Vonage Settles Sprint Nextel Patent Suit

It seems like just a few weeks ago when some were predicting the demise of Vonage after an unfriendly verdict awarding Sprint $69.5 million in damages along with a percentage of Vonage's future revenue. Today, however, things are looking slightly better for the internet phone company as it announced an $80 million settlement with Sprint resolving all patent disputes, with Sprint agreeing to license Vonage its portfolio of more than 100 patents on connecting calls between a regular telephone network and a packet-switched network such as the Internet. The $80 million Vonage agreed to pay consists of $35 million for past use of the patents, $40 million for a fully paid future license, and $5 million in prepayment for services. "We are pleased to resolve our dispute with Sprint and enter into a productive future relationship," said Sharon O'Leary, chief legal officer of Holmdel, N.J.-based Vonage.

The patent litigation has put heavy pressure on Vonage's stock, but the company has a reserve of cash pulled in by its initial public offering last year, when its stock sold for $17 a share. However, even if Vonage put its patent troubles behind it, the company still faces challenges in its business, chiefly the high cost of attracting new customers through advertising. It spent $287 for every new subscriber in the second quarter.

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