Vonage ordered to pay Sprint $69.5 million in patent case

Internet telephony company dealt another legal blow as a federal jury orders it to pay damages to Sprint Nextel for infringing on six patents.

Internet telephony player Vonage was dealt another serious legal blow Tuesday when a federal jury found the company had infringed on six patents held by Sprint Nextel.

The jury ordered Vonage to pay Sprint $69.5 million in damages.

Sprint sued Vonage in 2005, claiming the company was infringing on seven Sprint patents that dealt with connecting Internet phone calls. Vonage denied the claims and argued that Sprint's patents shouldn't have been approved in the first place.

Vonage said in a statement that it will appeal the federal court's verdict. Vonage also said it will develop technological workarounds that don't infringe on Sprint's patents.

"We are disappointed that the jury did not recognize that our technology differs from that of Sprint's patents, Sharon O'Leary, chief legal officer for Vonage, said in a statement.

This is the latest in a series of legal setbacks the voice over Internet Protocol provider has faced this year. In March, a jury in Virginia found Vonage had infringed on three patents held by Verizon Communications. And the court ordered Vonage to pay $58 million in damages, plus 5.5 percent in royalties on future revenue earned while it was infringing on the patents. Vonage is currently appealing the decision.

Vonage's stock price plunged more than 33 percent Tuesday after the verdict was released, and it closed at $1.30 a share. O'Leary attempted to temper customers' and investors' concerns that this latest legal decision would harm the company.

"Our top priority is to provide high-quality, reliable digital phone service to our customers," she said in the statement. "Vonage has already demonstrated that it can keep its focus on customers and on its core business while managing ongoing litigation."

But in truth, Vonage has had a very hard time keeping its business going while it also fights its legal battles. In August, the company reported that subscriber growth had dropped significantly. In the second quarter of 2007, Vonage added only 57,000 new customers. This is down dramatically from the 166,000 new customers it added in the first quarter.

But Vonage didn't just have trouble acquiring new customers. It also had trouble keeping them. During the second quarter its churn rate, or the rate at which customers cancel service, rose to 2.5 percent from 2.4 percent in the previous quarter.

The only thing the company has going for it right now is that it has a lot of cash on hand. At the end of the second quarter, the company said it had $344 million in cash and about $191 million working capital, which is the cash it has on hand to run its day-to-day business. But even with this cash reserve, Vonage has a long and difficult battle ahead of it. Because without customers, Vonage can't stay afloat forever.

 

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