Optical/IP Networks

Vonage Ordered to Pay $58M to Verizon

A District Court in Virginia today found Vonage Holdings Corp. (NYSE: VG) guilty of infringing three Verizon Communications Inc. (NYSE: VZ) VOIP patents and ordered Vonage to pay $58 million in damages. (See Jury Rules on Vonage.)

The eight-member jury ruled against Vonage on three patents covering technology that enables voicemail and call waiting for VOIP, transfers VOIP calls to the PSTN, and moves VOIP calls over wireless networks. Vonage was found not guilty of infringing patents covering technology that creates and authenticates billing records for VOIP calls.

Verizon also filed an injunction to stop Vonage from using the technology covered by the three patents, or to force Vonage to pay a licensing fee. U.S. District Court Judge Claude Hilton scheduled a March 23 hearing to consider the request.

Both companies were claiming victory today.

"We are proud of our inventors and pleased the jury stood up for the legal protections they deserve,” Verizon attorneys said in a statement.

For Vonage, it could have been a lot worse. "We are delighted that the jury rejected Verizon's meritless claim that we infringed their two billing patents," Vonage said in a statement following the verdict. "Of the seven patents Verizon originally sued on, they prevailed on only three and we expect that verdict to be reversed on appeal." Verizon lawyers had asked the court for damages of $197 million along with future royalties of $4.93 per customer. Vonage lawyers argued during the trial that it should pay no more than $69 million if found guilty of infringement.

A full victory for Verizon could have been a painful blow to Vonage. The company continues to increase revenues, but it is adding new customers at a slowing pace and at greater cost. (See Analysts: Vonage Feeling Cable Heat.)

Meanwhile, losses continue piling up while the money Vonage makes from each customer remains almost flat. Average revenue per user (ARPU) increased only 3.8 percent to $28.25 in the fourth quarter of 2006 from $27.22 a year earlier.

Table 1: Vonage's Q4 Carrier Scorecard
Q4 '06 Q4 '05 y/y Growth Q1 '07* Q1 '06 y/y Growth
Revenue (Millions) $181 $95 91.01% $198 n/a n/a
Earnings (Millions) -$65 -$72 10.31% -$63.40 n/a n/a
GAAP EPS -$0.42 -$51.55 99.19% -$0.40 n/a n/a
ARPU (Average Revenue Per User) $28.25 $27.22 3.78%
Access Lines 2,224,111 1,269,038 75.26%
*projected (data provided by Thomson Financial)

Prior to the verdict, Vonage had assured customers and investors that it could survive a complete Verizon victory, as its balance sheet is strong enough to absorb even the worst-case-scenario damages. Vonage also says it's working on alternate technologies in case the court orders it to stop using the technology covered by the patents.

In filing the suit, Verizon had argued that Vonage has built a business and made a handsome living on the Verizon technology in question. Vonage argued that Verizon is simply trying to kill off a competitor that is stealing away land-line customers. (See Vonage Slams Verizon Lawsuit .)

Verizon has its own VOIP product, called VoiceWing. But VoiceWing is more expensive than Vonage, and Verizon hasn't aggressively marketed it.

Vonage stock closed down 19 cents (3.76%) at $4.86 Thursday. Verizon stock closed up 80 cents (2.24%) at $36.48.

— Mark Sullivan, Reporter, Light Reading

flyingsausage 12/5/2012 | 3:12:44 PM
re: Vonage Ordered to Pay $58M to Verizon these patents are so vague, and looks more like patents on service rather than patents on technology.

is it the new way to reach monopoly ?
Mark Sullivan 12/5/2012 | 3:12:46 PM
re: Vonage Ordered to Pay $58M to Verizon Those are simple, generic descriptions of the technology covered by the patents. The patents refer to *specific* approaches to several VOIP-related functions. There are many approaches to enabling these functions. The jury decided Vonage's approach to three of them was suspiciously similar to Verizon's.
SPecial_Guy 12/5/2012 | 3:12:50 PM
re: Vonage Ordered to Pay $58M to Verizon Apologies for that first message.

Patent 6104711
Patent 6430275
Patent 6282574
Patent 6128304
Patent 6137869
Patent 6359880
Patent 6298062
SPecial_Guy 12/5/2012 | 3:12:50 PM
re: Vonage Ordered to Pay $58M to Verizon Check out the patents in question. These are the Google Patent links based on the 7 claims in Case No. 1:06CV682.

Patent 6430275
Patent 6128304
Patent 6359880
flyingsausage 12/5/2012 | 3:12:50 PM
re: Vonage Ordered to Pay $58M to Verizon "enables voicemail and call waiting for VOIP"

Does it mean that anyone using VoIP with these features is violating patents from Verizon ? Are then SIP and H.248 standards also violating Verizon patents ? What about skype ? all cable operators offering voicemail with VoIP ? what about the future of VoIP services ?

"transfers VOIP calls to the PSTN, and moves VOIP calls over wireless networks"

do I violate Verizon patents when I do netmeeting over WiFi ?
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