VoIP provider hit by US$58m patent ruling

VoIP provider Vonage has been ordered to pay US$58 million in damages to Verizon for infringing three of the firm's patents, and must pay a 5.5 per cent royalty on all future revenues associated with the infringement.

The disputed patents cover methods of offering commercial-quality VoIP services, including wireless access to internet telephony.

Verizon filed a lawsuit against Vonage in June 2006 alleging infringement of five patents and demanding US$197 million in damages.

The jury provided Vonage with some relief in ruling that the patent infringement was not wilful. In the case of wilful infringement, a jury can triple the damages award as an added penalty.

"Patents encourage and protect innovations that benefit consumers, create jobs and keep the economy growing," said John Thorne, deputy general counsel for Verizon.

"Verizon's innovations are central to its strategy of building the best communications networks in the world."

Vonage claimed a partial victory because it was found to have infringed only three of the patents.

The ruling did not offer a decision on the future of the infringement, and Verizon plans to demand a permanent injunction that blocks its rival from further infringing on the patents.

If Vonage fails to engineer a workaround, an injunction will force the company to disconnect its customers.

Vonage said that it plans to appeal the decision, as well as any request for a permanent injunction. It claimed that customers will see no changes to their phone service.

The ruling delivers another blow to the young VoIP provider. The company suffered badly last year when its stock price collapsed after an initial public offering in May 2006.

Vonage is also facing increasing customer acquisition costs on top of growing churn. The VoIP provider spends an average of US$254.26 on marketing for every new subscriber.

The fine will not put Vonage out of business, however. The company claimed to have US$154 million in cash reserves in its most recent quarterly report, as well as US$390 million in marketable securities.