Vonage 2010 Annual Report Download - page 26

the settlement has been scheduled for Ma
y
10, 2011, at which
time the
C
ourt will hear ob
j
ections to the
p
ro
p
osed settlement
,
r
equests for exclusion
/
opt-out of the settlement, application b
y
C
lass
C
ounsel for attorneys’ fees, costs and expenses, and appli-
cation for Incentive Awards to the named
p
laintiffs.
W
e previousl
y
recorded a reserve of $4,750 to reflect the
p
ropose
d
sett
l
ement.
Thi
s amount was pa
id i
nto an escrow
account in Januar
y
2011. Of this amount, $2,750 was recorded in
the quarter ended September 30, 2010; with $1,500 and $75
0
r
ecor
d
e
d
asare
d
uct
i
on to customer equ
i
pment an
d
s
hi
pp
i
ng an
d
telephon
y
services revenue, respectivel
y
, and $500 recorded as
s
e
lli
ng, genera
l
an
d
a
d
m
i
n
i
strat
i
ve expense
i
nt
h
e conso
lid
ate
d
s
tatement of operations. The remaining
$
2,000 was recorded a
s
s
e
lli
ng, genera
l
an
d
a
d
m
i
n
i
strat
i
ve expense
i
nt
h
e conso
lid
ate
d
s
tatement of operations in the quarter ended March 31, 2010
.
I
P
OU
nderwriter Indemnification
.
O
n December 4, 2009, we
r
eceived final Court approval for the settlement of liti
g
ation arisin
g
from our initial public offerin
g
(“IPO”), which included a releas
e
and dismissal o
f
all stockholder claims a
g
ainst us and ou
r
in
d
ivi
dua
l
d
ir
ec
t
o
r
sa
n
d off
i
ce
r
s
wh
o
w
e
r
e
n
a
m
ed as defe
n
da
nt
s.
T
he firms who served as underwriters to the IPO,
p
ursuant to an
indemni
f
ication a
g
reement entered into between us and thos
e
firms prior to the IPO, previously demanded that we reimburse
them
f
or the costs and
f
ees incurred by them in de
f
ense o
f
th
e
IPO liti
g
ation. In addition, three of the firms previously demande
d
that we reimburse them
f
or the costs and
f
ees incurred by them in
r
esponse to various re
g
ulatory inquiries by the Financial Industry
Re
g
ulatory Authority (formerly the NASD) and the New York Stock
Exchan
g
e, amon
g
other thin
g
s. We have declined to reimburs
e
these three firms any fees or expenses. The settlement of the IPO
liti
g
ation did not resolve the IPO underwriters’ claims for
indemni
f
ication a
g
ainst us. At the time o
f
our debt re
f
inancin
g
i
n
December 2010, we reached a
g
reement with two o
f
the under-
writers releasin
g
us
f
rom certain potential claims in connectio
n
with the IPO
.
IP M
a
tt
e
r
s
Al
ca
t
e
l-L
uce
nt.
O
n November 4, 2008, we received a lette
r
f
rom Alcatel-Lucent initiatin
g
an opportunity
f
or us to obtain
a
non-exclusive patent license to certain o
f
its patents that may b
e
r
elevant to our business. We are currently analyzin
g
the applic-
a
bility o
f
such patents to our business, as well as additional pat-
e
nts subsequently identi
f
ied by Alcatel-Lucent. I
f
we determine
that these
p
atents are a
pp
licable to our business and valid, w
e
may incur expense in licensin
g
them. I
f
we determine that thes
e
p
atents are not app
li
ca
bl
e to our
b
us
i
ness or
i
nva
lid
, we may
i
ncur
e
xpense and dama
g
es i
f
there is liti
g
ation
.
C
eres
C
ommunications Technologies LL
C.
O
n
O
ctober 6
,
2
010,
C
eres
C
ommunications Technologies LL
C(
“
C
eres”
)
filed a
lawsuit against Vonage Holdings
C
orp. and its subsidiaries Von
-
a
ge America, Inc. and Vonage Marketing LL
C
in the United
S
tates
D
istrict
C
ourt for the District of Delaware alleging that Vonage’
s
p
roducts and services are covered b
y
a patent held b
yC
eres,
United
S
tates Patent No. 5,774,526, entitled “Reconfi
g
urabl
e
O
n-Demand Telephone and Data Line
S
ystem.” The suit als
o
named numerous other companies as defendants, includin
g
AT&T, Inc.,
C
ablevision
S
ystems
C
orporation,
C
omcast
C
orpo-
r
ation,
C
ox
C
ommunications Inc.,
S
kype
G
lobal
S
.a.r.l,
S
kype Inc.
