Vonage Loses in Verizon Patent Case

By Nate Mook, BetaNews

March 8, 2007, 4:05 PM

A federal jury has found that Vonage has infringed on three patents owned by Verizon and ordered the Internet telephony company to pay damages of $58 million, in addition to a 5.5 percent royalty on all future Vonage sales.

The award was far smaller than Verizon's requested amount of $197 million, but potentially more damaging to Vonage's business is whether a permanent injunction will bar it from further use of the technologies. Immediately after the verdict, Verizon requested the injunction, and a hearing has been set for March 23.

Verizon sued Vonage in June 2006, accusing the fledgling VoIP firm of knowingly infringing on seven patents related to functionality such as call forwarding and fraud detection. Vonage said it never knew of the patents and was not approach by Verizon until the lawsuit.

For its part, Vonage called the suit "frivolous" and asserts that Verizon simply wants to put it out of business. Verizon has its own VoIP service, known as VoiceWing. The company launched the offering in 2004, although it has seen slow adoption.

The jury decision that Vonage infringed on three of the patents in question was reached in U.S. District Court for the Eastern District of Virginia after less than a day of deliberations. Although it found against Vonage, it agreed that the company's infringement of the patents was not willful.

Vonage is hardly the only company competing in the nascent VoIP space, although it is one of the largest, which likely led to it becoming the prime target of Verizon. The case was being closely watched throughout the industry, as more such patent cases are expected to follow against smaller firms.

Last week, Vonage promised that a negative outcome in the case would not put the company out of business, although it has not said what impact a permanent injunction could have on its future.