Vonage 2008 Annual Report Download - page 86

V
O
NA
G
EH
O
LDIN
GS CO
RP
.
N
O
TE
S
T
OCO
N
SO
LIDATED FINAN
C
IAL
S
TATEMENT
S
—
(C
ontinued
)
(
In thousands, except per share amounts
)
com
p
laint
(
the “P
SC C
om
p
laint”
)
before the Nebraska Pub-
lic
S
ervice
C
ommission
(
the “NP
SC
”
)
alle
g
in
g
that Vona
g
e
is required to contribute to the Nebraska Universal Service
F
und
(
“NU
S
F”
)
and has failed to do so. The P
SC C
om
p
laint
see
k
sanor
d
er compe
lli
n
gV
ona
g
e to contr
ib
ute to t
he
N
USF, as well as administrative penalties. Vona
g
eisvi
g
o
-
r
ously defending itself against the P
SC C
omplaint.
O
n
D
ecember 6, 2007, Vona
g
e filed its answer.
O
n or about
D
ecember 20, 2007, Vona
g
e also brou
g
ht a complaint
f
o
r
declaratory and injunctive relief against the NPSC in th
e
U
nited
S
tates District
C
ourt for the District of Nebraska.
O
n
M
arch 3, 2008, the United States District Court for the Dis-
trict of Nebraska issued a Memorandum and Order granting
Vona
g
e’s Motion for a Preliminary Injunction and Declara
-
tor
y
Relief. Specificall
y
, the Court enjoined the NPSC from
asserting state jurisdiction over Vonage to
f
orce Vonage t
o
contribute to the N
US
F and found the NP
SC
’s assertion o
f
state jurisdiction over Vona
g
eto
f
orce Vona
g
e to pay int
o
the NUSF is unlawful as preempted by the Federal
C
ommunications
C
ommission
(
“F
CC
”
)
.
O
nA
p
ril 1
,
N
ebraska
f
iled a Notice o
f
Appeal to the
8
th
C
ircuit Court of
Appeals.
O
n April 2, Vonage filed a motion for summar
y
j
u
dg
ment
i
nt
h
e
di
str
i
ct court, ar
g
u
i
n
g
t
h
e court s
h
ou
ld
g
rant our permanent injunction. The district court, in
a
M
ay 9, 2008 order, denied Vonage’s request for summar
y
j
ud
g
ment without prejudice.
O
n December 12, 2008 the
8
t
h
C
ircuit Court of Appeals heard oral argument on the appeal
and we are awaiting the
C
ourt’s ruling
.
N
ew Mexico Public Service Commission
.
O
n June 27,
2
008, the New Mexico Public Regulation
C
ommissio
n
(
“NMPR
C
”
)
filed a complaint for Declaratory Jud
g
men
t
(“NMPRC Complaint”) in the United States District Court fo
r
the District o
f
New Mexico, alleging that Vonage is require
d
to contribute to the New Mexico
U
niversal
S
ervice Fund
(“NMUSF”) and failed to do so. The NMPRC Complain
t
seeks an order compelling Vonage to contribute to the
N
MU
S
F. Vona
g
eisvi
g
orously defendin
g
itself a
g
ainst the
N
MPRC Complaint. On or about July 21, 2008, Vona
g
e file
d
a
Motion to Dismiss the NMPRC Com
p
laint, and the
N
MPR
C
filed a res
p
onse to the Motion to Dismiss.
O
n
N
ovember 12, 2008 the Ma
g
istrate Jud
g
e issued Propose
d
F
indings and Recommended Disposition, recommending
that the
C
ompany’s Motion to Dismiss be
g
ranted.
O
n
N
ovember 21, 2008, NMPRC filed its objections to the
Magistrate’s Judge’s recommended disposition, and on
D
ecember 11, 2008 the
C
ompany filed its response to the
N
MPRC objections to the Ma
g
istrate Jud
g
e’s recom
-
mendation to dismiss the complaint. On January 28, 2009
,
the District
C
ourt Jud
g
e heard oral ar
g
ument and staye
d
the liti
g
ation pendin
g
the Ei
g
ht Circuit decision in th
e
N
ebraska Public Service Commission litigation, reference
d
abo
v
e
.
