Vonage Settles with Verizon

Embattled Internet telephone company Vonage settled its contentious patent dispute with Verizon Oct. 25, agreeing to pay as much as $120 million for infringing on Verizons patents. The terms of the resolution depend on how the Court of Appeals decides Vonages pending petition for rehearing regarding two of the Verizon patents.

If Vonage wins a rehearing on either of the two patents or if the injunction is vacated, Vonage will pay Verizon $80 million. If Vonage does not win rehearing on either of the patents, or if the stay is lifted reinstating the injunction, Vonage will pay $120 million, which includes $2.5 million payable to certain charities.

Vonage announced the settlement after the market closed Oct. 25. Vonage stock soared in after-hours trading from $1.53 to $2.16 a share.

“Were pleased to put this dispute behind us and believe this settlement is in the best interests of Vonage and its customers,” Sharon OLeary, Vonages chief legal officer, said in a statement. “This settlement removes the uncertainty of legal reviews and long-term court action and allows us to continue focusing on our core business and customers.”

On Sept. 26, the Court of Appeals ruled that Vonage, of Holmdel, N.J., infringed two patents held by New York-based Verizon and remanded a third infringement claim back to a lower court. The appeals panel also vacated the entire award of $58 million in damages and ordered the lower court to reconsider and recalculate the damages.

The Verizon patents, filed in 1997, cover the translation of domain names and IP addresses to telephone numbers when Internet calls are passed off to the traditional telephone system. Vonage claims the solution was obvious to those skilled in the art and that the Patent and Trademark Office should have never issued the patents to Verizon.

Vonage also agreed Oct. 9 to settle an infringement dispute with Sprint Nextel, with Vonage agreeing to pay $80 million in a licensing deal for Sprint Nextels technology. Still unresolved is an infringement lawsuit brought against Vonage by AT&T.

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