Finally a patent settlement where Vonage doesn’t shell out money

vonage_logo.gifIn the short history of Vonage, 2007 is the year when Vonage ended up losing four patent suits, and in each case, having to pay huge sums of money. Vonage has pay AT&T $39 million, Sprint Nextel (S) $80 million, and Verizon Communications (VZ) $120 million to settle patent infringement lawsuits.

However, Vonage’s patent dispute with Nortel Networks has a less-bitter ending for Vonage – the settlement allows for cross-licensing of each companies’ patents, but does not involve any payments by either company. These patents are related to making emergency calls and dialing 411. Vonage was dragged into this legal battle with Nortel when it acquired three patents from Digital Packet Licensing (DPL) in 2006. DPL had filed a patent infringement case against Nortel in 2004 alleging violation of those three patents, so Vonage continued with the lawsuit. Nortel countersued, claiming that Vonage violated 13 of Nortel’s patents, and asked that Vonage be kept from using the technology. The settlement is subject to final documentation.

Om thinks that Vonage’s problem is playing the cheap voice game, but Vonage’s primary risk is not cost management (OK marketing/advertising costs has always been an issue), but that Vonage has no Intellectual Property protection. So far mainly the service providers have filed patent infringement lawsuits, but there are many equipment vendors and with many VoIP patents (much like Nortel) who could go after Vonage. Vonage still has many challenges ahead of it, but this settlement gives it yet another breather.

3 thoughts on “Finally a patent settlement where Vonage doesn’t shell out money”

  1. Ike – I agree that Vonage will likely run out of money without additional sources of funding. Customer acquisition costs are very high and this is what I meant by “OK marketing/advertising costs has always been an issue”. In fact, this is exactly one of the reasons that many VoIP providers will go bust (see “5 reasons why VoIP providers will go Bust” at http://techuntangled.com/5-reasons-why-voip-providers-will-go-bust)

    The high customer acquisition costs are a huge problem, but this is a known risk and it has been known for a long time. That’s why I don’t consider it the biggest problem.

    On the other hand, the risk of intellectual property infringement has been and is currently largely unknown. It is the ‘unknown’ component that makes it the biggest risk (on the principle that once a risk is identified, steps can be taken to mitigate it). VoIP was a patent-rich area way before Vonage got in the game and many companies will have patents that Vonage is likely infringing upon (having been involved in patent innovation and patent infringement analysis, I know this area quite well).

    Vonage has been sued for patent infringment by more than 5 patent holders. It is quite possible that additional patent holders will sue vonage for patent infringment – but noone knows the number of suits and the size of the infringment claims. This is why it is an unknown and the biggest risk facing Vonage.

  2. Senaka, I see your point, that there may be more patent suits to come. I’m not too concerned, though, that future suits might come from the vendor community, because vendors would generally prefer not to alienate potential customers by suing them. My post on Verizon’s motivations for suing Vonage goes through the logic behind most patent lawsuits in this sector: http://ikeelliott.typepad.com/telecosm/2007/11/why-doesnt-veri.html

    And, most of the patents out there are from the vendor community, so that reduces Vonage’s risk, somewhat…see my post on the VoIP patent landscape here: http://ikeelliott.typepad.com/telecosm/2007/11/the-voip-patent.html

    Still, Vonage’s patent infringement risk is not zero. Point taken. They have, however, already taken hits from the most likely attackers.

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