Franklin VOIP

Mar. 8 when an eight-person jury found it guilty of infringing on three patents owned by rival telco Verizon. After a weeklong hearing in the U.S. District Court for the Eastern District of Virginia, a jury ruled that Vonage Holdings (VG) must pay Verizon Communications (VZ) $58 million in damages and a 5.5% licensing fee per subscriber per month. Read More The damages and fee fell short of what Verizon asked for, and the jury said Vonage didn't infringe on two of the patents at the heart of the case. It also found Vonage was not willful in its infringement, helping Vonage avoid stiffer penalties. The company's stock fell 3.86%, to $4.85, an all-time low, the day the verdict was announced. The decision and expected injunction barring Vonage from using Verizon technology without paying the royalty fee are likely to take a big financial toll and push back profitability targets. They could also undermine customer confidence and make Vonage and other Web-calling providers vulnerable to other lawsuits. With an injunction in place, Vonage either will have to pay Verizon royalties or rebuild its network so that it doesn't using the technology in question -- or face a service shutdown. Both options are fraught with risks. Verizon's patents cover a range of features, from call-waiting to how Web calls are connected to traditional phone lines. So coming up with a so-called workaround won't be easy, say Stifel, Nicolaus (SF) analysts. Vonage does have some patents of its own. In July, it acquired three patents from Digital Packet Licensing, saying the purchase would help it fend off litigation from Verizon and other companies such as Sprint Nextel (S). The Mar. 8 verdict shows the patents weren't as potent as Vonage had hoped. According to the U.S. Patent & Trademark Office, there are 2,273 patents related to VoIP, many of them belonging to telecom old-timers like Verizon, AT&T (T), Motorola (MOT), Broadcom (BRCM), and Cisco (CSCO). Verizon vs. Vonage Comments Page By Greg Galitzine - Group Editorial Director On March 8, following the jury ruling, Vonage issued the following statement: We are delighted that the jury rejected Verizon’s meritless claim that we infringed their two billing patents. Of the seven patents Verizon originally sued on, they prevailed on only three and we expect that verdict to be reversed on appeal. The jury’s damage award represents a 70% reduction from Verizon’s $197MM claim. The jury also unanimously rejected Verizon’s claim that Vonage willfully infringed its patents. In addition, we don’t believe there is any basis to support Verizon’s request for an injunction and we will have the opportunity to present our position to the trial court shortly. If the trial court does impose an injunction, we will seek an immediate stay from the Federal Court of Appeals. Vonage’s customers should see no change to any aspect of their phone service. The following day, March 9, in an effort to reassure their customers, Vonage released the following statement. Vonage expressed the utmost confidence in the following: --Vonage is not going out of business. --There will be no loss of service to our customers. --Our customers will experience no change in their phone service. In the unlikely event the monetary award ($58 million) and royalties are ultimately upheld/paid, they will not jeopardize Vonage’s financial position as we focus on achieving profitability. Vonage is equipped to handle these costs, while still running our business as we always have. “We are confident in Vonage’s future health, growth prospects and longevity,” said Jeffrey A. Citron, Vonage’s chairman and chief strategist. Matthew Schulman is a Regulatory Consultant with REGNUM GROUP, INC. The Verizon vs. Vonage patent case has far greater implications than the $58 million (plus 5.5% future royalty) amount awarded to Verizon. Verizon’s claim was based on the seven patents that they control, and Vonage claims to have acquired three patents to protect their own interests. If the major players control the technology and charge royalties for past and future traffic, the entire VoIP industry may be adversely affected, forcing many providers out of the market. VoIP and SIP technologies have progressed quickly because of an unfettered arena, free from governmental, IP (Intellectual Property) and protectionist burdens. As VoIP has become more mainstream, its value has increased exponentially and the desire to control it seems to be causing a feeding frenzy amongst the major players. Where would the telecommunications industry be today if these high rates were charged for TDM, ATM, or other intrinsic technologies? The VoIP industry may need to examine the benefits of laissez-faire policies and seek protection from the entities that it initially wanted to avoid. This is a developing situation that will have tremendous impact on the entire telecommunications industry. Huw Rees, vice president of marketing and sales for 8x8 had this to say: Unfortunately, the U.S. jury ruling in favor of Verizon’s patent infringement claims ultimately affects consumers, as large telcos continue to seek out ways to thwart the availability of lower priced, competitive VoIP phone services. That being said, 8x8 is confident in the defense of its own proprietary technology which has been awarded 66 U.S. patents and remains at the core of our Packet8 residential and business Internet phone service. And Greg Welch, CEO, GlobalTouch Telecom, offered these comments: There is no question that the recent Verizon success in its litigation against Vonage will have an impact on the VoIP industry. Does it create a more complex and challenging environment? Most certainly. Does it mean the end or even a slow-down of the growth in VoIP services? We think not. Nimble entrepreneurial companies will have the skill and insight to navigate around this latest obstacle. Business planning and financing will become more complicated. Resources will need to be allocated to pay attention to patent issues and aggressively consider their implications as part of Standard Operating Procedure. Has Sarbannes-Oxley put a stop to fast-moving publicly traded companies? Of course not, but the new realities cannot be avoided. Audits, reports and accountability are a cost