Optical/IP Networks

Vonage Loses Verizon Appeal

The U.S. Court of Appeals in Washington, D.C., affirmed today that Vonage Holdings Corp. (NYSE: VG) is guilty of infringing on two of the three patents owned by Verizon Communications Inc. (NYSE: VZ). (See Vonage Verdict Affirmed.)

Verizon had sued Vonage claiming that it had infringed upon its 574, 711, and 880 patents. The appeals court today affirmed that Vonage is guilty of the 574 and 711 patents, but remanded the decision on the 880 back to the district court to be reconsidered in a new trial.

Vonage as of now has placed a little over $80 million in escrow while this case has been heard by the appeals court. The total includes the $58 million in damages originally awarded Verizon and the 5.5 percent royalty payments also awarded to Verizon. (See Vonage Ordered to Pay $58M to Verizon.)

However, it is not yet clear how much of this money will eventually be paid to Verizon. According to court documents, in the original district court ruling by Judge Claude Hilton, the verdict gave no indication as to what percentage of the award was tied to each patent violation. Therefore, Vonage does not have to pay Verizon just yet.

But during the original trial, both companies' damages experts testified that of the three patents in question, the 880 patent was insignificant to Vonage since it referred to WiFi applications that were new to Vonage's business, whereas the 574 and 711 were key to its core business. According to court documents, Verizon's damages expert argued that there would be no damages associated with the 880 patent.

Based on this, it is possible that the district court would be justified to avoid a retrial of the 880 patent and order Vonage to pay the original damage number if it is in fact determined that there are no damages associated with this patent that is still in question.

Alternatively, he could determine that since the original damage verdict was tied to all three patents, a new penalty will have to be handed down.

In the meantime, Vonage has claimed that it has achieved workarounds for the two patents it is guilty of infringing and that it will be business as usual for its customers.

Vonage's stock continued to fall on the news and has for the first time crossed below the $1 mark. Shares are trading down $0.36 (27.69 percent) to $0.94 in late afternoon trading.

— Raymond McConville, Reporter, Light Reading

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