C
ity of New York vs. Verizon and Vonage. On April 21,
2
008, the
C
ity of New York and the
S
heriff of the
C
ity o
f
N
ew York filed a complaint (“NYC Complaint”) in New Yor
k
S
tate Court against Verizon and Vonage, arising out of col
-
lection efforts on the $58,000 judgment entered against
V
ona
g
e in the Verizon vs. Vona
g
e patent liti
g
ation. The Cit
y
a
lleges that either Verizon or Vonage is liable for
$
2,900
,
w
hich represents a poundage
f
ee o
f
5
%
o
f
the value o
f
the
p
roperty sought to be levied upon.
O
n May 13, 2008, Von
-
ag
e filed a motion to dismiss one count of the NY
CC
om
-
p
laint. On Ma
y
16, 2008, Verizon filed a motion to dismis
s
the NY
CC
omplaint in its entirety. The
C
ourt 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.
P
C
Mana
g
emen
t
.B
y
letter dated Februar
y
2, 2009, P
C
Management, Inc. (“PCM”) provided written notice to us of
i
ts intent to arbitrate a dispute concerning P
C
M’s right to an
early termination fee under a Master
S
ervices A
g
reemen
t
f
or mobile services. Althou
g
h the arbitration proceedin
g
ha
s
n
ot commenced
,
we believe that P
C
M will claim entitlemen
t
t
o approximately $1.875M in contractual termination fees
.
IP M
atters
Alca
t
el
-
Luce
nt
.
O
n November 4, 2008, Vona
g
e
received a letter
f
rom Alcatel-Lucent initiatin
g
an oppor
-
tunity for Vonage to obtain a non-exclusive patent license
to certain of its patents that may be relevant to Vona
g
e’s
b
usiness. Vona
g
e is currently analyzin
g
the applicability o
f
s
uch patents to its business. If Vonage determines tha
t
t
h
ese
p
atents are a
ppli
ca
bl
eto
i
ts
b
us
i
ness an
d
va
lid
,
it
may incur expense in licensin
g
them. I
f
Vona
g
e determine
s
that these
p
atents are not a
pp
licable to its business o
r
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
l
awsuit against Vonage and its subsidiary Vonage America
Inc. in the
U
nited
S
tates District
C
ourt for the Eastern Dis-
trict o
f
Texas alle
g
in
g
that some o
f
Vona
g
e’s products an
d
s
ervices are covered by a patent held by Centre On
e
(
United
S
tates Patent No. 7,068,668
)
entitled “Method an
d
Apparatus for Interfacin
g
a Public Switched Telephone
Network and an Internet Protocol Network
f
or Multi-Media
C
ommunication”. The suit also named Verizon
C
ommunica
-
tions Inc. and deltathree Inc. as de
f
endants. Vona
ge
b
elieves Centre One is a firm owned b
y
a sole inventor.
V
onage is currently reviewing the validity of the
C
entre
O
n
e
p
atent and whether any o
f
Vona
g
e’s products and services
a
re covered b
y
it.
From time to time
,
in addition to those identi
f
ie
d
ab
ove,
V
onage
i
ssu
bj
ect to
l
ega
l
procee
di
ngs, c
l
a
i
ms
,
i
nvesti
g
ations and proceedin
g
s in the ordinary course o
f
b
usiness, including claims o
f
alleged in
f
ringement o
f
third
-
p
arty patents an
d
ot
h
er
i
nte
ll
ectua
l
property r
i
g
h
ts,
c
ommerc
i
a
l
, emp
l
o
y
ment an
d
ot
h
er matters.
I
n accor
d
ance
w
ith generally accepted accounting principles, Vonag
e
makes a provision for a liability when it is both probable
that a liabilit
y
has been incurred and the amount of the loss
o
r range o
f
loss can be reasonably estimated. These provi
-
s
ions are reviewed at least quarterly and adjusted to reflect
the impacts of ne
g
otiations, settlements, rulin
g
s, advice of
l
egal counsel, and other in
f
ormation and events pertainin
g
to a part
i
cu
l
ar case.
Li
t
i
gat
i
on
i
s
i
n
h
erent
l
y unpre
di
cta
bl
e
.
We believe that we have valid defenses with respect to the
F-2
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O
NA
G
E ANN
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AL REP
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