of doing business. So too will be the costs in a post Verizon/Vonage legal and patent environment. The Internet and VoIP are organic. They grow and evolve. The pending decision does nothing to change this. John Cimko is a regular contributor to Internet Telephony magazine. He served for 15 years at the FCC (News - Alert) and currently practices law at Greenberg Traurig LLP in Washington, D.C: The recent court decision that Vonage has infringed Verizon patents, if it is upheld on appeal, could have negative implications for the VoIP industry. For one thing, Vonage itself - a company which has been a leading VoIP innovator and pioneer - will have to cope with the $58 million damages price tag and the 5.5 percent royalty on future sales. Potentially even worse is the fact that Verizon is trying to get a permanent injunction that would bar Vonage from using the patented technologies. This “triple play” - the court-imposed damages, the royalty fees, and the potential injunction - will make it tougher for Vonage to compete against Verizon and other large players who would like to capture larger shares of the VoIP market. In addition, the court decision could prompt Verizon to bring infringement actions against other independent VoIP providers. If these small, independent providers are targets for such infringement claims, and become subject to damages and other liabilities like those imposed by the court on Vonage, these developments could further undermine the strength of competition in the VoIP market. Vonage and Verizon Settle Patent Dispute Settlement Cost Capped at Additional $32 Million HOLMDEL, N.J., Oct 25, 2007 /PRNewswire-FirstCall via COMTEX News Network/ -- Vonage today announced that the cost of its settlement of a patent dispute with Verizon will be effectively capped at a maximum of $32 million, in addition to the $88 million already accrued and held in escrow. The $88 million includes a $66 million cash-collateralized bond, a $12 million second-quarter escrow payment, and a $10 million third-quarter escrow payment made in the fourth quarter of 2007. Vonage and Verizon earlier today announced they have agreed to resolve their patent lawsuit. The terms of the resolution depend on how the Court of Appeals decides Vonage's pending petition for rehearing regarding two of the Verizon patents (the '574 and '711). If Vonage wins rehearing on either the '574 or '711 patent or if the injunction is vacated as to the '574 or '711 patent, Vonage will pay Verizon $80 million. If Vonage does not win rehearing on either the '574 or '711 patent, or if the stay is lifted reinstating the injunction, Vonage will pay $120 million, which includes $2.5 million payable to certain charities. "We're pleased to put this dispute behind us and believe this settlement is in the best interests of Vonage and its customers," said Sharon O'Leary, Vonage Chief Legal Officer. "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." The latest decision in the litigation came on September 26, 2007 when the U.S. Court of Appeals for the Federal Circuit partially remanded a March 8 jury verdict in the U.S. District Court of Alexandria, Va. that the company infringed on three Verizon patents. The appellate court remanded the infringement verdict on the 880 patent and affirmed the verdict on one patent claim in each of the 574 and 711 patents. The appellate court vacated the entire damages award of $58 million and the 5.5 percent royalty, and directed that the trial court retry those aspects of the original case. Vonage's petition for a rehearing en banc was filed on October 10, 2007. Vonage hangs up on Verizon patent infringement with new agreement Faced with the possibility of a permanent injunction, Vonage has signed a two-year deal with another VoIP services company. Is it enough to stave off a possible shutdown of its service? By Eric Bangeman | Last updated April 2, 2007 6:15 PM Vonage has signed an agreement with a VoIP network services provider to carry calls placed by Vonage customers, giving the troubled VoIP provider an out on two of the three Verizon patents it was found to have infringed. According to a Form 8-K filing with the Securities and Exchange Commission, Vonage and VoIP, Inc. have inked a two-year contract under which VoIP, Inc.—likely under its VOICEONE brand—will provide network services for Vonage customers. Last month, a federal jury found that Vonage's VoIP services infringed on three patents owned by Verizon after deliberating for less than a day. Two of the patents cover connecting VoIP calls to public switched telephone networks (PSTN); the third covers VoIP calls made using WiFi phones. While the jury found that Vonage did not knowingly infringe on Verizon's patents, it did award the telecom $58 million in damages. When the federal judge overseeing the case issued an injunction against Vonage a couple of weeks later, concerns about the company's viability increased. The judge will rule in the next couple of weeks on whether to enforce the injunction immediately or allow the case to make its way through what could be a lengthy appeals process. By signing the agreement with VoIP, Inc., Vonage has provided itself with a measure of protection against the injunction. VoIP, Inc. owns its own network, describing VOICEONE as the "first, seamless nationwide IP network." Perhaps most crucially from Vonage's standpoint, VoIP, Inc. claims to own the intellectual property around its network and services. After the two-year agreement has run its course, the companies have the option of continuing it on a month-to-month basis. All of this comes at a price to Vonage. With the threat of a permanent injunction hanging over its head, the company was not in the strongest of bargaining positions. The agreement has to be a bitter pill to swallow for a company that is still experiencing high levels of customer churn and has yet to make a profit. The terms of the deal have not been announced, but whatever the terms may be, the agreement represents an additional, ongoing expense for Vonage. Despite the financial concerns, it was a necessary move for Vonage. The agreement all but kills the threat of a shutdown of Vonage's network, giving both the company and its customers (me, for one) some peace of mind.