Vonage Appeal Denied
Federal Court Upholds Verdict and Affirms Order Blocking Vonage from Using Verizon’s Patents
By Todd Spangler -- Multichannel News, 9/26/2007 7:03:00 AM
Vonage Holdings was smacked with its second legal setback in two days when the U.S. Court of Appeals for the Federal Circuit on Wednesday upheld a lower-court ruling that the Internet-voice provider had infringed two patents held by Verizon Communications.
The decision came a day after a federal jury in U.S. District Court in Kansas City, Kan., found that Vonage infringed six Sprint Nextel patents and ordered the Internet-phone company to pay $69.5 million in damages. Vonage said it plans to appeal that ruling.
The federal appeals court affirmed an injunction issued by a lower court judge in March with regard to two Verizon patents, but reversed the judge’s ruling on a third patent.
As such, the appeals court vacated the March 8 damages of $58 million and 5.5% royalty rate on future revenues a jury awarded to Verizon because the award did not specify which portion of the damages was attributable to which patent. The appeals court sent the case back to the district court to determine the amount of damages and royalties to be awarded to Verizon.
The two Verizon patents that the court affirmed Vonage infringed are U.S. Patent Nos. 6,104,711 and 6,282,574, which cover systems that bridge the traditional phone network with the Internet. The third patent, 6,359,880, is for a public wireless Internet gateway that provides phone access to a public, packet-based data network.
In a statement following the appeals court ruling, Vonage chief legal officer Sharon O’Leary said “it’s business as usual” for the company, which she said had developed workarounds for the two Verizon patents.
“We thank the appellate court for its thoughtful consideration of the merits of our case,” she said. “We are pleased with the decision to vacate the ’880 patent and the damages. However, Vonage remains confident that it has not infringed on the ’880 patent -- a position we will continue to vigorously assert and look forward to presenting at trial."
O'Leary’s statement continued, "We have had our workarounds for the ’711 and ’574 patents in place for some time and will remain focused on providing a great customer experience."
Verizon executive director of media relations David Fish, in a statement, said, “The court’s decision speaks for itself.”
In a note issued after the appeals court ruling, Stifel, Nicolaus & Co. research analyst Rebecca Arbogast wrote, “On balance, we view this as bad news for Vonage because the court upheld the judge's patent construction and the injunction [on the two patents], which cover the [voice-over-IP to public phone network] connection and calling features, and thus go the core of Vonage's current business.”
The key question now, Arbogast added, is whether Vonage’s workarounds “will survive scrutiny by Verizon.”
Vonage shares were listed at $1.00 shortly after 1 P.M. Wednesday, after falling from a Monday close of $2.02. The company went public in May 2006 at $17 per share.
