Vonage ordered to pay Verizon
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 Thursday.
Following the verdict in an Alexandria, Va., federal court, Verizon asked for an order banning Vonage’s use of the technology. An injunction could cripple Vonage by allowing it to handle only calls between the company’s customers, Verizon lawyer Peter McCabe said. A hearing was set for March 23.
Shares of Vonage, a pioneering but money-losing Internet telephony service, fell to a record low.
“With Vonage facing so many challenges, this hurts,” said industry analyst Blair Levin of Stifel, Nicolaus & Co. in Washington. “This is not a knockout blow, but it’s a big hit.”
The company’s logical market -- people who want to save money over conventional phone service -- is going to cable TV companies, Levin said. Unlike Vonage, cable companies own their own networks and gear. Worse, Vonage is spending heavily to attract customers but is losing them at a similar rate.
The jury found that Vonage did not act willfully. Had the decision gone the other way, the award would have been tripled.
Shares of Vonage fell 19 cents to $4.86, the lowest closing price since they were first sold to the public in May for $17. Verizon shares rose 80 cents to $36.48.
Vonage, based in Holmdel, N.J., said it would appeal Thursday’s verdict and ask for an immediate stay of any court order halting its use of the disputed technology.
“We expect that verdict to be reversed on appeal,” Vonage said in a statement. “In addition, we don’t believe there is any basis to support Verizon’s request for an injunction.”
Vonage had accused Verizon of trying to stifle competition with the patent-infringement suit, one of at least two against the biggest independent Internet phone company. Sprint Nextel Corp. also is seeking compensation and a court order to stop Vonage from using disputed technology.
New York-based Verizon, the second-largest U.S. phone company, sued Vonage in June, claiming that it copied voicemail and other services. Vonage has lured away more than 1 million Verizon customers, according to the lawsuit. Vonage’s sales more than doubled to $607.4 million last year, compared with Verizon’s $88.1 billion.
During the two-week trial, Verizon said it was owed $197 million in damages for infringement of five patents. Vonage contended that even 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.
The jury found that three of the five patents were infringed and all were valid. The royalties set by the jury are 5.5% for each of Vonage’s 2.2 million customer lines.
“This is a significant victory for Verizon,” Verizon lawyer Daniel Webb said.
The infringed patents cover technology that translates calls between an Internet network and the standard telephone network, call-waiting features and handsets for Internet calling.
Vonage was cleared of infringing two patents related to billing systems designed to prevent fraud.
Times staff writer James S. Granelli contributed to this report by Bloomberg News.
