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Vonage loses patent ruling

Its share price crumbles as it is ordered to pay $69.5 million to Sprint.

September 26, 2007|From the Associated Press

kansas city, kan. -- A federal jury ordered Vonage Holdings Corp. Tuesday to pay $69.5 million in damages for infringing six telecommunications patents owned by competitor Sprint Nextel Corp.

In addition to the damages, jurors ordered the Internet phone company to pay a 5% royalty on future revenue.

Shares of Vonage fell 66 cents, or almost 34%, to $1.30 on Tuesday after the verdict was announced. Sprint rose 13 cents to $18.43.

A jury of five women and three men reached the verdict after two days of deliberations and three weeks of testimony in federal court here.

Vonage said it would appeal the decision but also would begin developing technological work-arounds that it said would skirt the disputed technology.

"We are disappointed that the jury did not recognize that our technology differs from that of Sprint's patents," said Sharon O'Leary, chief legal officer for Vonage. "Our top priority is to provide high-quality, reliable digital phone service to our customers."

It was the second verdict against the Holmden, N.J.-based company this year. A jury in Virginia determined in March that Vonage had violated three Verizon patents in building its Internet phone system. The jury awarded Verizon $58 million in damages plus 5.5% royalties on future revenue. That decision also is under appeal.

Sprint, based in Reston, Va., with operational headquarters in Overland Park, Kan., sued Vonage in 2005, claiming the upstart company had infringed seven patents for connecting Internet phone calls.

Vonage denied the claims, arguing that Sprint's patents were flawed and shouldn't have been approved.

Six of the patents eventually went to trial. Jurors brushed aside Vonage's claims, determining that the company violated the patents and did so deliberately, meaning U.S. District Judge John Lungstrum could triple the damages if he agreed with the decision.

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

Greg Gorbatenko, a telecommunications and media analyst for Jackson Securities, said the decision felt "like a death knell" for Vonage because future revenue probably would dry up, preventing the company from investing in better technology or improving customer service.

He said Vonage should be recognized for pushing Internet telephone services into the mainstream, but he said the company had had trouble making money at it.

"It's just bad news any way you slice it for Vonage," Gorbatenko said.

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