Vonage in legal tussle with Nortel

Vonage is getting sued--again. This time telecommunications equipment maker Nortel Networks says the company has violated nine patents related to its Internet phone service.

Just when you thought its legal troubles were over, Vonage gets involved in another legal squabble with telecommunications equipment maker Nortel Networks.

On Friday, Nortel filed a lawsuit against Vonage claiming that the voice provider has violated nine patents related to its Internet phone service, including features such as 911 and 411 calling and click to call.

The lawsuit, which was filed in U.S. District Court in Delaware, comes in response to a suit Vonage is pursuing against Nortel. In 2004, a company called Digital Packet Licensing sued Nortel for infringing on three of its patents. Vonage acquired Digital Packet Licensing last year and is continuing the lawsuit.

For more than a year, Vonage has been caught up in one patent lawsuit after another. AT&T, Sprint Nextel, and Verizon Communications have all sued the company for allegedly violating their patents. In October, Vonage settled its suit with Sprint Nextel for $80 million. Later that month, it settled with Verizon in a deal that could cost the company a maximum of $120 million. And early in November, Vonage was in settlement talks with AT&T in deal that could cost it $39 million over five years.

As for its performance, Vonage is hanging in there, but there are still troubles. It actually reported slightly better-than-expected revenue numbers for the third quarter of 2007, pulling in about $211 million. This was a little better than some analysts on Wall Street had expected; they predicted the company would report $210 million in revenue. But Vonage is still struggling to keep customers it has already won. The company said it had added 78,000 net subscribers in the quarter, increasing the total to more than 2.5 million. But it is still churning or losing a lot of customers. The company reported an average monthly churn rate of 3 percent up from 2.5 percent during the second quarter.

At the end of the day, Vonage has a very tough road ahead. Not only has its reputation been damaged, but the company will be spending a lot of money over the next several years paying off its legal bills. The best thing it can do now is settle this and any other lawsuits quickly, so it can move forward.

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