Vonage loses two patent cases in one week

But there is a glimmer of hope for Vonage

VoIP, unified messaging, products and services

Vonage was hit twice last week with bad news from its ongoing legal battles. On Tuesday a jury found that Vonage was guilty of infringing on patents owned by Sprint-Nextel. The jury awarded Sprint-Nextel $69.5 million in damages and a 5% royalty on future revenues. Vonage immediately announced it will appeal the case.

On Wednesday, Vonage lost again in its ongoing patent infringement suit filed by Verizon when a federal appeals court upheld parts of the March 2007 verdict and also upheld an injunction against Vonage from using the patented technology. When the higher court upheld the lower court’s injunction that prohibits Vonage from using the contested technology, it delayed the injunction by a month to give Vonage a chance to appeal the ruling to the U. S. Supreme Court. Vonage estimates that about 90% of its customers are already getting service based on a work-around that avoids the contested patents.

Vonage did get some relief in the Verizon case when the court found that one of the patent rulings involving wireless access to VoIP services was not properly construed by the lower court.

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Vonage was hit twice last week with bad news from its ongoing legal battles. On Tuesday a jury found that Vonage was guilty of infringing on patents owned by Sprint-Nextel. The jury awarded Sprint-Nextel $69.5 million in damages and a 5% royalty on future revenues. Vonage immediately announced it will appeal the case.

On Wednesday, Vonage lost again in its ongoing patent infringement suit filed by Verizon when a federal appeals court upheld parts of the March 2007 verdict and also upheld an injunction against Vonage from using the patented technology. When the higher court upheld the lower court’s injunction that prohibits Vonage from using the contested technology, it delayed the injunction by a month to give Vonage a chance to appeal the ruling to the U. S. Supreme Court. Vonage estimates that about 90% of its customers are already getting service based on a work-around that avoids the contested patents.

Vonage did get some relief in the Verizon case when the court found that one of the patent rulings involving wireless access to VoIP services was not properly construed by the lower court.

The good news for Vonage is that when the higher court sent the Verizon case back to the lower court, it also vacated the $58 million damages and 5.5% royalty penalty imposed in the initial ruling, directing the trial court to reconsider the verdict and penalties. The bad news is that Vonage could still be liable for damage and royalty penalties once the lower court reconsiders the case.

But the worst news of all is that Vonage is still losing money and that the company only added 57,000 net subscribers for Q2 2007 – proving that it is facing increased competition from other VoIP providers like the cable companies that bundle VoIP with a triple-play package.

A glimmer of hope for Vonage: At least in the Sprint case, the jury didn’t issue any injunctions that prohibit Vonage from offering service to new or existing customers (as was the original case with Verizon) so Vonage won’t be required to find a technical work-around to stay in business.

Next time: Sprint makes news with femtocell-based fixed-mobile convergence.

Read more about voip & convergence in Network World's VoIP & Convergence section.

Steve Taylor is president of Distributed Networking Associates and publisher/editor-in-chief of Webtorials. Larry Hettick is a principal analyst at Current Analysis.