Vonage 2008 Annual Report Download - page 27

s
eeking trans
f
er and consolidation o
f
the pending actions to
a
s
ingle court for coordinated pretrial proceedings. In an
O
rde
r
dated Au
g
ust 15, 2007, the Panel transferred the pendin
g
actions
t
o the United States Court for the District of New Jerse
y
, cap-
t
ioned
I
n re Vonage Marketing and
S
ales Practices Litigation
,
MDL
No. 1862, Master Docket No. 07-
C
V-3906
(
U
S
D
C
, D.N.J.
)
.
O
n
October 1, 2007, counsel for one
g
roup of plaintiffs moved before
t
he
C
ourt for
C
onsolidation and A
pp
ointment of
C
o-Lead
C
ounsel
of the actions, and re
q
uested time to file an Amended
C
on
-
s
olidated Complaint. On November 6, 2008 the Court entered a
n
Order Granting Consolidation and Appointment of Co-Lea
d
C
ounsel, and ordered that a consolidated
C
om
p
laint be file
d
within 45 da
y
s, which Complaint was filed on December 19, 2008
.
On February 6, 2009, we filed a Motion to Compel Arbitration.
N
ebraska Public Service Commission
.
O
n November 15
,
2007, the Director of the Nebraska Telecommunications Infra
-
s
tructure and Public Safet
y
Department of the Nebraska Publi
c
Service Commission filed a com
p
laint
(
the “PSC Com
p
laint”
)
b
efore the Nebraska Public
S
ervice
C
ommission
(
the “NP
SC
”
)
a
ll
e
gi
n
g
t
h
at
V
ona
g
e
i
s requ
i
re
d
to contr
ib
ute to t
h
e
N
e
b
ras
ka
Universal Service Fund (“NUSF”) and has failed to do so. The PS
C
C
omplaint seeks an order compelling Vonage to contribute to the
NUSF, as well as administrative penalties. Vona
g
eisvi
g
orously
defending itself against the PSC Complaint. On December 6
,
2007, Vonage filed its answer.
O
n or about December 20, 2007
,
Vona
g
e also brou
g
ht a complaint
f
or declaratory and injunctive
r
elief against the NPSC in the United States District Court for the
District of Nebraska.
O
n March 3
,
2008
,
the United
S
tates Distric
t
C
ourt for the District of Nebraska issued a Memorandum and
Order granting Vonage’s Motion for a Preliminary Injunction an
d
Declaratory Relief.
S
pecifically, the
C
ourt enjoined the NP
SC
from
assertin
g
state jurisdiction over Vona
g
e to force Vona
g
et
o
contribute to the NUSF and found the NPSC’s assertion of state
jurisdiction over Vonage to force Vonage to pay into the NU
S
Fi
s
u
nlawful as preempted b
y
the Federal
C
ommunications
C
ommis
-
s
ion (“FCC”). On April 1, Nebraska filed a Notice of Appeal to th
e
8
th
C
ircuit
C
ourt of Appeals.
O
n April 2, Vona
g
e filed a motion fo
r
s
ummary jud
g
ment in the district court, ar
g
uin
g
the court shoul
d
grant our permanent injunction. The district court, in a May 9
,
2008 order, denied Vona
g
e’s request for summary jud
g
ment
without prejudice. On December 12, 2008 the 8
th
Circuit Court of
A
ppeals heard oral argument on the appeal and we are awaiting
t
he
C
ourt’s rulin
g
.
N
ew Mexico Public
S
ervice
C
ommission
.
O
n June 27, 2008,
t
he New Mexico Public Re
g
ulation Commission (“NMPRC”) filed
a
complaint for Declaratory Judgment (“NMPRC Complaint”) in the
United
S
tates District
C
ourt for the District of New Mexico, alle
g-
in
g
that Vona
g
e is required to contribute to the New Mexico Uni
-
versal Service Fund
(
“NMUSF”
)
and failed to do so. The NMPR
C
C
omplaint seeks an order compellin
g
Vona
g
e to contribute to the
NMUSF. Vona
g
eisvi
g
orously defendin
g
itself a
g
ainst the NMPRC
C
omplaint. On or about July 21, 2008, Vonage filed a Motion t
o
D
ismiss the NMPR
CC
om
p
laint, and the NMPR
C
filed a res
p
ons
e
t
o the Motion to Dismiss. On November 12, 2008 the Ma
g
istrate
Judge issued Proposed Findings and Recommended Disposition,
r
ecommendin
g
that the
C
ompany’s Motion to Dismiss be
g
ranted
.
