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Sep. 26, 2007

On Sep. 25, a federal grand jury ordered phone company Vonage Internet Holdings to pay $69.5 million in damages for infringing on no less than 6 telecommunications patents rightfully owned by competitor Sprint Nextel.

In addition to the compensatory damages, the jurors also ordered Vonage to pay a 5 percent royalty on all future revenues.

Right after the news, Vonage's stock dropped 66 cents, or almost 34 percent, to close at $1.30.

On the other hand, Sprint Nortel shares gained 13 cents to close at $18.43.

All in all, a jury composed of five women and three men reached the verdict after two days of deliberations and three weeks of testimony in Kansas City's federal court.

This was the second verdict against Vonage in 2007. Last March, a jury in Virginia determined that the Internet phone company had violated three Verizon patents in building its Internet phone network.

The jury awarded Verizon $58 million in damages, plus 5.5 percent royalties on future revenues.

That decision also is under appeal. Sprint Nextel, with operational headquarters in Overland Park, Kan., sued Vonage two years ago, claiming the upstart company had infringed on 7 patents for connecting Internet phone calls.

Vonage said in a written statement that it would appeal the decision but would also begin developing technological workarounds that it said would "skirt" the disputed technology.

Sharon O'Leary, chief legal counsellor for Vonage said publicly "we are disappointed that the jury did not recognize that our technology differs from that of Sprint's Nextel patents. Our priority is to provide high-quality, reliable digital phone service to our customers, and at a considerably reduced rate."

Vonage denied all the claims, arguing that Sprint's patents were simply "flawed" and shouldn't have been approved in the first place.

"The federal court's decision feels like a death knell for Vonage because future revenue will likely dry up, preventing the company from investing in improved technology or better customer service," said Greg Gorbatenko, a telecommunications and media analyst for Jackson Securities in Camden, NJ.

Gorbatenko added that Vonage should be recognized for pushing Internet telephone services into the mainstream, but he also said the company had a lot of trouble making money at it.

"Any way you look at it, it's just simply more bad news for Vonage, and the near-term future looks bleak to me," Gorbatenko said.

In all, 6 of the patents eventually went to trial. Jurors brushed aside Vonage's claims, determining that the company deliberately violated the patents, meaning U.S. District Judge John Lungstrum could basically triple the damages if he agrees with the jury's final decision.

Vonage said it would ask the judge to set aside the jurors' verdict.

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Source: Wireless Week