Analysts See Vonage Settlement As Marketing Re-Start

by Laurie Sullivan, Oct 30, 2007, 5:00 AM

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Settle the patent lawsuits and get back to marketing, analysts say. Internet phone company Vonage Holdings settled an ongoing patent-infringement lawsuit with Verizon Communications last week by agreeing to pay up $120 million.

Holmdel, N.J.-based Vonage would give $2.5 million of the judgment to charity and the remainder to Verizon. The payment by the struggling VoIP carrier could be cut to $80 million if a U.S. appeals court agrees to reconsider last month's ruling that upheld most of the $66 million jury verdict for Verizon.

The announcement comes a month after Vonage lost the majority of an appeal focused on three VoIP patents held by Verizon. The exact amount Vonage pays Verizon depends on whether the federal appeals court grants another hearing, Vonage says in a prepared statement.

"I am surprised to hear the infringement is so widespread, because it wasn't with one carrier--there were multiple alleged infringements," says Chris Roberts, director of research at Tejas Securities Group. "The negative press about the lawsuit doesn't help their marketing campaign. If consumers think the service will be interrupted, they won't sign up."

Roberts says in the long run, Vonage benefits from settlement because the Verizon litigation hung over the company and distracted management for months.

Vonage also settled a patent suit with Sprint Nextel for $80 million, and now its patent litigation with AT&T remains unsolved. Both carriers have held claims against the VoIP company for about two years.

AT&T's lawsuit, filed Oct. 17 in U.S. District Court for the Western District of Wisconsin, alleges that Vonage sells products that infringe on the San Antonio, Texas, company's patents. The largest U.S. carrier claims it has attempted to negotiate a licensing agreement, but the two companies failed to settle on terms.

Apparently, Vonage management thought it had done enough research to guarantee it wouldn't trample over another company's patents before launching the business, but judges didn't agree.

"Typically, someone will have an idea to develop a product and never look back," says Robert Blaha, patent attorney and partner at Smith Frohwein Tempel Greenlee Blaha in Atlanta. "They probably haven't given much thought into making, distributing and selling a device that could infringe many other people's patents. Many times it's an afterthought for a new company."

Blaha says inventors will search patent records for the idea, and when they don't find it, they assume the coast is clear.

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