March 09, 2007, 8:11 AM — A federal jury has found that Vonage Holdings Corp. infringed three Verizon Communications Inc. patents and must pay $58 million in damages plus royalties to Verizon, Vonage confirmed Thursday.
Verizon sued Vonage last June, alleging the VOIP (voice over Internet Protocol) provider had violated seven of its patents involving the packet-based calling technology. In reality, the giant carrier sued to try to eliminate "a formidable competitor" to part of its traditional phone business, said Vonage spokeswoman Brooke Schulz.
Vonage, founded in 2001, was a pioneer in commercializing VOIP. The technology, which Verizon and other traditional carriers have since started to offer, converts voice calls into data packets and sends them over an IP network. Vonage and other VOIP providers sell their services on both low cost and special features that aren't available with traditional circuit-switched phone systems.
Vonage must pay a 5.5 percent royalty rate on future sales to use the Verizon technology. After the verdict, Verizon asked for a permanent injunction to stop Vonage from using the technology altogether, Vonage confirmed.
In a statement, Vonage said it expects the verdict to be reversed on appeal. The award was 70 percent lower than the $197 million that Verizon originally sought, Vonage said. There is no basis for an injunction and Vonage will seek a stay from the Federal Court of Appeals if it is imposed, the company said.
Vonage customers should not see any change to their service, Vonage said.
"We are proud of our inventors and pleased the jury stood up for the legal protections they deserve," Verizon said in a statement.
Vonage had more than 2.2 million customers at the end of last year. Even with a slowdown in subscriber growth late in the year, its customer base grew about 75 percent in 2006. Verizon serves more than 45 million landlines around the U.S. and added 2.3 million customers in its most recent quarter alone.
Verizon had claimed Vonage infringed on seven patents covering areas including VOIP billing, fraud detection, call waiting and voicemail, gateways between VOIP and circuit-switched phone networks, and methods for using Wi-Fi handsets for VOIP. It prevailed on just three, which covered methods of offering commercial-quality VOIP, including wireless VOIP, according to a Verizon statement.
