Sprint Award May Spell the End of Vonage

A jury awards $69.5 million to Sprint in a patent infringement suit, Vonage's second big defeat in a year.

The final nail may be in the coffin for Internet phone company Vonage Holdings. Vonage suffered what some believe may be a fatal blow Sept. 25 when a jury awarded $69.5 million to Sprint Communications for patent infringement.

The ruling was the second major defeat for Vonage in 2007. In March, Vonage lost a patent infringement suit brought by Verizon and was required to pay $58 million in damages and 5.5 percent of all future revenues.

"The end may very well be in sight for Vonage, because the judgment represents at least 25 percent of its total value," said Stan Schatt, vice president for broadband and wireless networks at ABI Research. "I think the handwriting is on the wall."

Click here to read more about Verizons patent suit against Vonage.

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"[Vonage] certainly seems to keep hemorrhaging money. Between the penalties they have to pay Sprint and the penalties they have to pay Verizon, they have to put more than $100 million into an escrow account," said Larry Hettick, principal analyst for the digital home division of consultancy Current Analysis. "But they may have enough cash to operate for another year or two."

Of course, Vonage isnt taking any of this lying down. The company has announced plans to appeal the verdict, probably on the grounds that the patents are just logical continuations of technology and that the concepts should never have been patented because they were natural extensions of where technology is headed, Schatt said. But the likelihood that Vonage can get the ruling reversed is "somewhere between slim and none," he added.

Although Vonage very well may go out of business because it simply cant afford to pay its bills and the judgments, Hettick said he doesnt believe that is what will do the company in.

"Vonages bigger problem long-term is that it doesnt have a triple-play [of voice, video and data], which seems to be increasingly important to consumers," he said.

Independent telecommunications analyst Jeff Kagan agreed.

"Vonage was important a few years ago when VOIP [voice over IP] was a brand-new service, but the future of Vonage isnt that important to the industry anymore," he said. "You can get VOIP services from Verizon, Comcast and other players. Regardless of whats going on with this lawsuit, Vonage will probably fade away over the next few years."

But dont bury Vonage quite yet: On Sept. 26, the embattled company announced that the U.S. Court of Appeals for the Federal Circuit had partially overturned a verdict, upholding the verdict on two patents but rescinding the verdict on one. The Court of Appeals also threw out the $58 million in damages and 5.5 percent royalty and requested that the U.S. District Court retry the case to rule on new amounts.

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