Vonage Settles Patent Dispute with Verizon

The final numbers depend on an appeals court decision, but Vonage and Verizon have agreed to settle their patent battle with Vonage owing at most $120 million.

Struggling VoIP operator Vonage has cleared a major hurdle in its efforts to stay in business, announcing that the two companies hav agreed to settle their long-running patent dispute. Although the exact amount Vonage will pay to Verizon under the settlement agreement depends on a pending appeals court ruling, the settlement effectively caps the amount Vonage will pay to Verizon at $120 million. Of that amount, $88 million in already held in escrow.

“We’re pleased to put this dispute behind us and believe this settlement is in the best interests of Vonage and its customers,” said Vonage’s chief legal offier Sharon O’Leary, in a statement. “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 amount of the settlement depends on a pending Court of Appeals ruling regarding Vonage’s challenge to two Verizon patents. If Vonage wins the appeal on either patent, or if the injunction on Vonage using the technology is vacated (both of which are considered unlikely), Vonage will pay Verizon $80 million. If Vonage does not win its appeal on the two remaining Verizon patents, it will pay a full $120 million, $2.5 million of which will go to unspecified charities.

Verizon originally sued Vonage in June 2006 over a set of patents relating to VoIP services and mapping VoIP services back and forth with the standard phone network. In March 2007, a jury ruled Vonage was infringing three of the Verizon patents and awarded Verizon $58 million in damages. A threatened injunction barring Vonage from using the Verizon technology threatened to shutter Vonage’s operations and/or prevent them from signing up new customers; Vonage managed to win stays to keep its business operating while its appeal of the jury decision wended its way through the courts, while at the same time trying to implement workarounds for the patented technology and secure alternative services.

The settlement lifts a major cloud hanging over the head of the VoIP company, which—following a much-touted IPO—has seen its stock price plummet. The company has also had to settle patent disputes with Sprint (for $80 million), and AT&T recently filed a new patent lawsuit against Vonage.