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10/8/2007
06:42 PM
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Vonage Settles With Sprint, Still Faces Verizon Judgment

Under the agreement, Vonage will pay a total of $80 million, including $35 million for past use.

Internet phone startup Vonage on Monday settled its legal dispute over patents to voice-over-IP technology with Sprint Nextel, clearing the way for the company to concentrate on building its business, the company said.

"It allows us to put this litigation behind us and continue to focus on our core business by removing the uncertainty of legal reviews and long-term court action," said Sharon O'Leary, general counsel for Vonage.

Under the agreement, Vonage will pay a total of $80 million: $35 million for past use, $40 million for a license going forward, and $5 million in prepayment "for services." The companies also said they will enter an unspecified business relationship.

A jury in federal court found in September that Vonage had infringed patents belonging to Sprint and ordered the company to pay $69.5 million in damages plus future royalties. Vonage had said it would appeal the verdict.

A pioneer in selling cheap Web-based phone services to consumers looking for alternatives to landline voice services, Vonage has been plagued by legal setbacks and high marketing costs. Last month a U.S. appeals court upheld a verdict that Vonage had infringed patents held by Verizon Communications. Vonage was ordered to pay more than $58 million in damages plus a 5.5% royalty on future revenue.

Vonage has said it has begun rolling out an alternative solution that does not violate the Verizon patents, which cover the way Internet calls are routed over traditional phone switches and are considered much more fundamental than the Sprint technology to the functioning of the Vonage network. No settlement plans have been announced in the Verizon case, and Vonage has been mulling its legal options since its initial appeal was rejected.

In August, Vonage reported that its revenue for the second quarter jumped 43% to $206 million while its operational loss narrowed to $18 million from $60 million in the same period a year ago.

Vonage stock, which has plummeted in value since its May 2006 IPO, closed Monday up 123% on the New York Stock Exchange.

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