Digital Trends

A federal jury dealt a solid blow to VoIP provider Vonage, ordering the company to pay Verizon $58 million plus royalties for infringing three key patents.

An eight-member federal jury has ordered loss-generating VoIP provider Vonage to pay Verizon Communications $58 million plus a 5.5 percent royalities on future sales for infringing on three Verizon patents.

In announcing its decision, the jury rejected Vonage's argument that Verizon's patents were invalid, but didn't go as far as Verizon would have liked: Verizon was asking for $197 million in damages and a 19 percent royalty rate going forward on Vonage's future sales. In a brief statement, Verizon said "Verizon's innovations are central to its strategy of building the best communications networks in the world. We are proud of our inventors and pleased the jury stood up for the legal protections they deserve."

The jury found that Vonage's infringement of Verizon's patents wasn't "willful," which may have spared the company from more severe penalties, and may have sympathized with Vonage's assertion that Verizon sat on its patents for several years and only implemented the technology as a means to keep its customers from defecting to Vonage.

The patent dispute between the two companies covers key technology used in VoIP services, which enables users to place telephone calls via the Internet. The jury deliberated one day before deciding Vonage infringed on two patents related to connecting traditional phone systems to the Internet and implementing features like voicemail and call waiting. The third patent involves wireless Internet telephone calling.

Verizon has asked the judge in the case to impose an injunction to prevent Vonage from using technologies which infringe on its patents; a hearing is set for March 23.

In a statement, Vonage tried to put the best possible spin on the verdict, noting that the company was only found guilty of violating three of seven Verizon patents, and that Vonage customers will not see any change to their existing VoIP service. The company also said it plans to appeal the verdict and expects the decision will be reversed on appeal.

Vonage has been struggling to make its VoIP business viable, and the jury verdict is unlikely to have a positive impact on the company's stock price and investor profile. Analysts currently describe Vonage as the worst-performing IPO in the last 15 months, with shares priced at $17 a share at the time of offering now routinely trading under $5.