Vonage loses in court, spins PR, promises no break in service

Well, it’s official. By dint of rule of law, Vonage has illegally – though not willfully – infringed upon three patents owned by Verizon Communications. A jury in a federal court yesterday ruled that internet phone provider Vonage Holdings is to pay $58 million plus 5.5 percent in royalties on future sales. Vonage had been suing for $197 million and a 19 percent in royalties.

When the case hit the home stretch in late February, most media outlets foresaw doom for Vonage, covering the story with headlines like “Vonage fate hangs on lawsuit verdict” and “A struggling Vonage goes to court this week…” Now, it appears the plot may be dug for Vonage.

The lawsuit was originally filed back in June 2006, with Verizon suing Vonage for patent infringement, alleging that Vonage is using some seven Verizon-owned patents in its VoIP technology. Filed in a U.S. district court in Virginia, the claim had it that Vonage “infringed on patents held by Verizon that given technology for completing phone calls between VoIP users and traditional phone services used by people, validating VoIP callers accounts, fraud protection, using Wi-Fi handsets with VoIP services and monitor VoIP caller use.”

Vonage stock has been on a decline virtually ever since its release onto the stock market. Fourth-quarter 2006 earnings figures were “highlighted” by reported expectations of a $170 million loss in 2007. (Incredibly, this negative figure was presented despite a reported 90.7 percent increase in net sales in the quarter and an increase in revenue per line.)

That plummeting trend naturally continued in light of the verdict, with the Reuters wire story on the jury’s decision reporting that “Shares of Vonage shed nearly 4 percent after the verdict to $4.86 in regular trading on the New York Stock Exchange before dipping another 4 percent to $4.67 in extended trading.” In fact, just to hammer the nail in a bit deeper, Reuters’ piece concludes with “Vonage … ranks as the worst-performing IPO in the past 15 months, according to analysts.”

Meanwhile, in an absolutely brilliant example of How Spin Works, company PR gutsily proclaimed “Vonage Vindicated on Four of Seven Patents.” Read the world’s tersest press release ever (My word count clocks it at 129 words, making it less than half the length of the Gettysburg Address): “We are delighted that the jury rejected Verizon's meritless claim that we infringed their two billing patents. Of the seven patents Verizon originally sued on, (sic) they prevailed on only three and we expect that verdict to be reversed on appeal. The jury's damage award represents a 70% reduction from Verizon's $197 million claim. The jury also unanimously rejected Verizon's claim that Vonage willfully infringed its patents.

“In addition, we don't believe there is any basis to support Verizon's request for an injunction and we will have the opportunity to present our position to the trial court shortly. If the trial court does impose an injunction, we will seek an immediate stay from the Federal Court of Appeals. Vonage's customers should see no change to any aspect of their phone service.”

No more details were forthcoming on the subject of service to customers.

And now, for the most predictable closing line ever: Verizon plans to appeal the ruling.