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Vonage ordered to pay $69.5M in Sprint case

A federal jury on Tuesday ordered Internet telephone company Vonage Holdings Corp. to pay Sprint Nextel $69.5 million in damages for infringing on six telecommunications patents owned by competitor Sprint Nextel Corp.
/ Source: The Associated Press

Internet telephone company Vonage Holdings Corp. was ordered in federal court Tuesday to pay Sprint Nextel $69.5 million in damages for infringing on six telecommunications patents owned by Sprint Nextel Corp.

Vonage shares lost 66 cents, or almost 34 percent, to close at $1.30 in trading Tuesday after the verdict was announced. Sprint shares gained 13 cents to close at $18.43.

Vonage said in a written statement that it would appeal the decision but also would begin developing workarounds so it won’t need to use the disputed technology.

“We are disappointed that the jury did not recognize that our technology differs from that of Sprint’s patents,” said Sharon O’Leary, chief legal officer for Vonage. “Our top priority is to provide high-quality, reliable digital phone service to our customers.”

Matt Sullivan, a spokesman for Reston, Va.-based Sprint, which has operational headquarters in Overland Park, Kan., said the company was “extremely pleased” with the verdict.

He added that Sprint plans to ask U.S. District Judge John Lungstrum for a permanent injunction against Vonage using the patented technology.

It was the second verdict against the Holmden, N.J.-based Vonage this year. A jury in Virginia determined in March that Vonage had violated three Verizon patents in building its Internet phone system. The jury awarded Verizon $58 million in damages plus 5.5 percent royalties on future revenues.

Sprint sued Vonage in 2005, claiming the upstart company had infringed on seven Sprint patents for connecting and transmitting Internet phone calls.

Vonage denied the claims, arguing that Sprint’s patents were flawed and shouldn’t have been approved.

Jurors in Kansas City brushed aside those claims, determining that Vonage violated the patents and did it deliberately, meaning Lungstrum could triple the damages if he agrees with the verdict.

In addition to the $69.5 million damages, jurors awarded Sprint Nextel a 5 percent royalty from Vonage on future revenues.

A jury of five women and three men reached the verdict after two days of deliberations and three weeks of testimony in Kansas City, Kan., federal court.

Greg Gorbatenko, a telecommunications and media analyst for Jackson Securities, said the decision “feels like a death knell” for Vonage because future revenue will likely dry up, preventing the company from investing in better technology or improving customer service.

He said Vonage should be recognized for pushing Internet telephone services into the mainstream, but he said the company had trouble making money at it.

“It’s just bad news any way you slice it for Vonage,” Gorbatenko said.