theory of conscious avoidance . . . was harmless.”
FCC TO RETURN $11.25 MILLION BOND TO RAINBOW DBS

In a 3-2 decision, the FCC agreed to waive its satellite bond rules to permit Rainbow DBS—the operator of the now-defunct VOOM direct broadcast satellite service—to reclaim $11.25 million in posted bonds that the company would have forfeited for failure to launch and operate five Ka-band satellites licensed in 2003 and 2004. After failing to attract enough subscribers, Rainbow DBS sold its sole operating satellite to EchoStar in 2005 and discontinued the VOOM service shortly thereafter. In a January 30 filing seeking release of the bonds, Rainbow told the FCC that it had acquired the Ka-band licenses in question “to supplement and complement its VOOM DBS service” and was forced ultimately to withdraw its construction contract for the Ka-band satellites upon terminating the VOOM service. Finding that “Rainbow is unique in that it undertook a substantial effort, both in terms of finances and good faith, to establish a satellite system during a period of time when comparable [Kaband] spectrum was available for use by other potential operators,” a majority of the Commission reasoned that a waiver of the bond rules “will not undermine the three ways in which the bond requirement works to expedite service to the public in an environment of scarce spectrum, i.e., ensuring the licensee’s financial ability to establish the licensed service, ensuring its good faith to provide the service, and discouraging the warehousing . . . of scarce spectrum.” Asserting, however, that “the bond requirement should not rise or fall on how many dollars a licensee incurs in development or whether similarly situated spectrum may or may not be available,” FCC Commissioners Michael Copps and Jonathan Adelstein dissented, observing: “the Commission created the bond requirement in the first place to avoid these very questions.”
ADELSTEIN OFFERS VIEWS ON BROADBAND EXPANSION, NET NEUTRALITY AT NETWORK CONFERENCE

Speaking before an audience at the Freedom to Connect conference on Tuesday, FCC Commissioner Jonathan Adelstein suggested various options for expanding access to broadband as he advocated the adoption of net neutrality conditions included in the recent AT&T-BellSouth merger order as one of the principles to be included in those outlined in the FCC’s August 2005 policy statement on broadband services. To ensure that American children are not “relegated to yesterday’s technology,” Adelstein called for an expansion of the universal service “e-rate” program that provides funding for Internet connections in schools, libraries and hospitals. To expand the opportunity represented by broadband Internet services, Adelstein also said the FCC should (1) improve its 2

definition of broadband service by increasing the upload and download speeds that form the basis of that definition, and (2) pursue a spectrum policy that would reclaim “fallow” spectrum for use by other providers, particularly in rural areas. With respect to net neutrality conditions agreed to by AT&T and BellSouth, Adelstein said the conditions “should put an end to the debate as to whether net neutrality can be defined,” as he refuted charges—raised by opponents of net neutrality mandates—that the lack of a definition provides a reason for lawmakers not to adopt laws defining “acceptable or unacceptable forms of discrimination, prioritization, or quality-of-service arrangements.” Adelstein also dispelled any lingering misunderstanding regarding FCC Chairman Kevin Martin’s intention to support enforcement of the AT&T-BellSouth condition, as he reiterated Martin’s promise to members of Congress that net neutrality commitments contained in the merger order will be enforced.
AT&T ROLLS OUT CELL PHONE REMOTE CONTROL SERVICE

AT&T wireless customers gained the ability to use their cellular handsets as a remote control through which they can schedule recordings on their digital video recorders (DVRs) with the launch of AT&T’s new Homezone DVR programming service on Tuesday. Priced at $9.99 per month, Homezone is being offered to customers within AT&T’s 13-state local exchange region who also subscribe to EchoStar’s DISH satellite TV service. (The service will not be offered to customers within the BellSouth calling region who receive bundled TV services through BellSouth’s partnership with DirecTV.) Subscribers will also need a WAP 2.0-enabled handset that will enable them to access a joint AT&T-Yahoo portal through which they can also deliver content (such as on-demand movies and photos stored on home computers) to televisions via the Internet. Next week, Verizon Wireless is expected to roll out a service that would enable customers to program TiVO DVRs remotely. A joint venture involving Sprint-Nextel and four major cable companies—including Comcast and Time Warner—intends to introduce a similar offering later this year. AT&T is also expected to extend the feature to customers of its new UVerse IPTV service at a future date.

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For information about any of these matters, please contact Patrick S. Campbell (e-mail: pscampbell@paulweiss.com) in the Paul, Weiss Washington office. To request e-mail delivery of this newsletter, please send your name and e-mail address to telecom@paulweiss.com.

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(No. 2007-10)


				
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