,
T
ime Warner
C
able, and Verizon
C
ommunications Inc. We file
d
o
ur Answer to the
C
om
p
laint on November 16, 2010. We also file
d
a
Motion to Dismiss certain o
f
plainti
ff
’s alle
g
ations o
n
N
ovember 16, 2010. On December 3, 2010, Ceres filed its Firs
t
A
mendment Complaint omittin
g
its prior claims for induced, con-
tributory, and willful infrin
g
ement. We filed our Answer and Coun
-
terclaim on December 20, 2010. Ceres filed its Repl
y
to our
C
ounterclaim on Januar
y
6, 2011. No case schedule has been se
t
a
n
ddi
scovery
h
as not yet
b
egun.
Hitachi
.
O
n Januar
y
27, 2011, we met with Hitachi, Ltd. t
o
discuss an opportunit
y
for us to obtain a non-exclusive paten
t
license to certain Hitachi patents that Hitachi believes may b
e
relevant to our business. We are currently analyzin
g
the applic
-
ability of such patents to our business. If we determine that thes
e
patents are applicable to our business and valid, we may incur
expense in licensin
g
them. If we determine that these patents ar
e
n
ot applicable to our business or invalid, we may incur expens
e
and dama
g
es i
f
there is liti
g
ation.
From time to time
,
in addition to those identi
f
ied above
,
we
are su
bj
ect to
l
ega
l
procee
di
ngs, c
l
a
i
ms,
i
nvest
i
gat
i
ons, an
d
pro-
ceedings in the ordinary course o
f
business, including claims o
f
alleged infringement of third-party patents and other intellectual
property r
i
g
h
ts, commerc
i
a
l
, emp
l
oyment, an
d
ot
h
er matters.
From time to time we receive letters from third parties initiating an
opportunity for us to obtain patent licenses that might be relevan
t
to our
b
us
i
ness.
I
n accor
d
ance w
i
t
h
genera
ll
y accepte
d
account
-
ing principles, we make a provision for a liability when it is bot
h
probable that a liabilit
y
has been incurred and the amount of th
e
loss or range of loss can be reasonably estimated. These provi
-
sions are reviewed at least quarterl
y
and adjusted to reflect the
impacts of negotiations, settlements, rulings, advice of legal
counsel, and other information and events pertaining to a partic
-
u
lar case.
O
ther than as set forth above
,
no additional reserves
w
ere recor
d
e
di
nt
h
et
h
ree mont
h
sen
d
e
dD
ecem
b
er 31
,
2010
.
Li
t
i
gat
i
on
i
s
i
n
h
erent
l
y unpre
di
cta
bl
e.
W
e
b
e
li
eve t
h
at we
h
ave
valid defenses with respect to the legal matters pending agains
t
u
s and are vigorously defending these matters.
G
iven th
e
u
ncerta
i
nty surroun
di
ng
li
t
i
gat
i
on an
d
our
i
na
bili
ty to assess t
h
e
lik
e
lih
ood o
f
a
f
a
v
o
r
ab
l
eo
r
u
nf
a
v
o
r
ab
l
eou
t
co
m
e
in th
e abo
v
e
n
oted matters, it is
p
ossible that the resolution of one or more of
th
ese
m
a
tt
e
r
s cou
l
d
h
a
v
ea
m
a
t
e
ri
a
l
ad
v
e
r
se e
ff
ec
t
o
n
ou
r
co
n-
solidated financial
p
osition, cash flows or results of o
p
erations.
R
egu
l
at
i
on
T
elephon
y
services are subject to a broad spectrum of stat
e
and federal re
g
ulations. Because of the uncertainty over whether
V
o
IP
s
h
ou
l
dbe
tr
ea
t
ed as a
t
e
l
eco
mm
u
ni
ca
ti
o
n
so
r inf
o
rm
a
ti
on
s
ervice, we have been involved in a substantial amount of state
and federal re
g
ulatory activity. Implementation and interpretation
of the existin
g
laws and re
g
ulations is on
g
oin
g
and is subject to
l
iti
g
ation by various federal and state a
g
encies and courts. Due to
t
he uncertainty over the re
g
ulatory classification of VoIP service,
t
here can be no assurance that we will not be sub
j
ect to new
r
e
g
ulations or existin
g
re
g
ulations under new interpretations, and
t
hat such chan
g
e would not introduce material additional costs t
o
ou
r
bus
in
ess
.
Federal –
C
ALEA
O
nAu
g
ust 5, 2005, the Federal Communications Commis
-
s
ion (the “FCC”) released an Order extendin
g
the obli
g
ations of
t
he Communications Assistance for Law Enforcement Ac
t
(
“CALEA”
)
to interconnected VoIP
p
roviders. Under CALEA, tele-
co
mm
u
ni
ca
ti
o
n
sca
rri
e
r
s
m
us
t
ass
i
s
tl
a
w
e
n
fo
r
ce
m
e
nt in
e
x
ecu
t
-
i
n
g
electronic surveillance, which include the capability o
f
1
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