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Author Topic: Vonage Loses Patent Suit To Sprint;Stock Hits Low  (Read 1691 times)

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Vonage Loses Patent Suit To Sprint;Stock Hits Low
« on: September 26, 2007, 09:44:39 AM »
Vonage Holdings Corp.'s (VG) legal woes continue to mount after suffering a defeat at the hands of Sprint Nextel Corp. (S).

A jury in U.S. District Court in Kansas City, Kansas, ruled that Vonage had illegally used Sprint patents relating to connecting Internet phone calls. The jury ruled that Vonage would have to pay Sprint $69.5 million in damages, which was the equivalent of 5% of the revenue it derived during the period in which it used the technology.

More importantly, Vonage runs the risk of an injunction barring it from offering its Internet-based phone service. Because Sprint manages Internet phone traffic as well, an injunction could happen quickly, said Mark Kesslen, the head of the intellectual property group at law firm Lowenstein Sandler PC.

"Vonage is in trouble," he said, adding that an appeal would stay the injunction.

Vonage, Holmdel, N.J., denies using Sprint's patents and said it would pursue an appeal of the ruling. "We are disappointed that the jury did not recognize that our technology differs from that of Sprint's patents," chief legal officer Sharon O'Leary said in a statement.

Sprint was satisfied with the outcome. "We're extremely pleased with the verdict," said spokesman Matt Sullivan. "It underscores the strength of our voice-over packet portfolio and reinforces the importance of the innovations developed by Sprint employees."

Vonage shares on Tuesday fell 34% to $1.30 - an all-time closing low. The stock hit an intraday low of $1.20. After its initial public offering when the stock hit $17, the shares have steadily fallen over the past year and a half.

It's the second major legal defeat for Vonage. In March, a federal jury had ruled Vonage had illegally used Verizon Communication Inc.'s (VZ) patents, which dealt with routing Internet calls through traditional phone switches. The company was ordered to pay $66 million and pay a 5.5% royalty fee going forward. A decision on the appeal of the case is pending.

Vonage is working on a technology "workaround" to Sprint's patents similar to how it is addressing the Verizon patents.

A pioneer in offering Internet phone service, Vonage has suffered through a flood of negative press and litigation, which have curtailed customer growth. But even before the problems, the company lost money as it spent heavily on subscriber growth.

In April, Vonage founder and chairman, Jeffrey Citron, took over as interim chief executive in an effort to streamline costs and run the business more efficiently in the face of rising legal costs.

Vonage is not the only Internet phone company to get squeezed. Privately held SunRocket abruptly shut down in July. The start-ups faced intense competition from the cable companies, which offered their own Internet phone service bundled with Web access and cable TV.
The Web Team
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