The nearly-worthless shares of Internet phone company Vonage more than doubled in value Monday after it settled a patent suit filed by Sprint Nextel. Vonage shares gained $1.42 to close at $2.57.
In September, a jury found that Vonage infringed on six Sprint patents, and ordered Vonage to pay $69.5 million in damages. The settlement Monday resolves all claims in that suit for $80 million, the companies said. Sprint also agreed to license to Vonage more than 100 patents on connecting calls between a regular telephone network and a packet-switched network such as the Internet.
The settlement does not put all of Vonage's legal troubles behind it. In March, another jury awarded Verizon $58 million in damages, plus 5.5 percent royalties on future revenues after finding that Vonage violated three Verizon patents. Litigation continues in that suit. Vonage denies infringement and says it has deployed workarounds for two of the patented technologies.
Vonage's legal troubles, and the sudden shutdown of rival Sunrocket Inc. in July, have raised questions about the future of Internet phone companies. Their subscribers use adapters to connect their phones to broadband Internet connections, and pay about $25 a month for unlimited domestic calling. Vonage was a pioneer in the market and was until last year the biggest player. Subscriber growth stalled this year, leaving it with 2.3 million subscribers at the end of the second quarter.
Potential customers have been scared off by the litigation, raising Vonage's already high cost of recruitment to $287 for every new subscriber in the second quarter. Meanwhile, cable companies rolled out VoIP service and quickly gained customers from their TV subscribers. For example, Comcast ended the second quarter with 3.1 million phone subscribers.
Vonage's stock went public last year at $17. The stock has disappointed investors, but the high initial price gave Vonage substantial cash which has allowed it to survive the litigation setbacks. According to its latest earnings report, it had $344 million in reserve cash on June 30. (info from The Associated Press)