PeachParts Mercedes-Benz Forum - Do You Have Vonage? If So, Read This!

Vonage Told to Pay Verizon $58 Million Over Patents

By Jeff St.Onge and Amy Thomson

March 8 (Bloomberg) -- Vonage Holdings Corp. must pay $58 million plus monthly royalties to Verizon Communications Inc. for infringing three patents on Internet-telephone service, a federal jury ruled. Vonage shares fell to a record low.

Verizon, the second-largest U.S. phone company, asked for a court order banning Vonage's use of the inventions following today's verdict in Alexandria, Virginia. The order would cripple Vonage by blocking its customers' calls to standard phones, Verizon lawyer Peter McCabe said. A hearing on Verizon's request was set for March 23.

``This is a big negative surprise'' for Vonage, said Clayton Moran, an analyst with Stanford Group in Boca Raton, Florida, who rates the shares ``hold'' and doesn't own them. ``It makes it more difficult for an already challenged business to get to profitability.''

Verizon sued money-losing Vonage in June, claiming it lured away more than 1 million Verizon customers by copying voicemail and other services, as well as a method for allowing Internet calls to reach traditional phone lines. Vonage's sales more than doubled to $607.4 million last year, compared with New York- based Verizon's $88.1 billion.

Shares of Vonage fell 19 cents, or 3.8 percent, to $4.86 in New York Stock Exchange composite trading, the lowest closing price since they were first sold to the public in May for $17 each. Verizon rose 80 cents, or 2.2 percent, to $36.48, bringing the past year's gain to 13 percent.

Reversal Sought

The jury found that three of five disputed patents were infringed and all five are valid. Vonage, based in Holmdel, New Jersey, said it will appeal and would ask for an immediate stay of any order halting its use of the technology. The company had accused Verizon of using the lawsuit to stifle competition.

``We expect that verdict to be reversed,'' Vonage said in a statement. ``In addition, we don't believe there is any basis to support Verizon's request for an injunction.''

Vonage has said it has the ability to design around Verizon's inventions, said John Rabena, a patent lawyer with Sughrue Mion in Washington who has followed the case.

``If there's an injunction and Vonage has a design-around, it could keep that part of the business,'' Rabena said. ``Verizon is in a pretty decent position to get an injunction.''

The damage award is less than the $197 million Verizon sought during the two-week trial. Vonage argued that if the patents were infringed, it owed no more than $69 million. Vonage reported last month that its 2006 net loss widened to $286 million from $261 million a year earlier.

`Significant Victory'

``This is a significant victory for Verizon,'' Verizon lawyer Daniel Webb said in an interview. ``If a company's infringing our patents, they can be held accountable.''

The infringed patents cover a method for translating calls between an Internet network and the standard telephone network, call-waiting features and wireless fidelity, or Wi-Fi, handsets. Vonage was cleared of infringing two patents related to billing systems designed to prevent fraud.

The royalties set by the jury of four men and four women are 5.5 percent for each Vonage customer line per month. Vonage said it has 2.2 million subscriber lines.

The jurors rejected Verizon's argument that the infringement was willful. A finding in Verizon's favor would have allowed the company to ask that the damage award be tripled.

`We're Satisfied'

``We're satisfied that the jury found the patents were infringing,'' Eric Rabe, a Verizon spokesman, said in an interview. ``That was our argument all along.''

Sprint Nextel Corp. separately is seeking cash compensation and a court order to stop Vonage from using disputed technology. Matt Sullivan, a spokesman for Reston, Virginia-based Sprint, declined to comment on the Verizon case.

The case is Verizon Services Corp. v. Vonage Holdings, 06-cv-682, U.S. District Court for the Eastern District of Virginia.

Looks like it's time to bail on Vonage.

Here's the link: http://www.bloomberg.com/apps/news?pid=20601087&sid=a6Jvlxn91M68&refer=home