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Vonage loses appeal in Verizon case

by on27 September 2007


Appellate Court upholds 2 of 3 findings

We reported
yesterday that Voice over Internet Protocol (VOiP) telephony provider Vonage had lost a patent infringement case to Sprint Nextel and was ordered to pay $69.5 million plus royalties on future business to Sprint Nextel. The jury in that case was likely persuaded by arguments previously presented by Sprint Nextel’s attorneys in the successful lawsuit against Vonage by Verizon Communications Corporation; in that case Vonage was ordered to pay Verizon $58 million for patent infringements plus future business royalties.  Vonage had appealed the Verizon verdict to the U.S. Court of Appeals.

Vonage lost another round today when the U.S. Court of Appeals upheld the Verizon verdict.  However, the Appellate Court issued a somewhat contradictory ruling:  it threw out one of the three patent violation verdicts and upheld the other two.  As the damage award of $58 million was based on all three patent infringement findings, the Appeals Court sent the case back to the lower (trial) court and asked it to reconsider the total damage award.  Also pending is an injunction that was awarded by the trial court against Vonage but that had not yet been imposed pending the outcome of the appeal.  Now that the Appellate Court has made its ruling the injunction for the two upheld patent verdicts will likely be enforced within about a month and could shut down the patent infringing portion of Vonage’s VOiP service, which is essentially the core of its business.

Vonage expressed it happiness that the Appeals Court had thrown out one of the patent violation verdicts and sent the case back for reconsideration of the damages amount.  However, the patent violation that was thrown out does not go to the fundamentals of Vonage’s business.  The two patents verdicts that the Appeals Court upheld, U.S. Patent No. 6,282,574 and U.S. Patent No. 6,104,711, define how phone calls are routed over the Internet, which essentially is the basis of Vonage's IP telephony service today.

The patent violation that was vacated for retrial, U.S. Patent 6,359,880, covers how public wireless and cordless Internet gateways communicate with the Internet. Because this technology is not a big part of Vonage's commercial service today, sending the case back to the lower court will likely have little impact on Vonage's actual business.  And the retrial of this particular “880” patent will not likely reduce the damages awarded to Verizon by all that much.

Vonage’s stock has fallen from its IPO price of US$17 to today’s price of US$.96 per share.

Read more here.

Last modified on 27 September 2007
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