Vonage has settled its Sprint Nextel Corp. patent infringement lawsuit for $80 million. As part of the settlement, all claims are resolved and Sprint has licensed to Vonage the Sprint portfolio of more than 100 patents covering the connection of 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.
Vonage has maintained it has sufficient reserves to pay both the Verizon and Sprint Nextel patent infringement awards without long-term damage to its business model. There has been some speculation that the patent infringement damage awards would push Vonage over the edge into bankruptcy. The countervailing point of view has been that the patent disputes were a serious financial distraction but not alone capable of damaging Vonage's long-term prospects. More dangerous by far is the threat posed by cable providers bundling VoIP with video and broadband access services.
In that sense, EarthLink faces much the same problem. It has a reasonably-sized Internet access business that has to contend with triple play bundles as well, though EarthLink arguably has made better progress in creating a double play offering of broadband plus voice.
The settlement of the Sprint lawsuit is helpful primarily in removing a huge distraction and source of uncertainty.
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