More Legal Woes for Vonage

Nortel's patent infringement lawsuit is just the latest bit of bad news for the struggling VoIP provider.

By Larry Barrett | Posted Dec 18, 2007
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The hits just keep coming for Vonage.

Last week, Nortel Networks tagged the VoIP  provider with another lawsuit, alleging Vonage violated the Canadian network-equipment maker's patents related to Internet phone services such as 911 and 411 calling as well as its click-to-call feature.

Unlike the other patent infringement litigation that has consumed Vonage in the past few years, this lawsuit is actually in response to one Vonage filed against Nortel earlier this year, charging the network-equipment maker had violated a trio of patents it had acquired from Digital Packet Licensing (DPL) in 2006.

DPL originally filed suit against Nortel in 2004 for violating three patents related to multiplexed digital-packed telephone systems and packet-switching communications systems.

Charles Sahner, a spokesman for Vonage, on Friday told the Associated Press the company plans to hold its ground—at least for now.

"Litigation is ongoing, and both parties have filed—and will continue to file—papers supporting their case," he said, adding "we always prefer to settle disputes amicably whenever possible."

Settling is something the Holmdel, N.J.-based company has mastered so far this year.

In November, Vonage announced it had reached a settlement agreement with AT&T less than a month after it accused Vonage of infringing on patents that let users make VoIP calls using standard telephone devices. In October, it worked out a settlement agreement with Verizon under which it will pay a maximum of $120 million for infringing on three of Verizon's patents, and agreed to pay Sprint Nextel $80 million for similar transgressions.

In March, a Virginia jury found Vonage had infringed on the Verizon patents and awarded the company $58 million in damages plus a royalty on future sales of its Internet-based telephone service.

While the company still claims more than 2.5 million subscribers are connecting their phones to their broadband connections using a Vonage adapter, the legal uncertainty combined with the hefty settlement fees have conspired to erode sales growth as well as the company's stock price.

On Tuesday, its shares closed off 1 cent per share, or less than 1 percent, to $2.01 per share, down more than 72 percent for the year.

"As an industry, it's important for Vonage to keep fighting," Brett Azuma, an Ovum analyst, said in an interview with InternetNews.com. "It's an independent that built a noticeable customer presence. I don't profess to study their finances, but [the litigation and settlements] has to hurt."

Azuma said, lawsuits aside, Vonage has a distinct advantage over Skype and other VoIP providers.

"Most of Vonage's users are paying customers," he said. "And the people who use Vonage are very happy with it."

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