Vonage Loses Sprint-Nextel Patent Suit

A federal court ruled on Tuesday that struggling VOIP (voice over Internet Protocol) provider Vonage Holdings Corp. infringed on patents owned by Sprint Nextel Corp.

Jurors in the U.S. District Court in Kansas found that Vonage willfully infringed on Sprint's patents as part of its VOIP service, Vonage said. The jury awarded Sprint US$69.5 million in damages, which amounts to 5 percent of Vonage's revenue during the infringing period.

Vonage plans to initially ask the court to set aside the verdict but if that fails the company will appeal the decision. In the meantime, Vonage will also develop workarounds that don't require Sprint's patents, it said.

This is the second legal blow to Vonage this year. A court found earlier this year that Vonage infringed on Verizon Communications Inc. patents. That case came with an injunction that would have prevented Vonage from signing up new customers. Vonage won a stay of that injunction and is appealing the original infringement ruling.

Although it's clearly bad news for Vonage to have two patent infringement rulings against it this year, the appeals could change everything, said Seth Ostrow, a partner specializing in patents in Dreier LLP. "Often there are mistakes made during various stages of a case that form the basis for a successful appeal, and that, coupled with the statistics, gives reason to think that Vonage has a significant chance of getting this changed," he said. Statistics show that patent cases often get changed on appeal, he said.

In August, Vonage said it had nearly completed rolling out workarounds for two of the three patents claimed by Verizon. Still, the Verizon case alone appears to have slowed growth for the company, the largest independent VOIP provider. In its second quarter this year, Vonage added 57,000 customer lines, compared with 256,000 in the same quarter in the previous year.

Vonage has said that Verizon pursued the lawsuit in an effort to eliminate a competitor.

Vonage stock opened the day at $1.99 and closed at $1.20, a 33 percent drop.