Vonage Clears Another Hurdle With Verizon Settlement

Vonage has settled the financial details of a lawsuit it lost to Verizon for patent infringement, capping its penalty at US$120 million — a possible $32 million in addition to the $88 million already accrued and held in escrow.

The final amount will depend on how the Court of Appeals decides Vonage’s pending petition for a rehearing on two of the Verizon patents. If Vonage wins a rehearing on either, or if the injunction on either is vacated, it will pay Verizon $80 million.

If Vonage does not win a rehearing, or if the court lifts the stay and reinstates the injunction, Vonage will have to pay the full $120 million, including $2.5 million to certain charities.

Moving Forward

Reaching this settlement, on top of an earlier $80 million settlement with Sprint Nextel, means Vonage can now concentrate on moving forward with its business plan, company spokesperson Charlie Sahner told the E-Commerce Times.

The company can now give its full attention to what it hopes will be the last major legal obstacle to overcome: a patent infringement suit brought by AT&T.

Filed last Wednesday in the U.S. District Court in Madison, Wis., the AT&T suit centers on a 1996 patent that describes the process of routing phone calls over the Internet.

“We continue to work towards an amicable solution with AT&T,” Sahner said.

Threatening Product

The fact that Vonage has been bombarded with patent infringement lawsuits does not necessarily mean it deliberately violated other companies’ patent rights. One must also consider the disruptive effect in the telecom industry accompanying the emergence of VoIP, or Voice over Internet Protocol.

“The fact that Vonage is plagued by lawsuits appears to be a testimony to its value,” attorney Steven Rubin of WolfBlock’s Intellectual Property/Information Technology Practice Group told the E-Commerce Times.

“You don’t bother suing a company that doesn’t have a market share or a threatening product,” he said.

Both sides, though, have much to gain — and lose — if litigation is protracted.

“AT&T’s patent … will be subject to the more stringent patentability standard articulated by the Supreme Court, Rubin said. “This means it will be easier for Vonage to challenge its validity.”

On the other hand, Vonage may be handicapped by its earlier settlements with AT&T competitors. One effect of all these lawsuits is that there are ample court records explaining Vonage’s technology.

“This makes it easier for a company like AT&T to learn of potential infringement and to make a case,” Rubin pointed out.

“Vonage is also backed into a corner by certain admissions,” he continued. “By trying to avoid infringement in one case, it may have admitted infringement in another.”