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Free Net phone upstart sues Vonage, Fry's

Net phone service and retailer push misleading products on consumers, SIPphone charges.

Internet phone service SIPphone has charged Vonage Holdings and retailer Fry's Electronics with false advertising for failing to adequately disclose limitations on hardware that allows phone calls to be placed over a broadband connection.

At stake are routers and adapters manufactured by Cisco Systems subsidiary Linksys that allow standard phones to be used to make calls over the Internet. In a California state lawsuit filed Monday in San Diego, SIPphone charges that product packaging and advertisements do not make it clear the Linksys products work only in conjunction Internet phone services provided by Vonage.

The suit cites product packaging and online ads from retailers including Outpost.com. The products in question are the $59 Linksys Phone Adapter, which plugs into Wi-Fi equipment, such as a router, and allows a consumer to connect a phone to the broadband connection to make Internet phone calls. The $89 Broadband Router includes two phone ports, which would allow two phones to place calls over the Net at once.

"The box Linksys and Vonage uses to market and sell the PAP2 adapter and Vonage service does not disclose that the adapter is locked to prevent it from working with any other service," according to the lawsuit.

The company is seeking to prevent Vonage and Fry's from further alleged false advertising. SIPphone is not seeking monetary damages, other than legal fees.

Vonage did not immediately return phone calls seeking comment late Wednesday. Linksys representatives said they were not aware of the suit and declined to comment.

Linksys and Vonage announced a deal in August to co-brand Internet phone routers and adapters. Under the deal, Linksys agreed to develop products that connect to Vonage's services out of the box. The companies said they expected the arrangement to make it easier for consumers to initiate Internet phone service by setting everything up in advance. Linksys also has similar deals with AT&T and Verizon.

"Right now the boxes are locked to particular service providers," Linksys President Charlie Giancarlo said Wednesday at a press event in San Francisco announcing the Verizon deal. "But we could get to the point when a box is independent of service because both models have benefits to both consumers and service providers."

Vonage has a similar deal with Netgear, which is expected to see products on store shelves by October.

The co-branded devices sell for about $20 less than competing routers and adapters, according to the lawsuit.

SIPphone founder and CEO Michael Robertson said SIPphone decided not to sue Linksys because they believe Vonage has been in charge of marketing the service and striking deals with retailers. As a result, they believe Vonage is primarily responsible for ensuring the limits of the hardware are adequately disclosed.

He added that SIPphone targeted Fry's in an effort to ensure retailers act responsibly.

Internet phone, or so-called voice over Internet Protocol services, have been widely advertised by Vonage and others as a cheap alternative to traditional phone services offered through the Bells.

Roberston said SIPphone filed the suit after receiving complaints from SIPphone customers who found they could not use certain Linksys products to access its service. Robertson said these customers were surprised to find they would be charged a monthly fee from Vonage in order to use the device. Furthermore, the device could not be used in conjunction with any other Net phone services.

"This is the first example of networking hardware tied to a service," Robertson said. "I think it's a bad direction to go."

SIPphone is Roberston's latest venture, following online music site MP3.com and Linux desktop operating system developer Linspire.

Roberston said SIPphone has signed up about 250,000 customers for the free SIPphone service, both on hardware that connects ordinary phones to the Net as well as software that uses a PC.

SIPphone charges fees only for connecting its customers to the traditional phone network. Calls between SIPphone users are free. In addition, the company has been striking interconnection deals with universities, allowing calls between SIPphone customers and campuses for free. He said the University of California at San Diego signed such a deal last week.

"In the world we see, monthly fees (for telephone services) go away," he said.