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TMCNet: Vonage settles Verizon patent suit; stock jumps, though legal troubles persist

[October 25, 2007]

Vonage settles Verizon patent suit; stock jumps, though legal troubles persist

(Associated Press WorldStream Via Thomson Dialog NewsEdge) NEW YORK_Vonage Holdings Corp., the beleaguered provider of Internet-based telephone service, said Thursday it has settled a patent lawsuit brought by Verizon Communications Inc. for a maximum of $120 million (84 million).

The lawsuit, along with two filed by other phone companies, had cast a heavy shadow over Vonage's future. The company's service enables subscribers to connect their phones to their broadband connections for about $25 (17.47) a month using a Vonage adapter.

After setbacks in the litigation with Verizon, which began in June 2006, Vonage put $88 million (61.5 million) in escrow. The settlement caps any payouts Vonage will make on top of that amount at $32 million (22.4 million). If Vonage wins a rehearing on either of the two patents at issue, its total payout will be $80 million (56 million).

The settlement was announced just after the 4 p.m. stock market close, which saw Vonage shares down 10 cents, or 6.2 percent, at $1.50 (1.05). In after-hours trading, the shares jumped 67 percent to $2.50 (1.75).

In March, a jury held that Vonage had infringed on three patents and awarded Verizon $58 million (40.5 million) in damages, plus a royalty on future revenues. In September, an appeals court sent the remaining two patents in dispute back to the lower court for retrial.

"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," said Sharon O'Leary, Vonage's chief legal officer.

The settlement is a major step forward for Holmdel, New Jersey-based Vonage, which earlier this month settled another patent dispute with Sprint Nextel Corp. for $80 million (56 million).

The settlement does not put Vonage's legal troubles in the past, however. AT&T Inc. sued Vonage last week, also for patent infringement.

Vonage had a substantial war chest, thanks to an initial public offering last year at $17 per share that drew in more than $500 million (349.5 million) but quickly turned into an embarrassment when the stock plummeted.

The legal challenges have scared off customers and stalled Vonage's growth. It now has about 2.45 million subscribers.

Copyright 2007 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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