Vonage ordered to pay Verizon $58m

Vonage Holdings was ordered to pay Verizon Communications $58m plus monthly royalties on Thursday in a patent infringement case that could have far-reaching implications for the emerging market in internet telephony.

A jury ruled that Vonage, the independent voice over internet protocol (VoIP) pioneer whose services pose a threat to traditional telephony, had infringed three patents on internet telephone services held by Verizon, the US’s second largest telecoms group.

Vonage said it would appeal the verdict and ask for an immediate stay of any court order halting its use of the disputed technology.

The patent infringement lawsuit was one of several filed against Vonage, the largest and most successful of the independent VoIP phone companies.

During the two-week trial, Verizon claimed it was owed $197m in damages for infringement of five patents on technology devised by Verizon engineers in the mid-1990s. Vonage insisted the patents were invalid.

One of the issues at stake in the litigation is the extent to which VoIP relies on open standards rather than proprietary technology, said Blair Levin, analyst at Stifel Nicolaus.

“The outcome of the case against Vonage will likely spill over to the larger VoIP sector,” he warned.

The eight-person jury found that three of the five patents were infringed and ruled all of them were valid. In addition to the penalty, the jury ruled Vonage must pay royalties equivalent to 5.5 per cent for each Vonage customer line per month.

The jurors rejected Verizon’s argument that the infringement was wilful. A finding in Verizon’s favour would have allowed the company to ask that the damage award be tripled.

“We’re satisfied that the jury found the patents were infringed,” said Verizon. “That was our argument all along.”

Vonage’s sales more than doubled to $607.4m last year, compared with Verizon’s $88.1bn. However, the company has struggled to make a profit because of its high advertising spending and its relatively high customer turnover, or churn.

Vonage’s share price has fallen sharply since its initial public offering in May at $17 and fell a further 3.7 per cent to $4.86 on Thursday in the wake of the verdict. In contrast, Verizon’s shares gained 2.2 per cent to $36.48 by the close in New York.

Additional reporting by Stephanie Kirchgaessner