Vonage Dealt Sprint Nextel, Verizon Patent Blows

Vonage’s legal team probably wishes the week never began.

First, a jury in a U.S. district court in Kansas City yesterday ordered the VoIP player to pay Sprint Nextel $69.5 million in damages for infringing six voice-over-packet patents. Not only is Sprint Nextel set to receive millions for the past, but it will also make 5 percent of future Vonage earnings, according to the ruling.

Today, a federal appeals court compounded the damage, upholding an earlier district court jury verdict that Vonage infringed two patents held by another carrier, Verizon. The verdict stipulated that Vonage should be prohibited from using the related technologies, which deal with a server translating domain names into IP addresses.

Not surprisingly, Vonage said it would appeal the Sprint decision, a practice the company is quite adept at by now after numerous (thought mostly unsuccessful) appeals in the Verizon case.

In what may be some comfort for Vonage, however, the U.S. Court of Appeals for the Federal Circuit also found that not all of the verdict in the Verizon case could be applied. The Appeals court found the district court erred in its jury instructions regarding a third patent in question, and sent that patent back to the lower court for a new trial.

“[I]n light of the error in the construction of the claims of the [third] patent and the possibility of error in the jury instruction on obviousness, we remand to the district court to determine whether prejudicial error occurred with respect to the jury instructions that would affect the obviousness verdict with respect to the [third] patent,” wrote Circuit Judge Timothy Dyk in today’s opinion.

The appeals court today also threw out the district court’s damages award of $58 million in the Verizon case, finding that the jury did not indicate what portion of the award was allocated to each patent.

Nevertheless, the court upheld an injunction relating to the two infringed patents, which previously been stayed pending the appeal. As of yet, Sprint has not filed for any injunction in its case.

In a statement responding to today’s appeals court decision, Vonage said the ruling should not have an adverse impact on the business because workaround technologies for the two patents have been deployed for a while.

“We have had our workarounds for the 711 and 574 patents in place for some time and will remain focused on providing a great customer experience,” said Sharon O’Leary, chief legal officer at Vonage.

The third patent in the Verizon case involves a wireless gateway system that allows mobile phones to register and make calls. Vonage remains confident it has not infringed on that patent, O’Leary said, adding, “It’s business as usual.”

Shares in Vonage dropped 26 percent in trading today to $.96 from an opening price of $1.27.

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