On November 21, 2008, NMPRC filed its objections to the Ma
g
is-
t
rate’s Judge’s recommended disposition, and on December 11,
2
008 the
C
ompany filed its response to the NMPR
C
objection
s
t
o the Ma
g
istrate Jud
g
e’s recommendation to dismiss the com-
p
laint. On January 28, 2009, the District Court Judge heard ora
l
a
r
g
ument and stayed the liti
g
ation pendin
g
the
8
th
Circuit decisio
n
i
n the Nebraska Public
S
ervice
C
ommission litigation, referenced
abo
v
e
.
C
it
y
of New York vs. Verizon and Vona
g
e
.
On April 21, 2008
,
the City of New York and the Sheriff of the City of New York file
d
a
complaint
(
“NY
CC
omplaint”
)
in New York
S
tate
C
ourt a
g
ains
t
V
erizon and Vona
g
e, arisin
g
out o
f
collection e
ff
orts on th
e
$
58,000 judgment entered against Vonage in the Verizon vs.
V
ona
g
epatent liti
g
ation. The
C
ity alle
g
es that either Verizon or
V
ona
g
e is liable for $2,900, which represents a pounda
g
e fee of
5
% of the value of the property sought to be levied upon. O
n
May 13, 2008, Vona
g
e filed a motion to dismiss one count of th
e
NYC Complaint. On Ma
y
16, 2008, Verizon filed a motion to dis
-
miss the NYC Complaint in its entirety. The Court denied bot
h
mot
i
ons an
d
t
h
e part
i
es are current
l
yen
g
a
g
e
di
n
di
scovery.
PC Mana
g
ement.B
y
letter dated Februar
y
2, 2009, P
C
Management, Inc. (“PCM”) provided written notice to us of its
i
ntent to arbitrate a dispute concerning P
C
M’s right to an earl
y
termination fee under a Master Services A
g
reement for mobil
e
s
ervices. Although the arbitration proceeding has not com
-
menced, we believe that P
C
M will claim entitlement to a
pp
rox
-
i
matel
y
$1,875 in contractual termination fees
.
IP M
atters
A
lcatel-Lucent
.
On November 4, 2008, Vonage received a
l
etter from Alcatel-Lucent initiating an opportunity for Vonage to
o
btain a non-exclusive patent license to certain of its patents tha
t
may be relevant to Vonage’s business. Vonage is currently analyz
-
i
ng the applicability of such patents to its business. If Vonag
e
d
eterm
i
nes t
h
at t
h
ese patents are app
li
ca
bl
eto
i
ts
b
us
i
ness an
d
v
alid, it may incur expense in licensing them. I
f
Vonag
e
d
eterm
i
nes t
h
at t
h
ese
p
atents are not a
ppli
ca
bl
eto
i
ts
b
us
i
ness or
i
nvalid, it may incur expense and dama
g
es if there is liti
g
ation
.
C
entre One
.
O
n December 5
,
2008
,
Centre One filed a law
-
s
u
i
t aga
i
nst
V
onage an
di
ts su
b
s
idi
ary
V
onage
A
mer
i
ca
I
nc.
i
nt
he
United
S
tates District
C
ourt for the Eastern District of Texas alle
g
-
i
n
g
that some o
f
Vona
g
e’s products and services are covered by a
p
atent held by
C
entre
O
ne
(
United
S
tates Patent No. 7,068,668
)
e
ntitled “Method and Apparatus for Interfacin
g
a Public
S
witched
T
elephone Network and an Internet Protocol Network
f
or Multi
-
Media
C
ommunication”. The suit also named Verizon
C
ommunications Inc. and deltathree Inc. as defendants. Vona
g
e
b
elieves Centre One is a firm owned by a sole inventor. Vona
g
ei
s
c
urrently reviewing the validity of the
C
entre
O
ne patent and
w
hether any of Vona
g
e’s products and services are covered by it
.
From time to time, in addition to those identi
f
ied above
,
V
onage is subject to legal proceedings, claims, investigations and
p
roceedin
g
s in the ordinary course of business, includin
g
claim
s
of
alle
g
ed in
f
rin
g
ement o
f
third-party patents and other intellectua
l
p
roperty rights, commercial, employment and other matters. I
n
a
ccor
d
ance w
i
t
hg
enera
ll
y accepte
d
account
i
n
g
pr
i
nc
i
p
l
es,
V
on-
ag
e makes a provision
f
or a liability when it is both probable that a
l
iability has been incurred and the amount o
f
the loss or range o
f
l
oss can
b
e reasona
bl
y est
i
mate
d
.
Th
ese prov
i
s
i
ons are rev
i
ewe
d
a
t least quarterly and adjusted to re
f
lect the impacts o
f
ne
g
otia-
tions, settlements, rulings, advice o
f
legal counsel, and othe
r
i
nformation and events pertainin
g
to a particular case. Liti
g
ation i
s
i
nherentl
y
unpredictable. We believe that we have valid de
f
enses
w
ith respect to the legal matters pending against Vonage. Give
n
19