Vonage 2008 Annual Report Download - page 89

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
)
of o
p
erations in 2007. We believe this treatment was a
pp
ro
-
pr
i
ate as oppose
d
to sett
i
n
g
up an
i
ntan
gibl
e asset an
d
amortizin
g
that asset over the remainin
g
li
f
eo
f
the patent
s
because we deployed work arounds with respect to th
e
Verizon patents and therefore are no lon
g
er usin
g
the Ver
-
izon patents.
O
n November 15, 2007, a federal a
pp
eals court turne
d
down our petition
f
or reconsideration o
f
the jur
y
verdict
,
triggering the settlement agreement that required us to pay
Verizon $120,000 in the fourth
q
uarter of 2007.
K
lausner Technologies.
O
n July 10, 2006, a lawsuit
was filed a
g
ainst us and Vona
g
e America by Klausne
r
T
echnolo
g
ies, Inc., (“Klausner”), in the United States Distric
t
C
ourt for the Eastern District of Texas. Klausner allege
d
that we infrin
g
ed one of its patents concernin
g
voice mail
technolo
g
y. Klausner sou
g
ht injunctive relie
f
, compensator
y
and treble damages and attorney’s fees. On October 10,
2
007, we reac
h
e
d
a sett
l
ement w
i
t
hKl
ausner w
hi
c
hp
ro
-
vided us with a patent license related to voicemail services
.
T
he settlement was recorded as selling, general and admin-
istrative ex
p
ense in the consolidated statement of o
p
er
-
ations for the period ended September 30, 2007 and wa
s
not material to our
f
inancial statements.
R
ates
T
ec
h
no
l
o
gy
.
On October 31, 2007, we settled a
dispute with Rates Technology (“Rates”) regarding tw
o
patents held by Rates relating to the least cost routing o
f
te
l
ep
h
one ca
ll
s over t
h
epu
bli
csw
i
tc
h
e
d
te
l
ep
h
one networ
k.
T
he settlement was recorded as selling, general and admin-
istrative ex
p
ense in the consolidated statement of o
p
er
-
ations for the period ended
S
eptember 30, 2007 and wa
s
not material to our
f
inancial statements.
Web Telephon
y
,LL
C
.
O
n March 14, 2007, We
b
T
elephon
y
, LLC (“Web Telephon
y
”) filed suit in the United
S
tates District
C
ourt for the Eastern District of Texas
ag
ainst us and several other defendants. Web Telephon
y
a
lleged that we were in
f
ringing two telecommunications
patents held by Web Telephony and sought injunction relief,
c
ompensatory and treble dama
g
es and attorneys’ fees.
O
n
S
eptember 1, 2007, Web Telephon
y
filed an amended
c
omp
l
a
i
nt, w
hi
c
hd
roppe
d
c
l
a
i
ms aga
i
nst
AT&T
,
I
nc.,
b
u
t
r
etained claims a
g
ainst another AT&T entity
(
AT&T
C
orporation). Vona
g
e filed its answer to the amended
c
om
p
laint and counterclaims on
S
e
p
tember 18, 2007. Web
T
elephony settled with all other defendants and dismisse
d
its claims a
g
ainst those defendants. On May 14, 2008, th
e
parties settled the lawsuit. The agreement resolved all past
a
lle
g
ed infrin
g
ement and
g
rants Vona
g
e patent licenses
.
T
he settlement of
$
3,000 was recorded as sellin
g
,
g
eneral
a
nd administrative ex
p
ense in the consolidated statemen
t
o
fo
p
erations for the six months ended June 30, 2008
.
A
T&T.
O
n October 17, 2007, AT&T Cor
p
.
(
“AT&T”
)
filed
a
complaint a
g
ainst Vona
g
e Holdin
g
s
C
orp. and Vona
g
e
America, Inc. in the United States District Court for the
Western District o
f
Wisconsin, alleging in
f
ringement o
f
U
nited
S
tates Patent No. 6,487,200 B1.
O
n December 10
,
2
007, Vona
g
e filed its Answer & Counterclaim, as well a
s
f
iled a motion to transfer venue to New Jerse
y
or Delaware
.
W
hile that motion was pendin
g
, the parties entered a de
f
ini-
tive settlement a
g
reement, dated December 20, 2007,
p
ursuant to which the parties agreed to settle their ongoin
g
p
atent disputes and agreed to enter into a licensing agree-
ment. As part of the settlement, AT&T agreed to dismis
s
wi
t
h
out pre
j
u
di
ce
i
ts c
l
a
i
ms a
g
a
i
nst
V
ona
g
e.
I
na
ddi
t
i
on,
AT&T g
rante
dV
ona
g
e a non-exc
l
us
i
ve
li
cense to
P
atent
N
o. 6,487,200
B
1, su
bj
ect to certa
i
n restr
i
ct
i
ons.
V
ona
ge
ag
reed to pay AT&T $650 each month over a five-year term.
V
onage also agreed to pay AT&T
$
1,950 as prepayment for
the last three months o
f
payments due under the agree-
ment, which was paid in January 2008. The parties als
o
ob
ta
i
ne
d
certa
i
n non-exc
l
us
i
ve
li
censes to certa
i
n
p
atents
h
e
ld b
yt
h
eot
h
er, su
bj
ect to var
i
ous restr
i
ct
i
ons.
I
nt
h
et
hi
r
d
q
uarter of 2007, we recorded $29,000 in our consolidate
d
s
tatement o
f
operations as sellin
g
,
g
eneral and admin
-
i
strative expense, which is the present value of the $39,000
,
using a discount rate o
f
12
%
. In the
f
ourth quarter o
f
2007,
w
e recorded an additional
$
1,350 due to a change in the
p
ayment terms. We are amortizing the difference between
the
p
resent value of $30,350, of which $23,046 is recorde
d
a
s a lon
g
-term liability, and the $39,000 to interest expense
o
ver the term of the payments usin
g
the effective interes
t
m
e
th
od.
Di
g
ital Packet Licensin
g
, Inc
.
We were the principa
l
p
laintiff in a litigation pending in the United States Distric
t
Court for the Northern District of Texas against defendants
Bell Atlantic
C
ommunications
,
Inc.
,S
B
C
Internet
S
ervice
s
I
nc.,
C
entral Telephone
C
ompany of Texas,
S
print, an
d
N
orte
lN
etwor
k
s,
I
nc.
–
Digi
ta
lP
ac
k
et
Li
cens
i
n
gI
nc. vs.
A
T&T
C
orp.
,C
ivil Action No. 4:04
C
V548
(
the “Texas
Liti
g
ation”). The operative complaint alle
g
ed that the vari-
ous de
f
endants in
f
ringed on three telecommunication pat
-
ents held by Vonage. On October 30, 2007, Vonage filed
dismissal papers seeking to dismiss its claims against Ver-
i
zon pursuant to t
h
e sett
l
ement agreement
i
t
h
a
d
w
i
t
hV
er-
i
zon.
O
n November 19, 2007, Vona
g
e filed a joint motion for
di
sm
i
ssa
l
w
i
t
h
pre
j
u
di
ce,
di
sm
i
ss
i
n
g
a
ll
c
l
a
i
ms an
d
counter-
claims a
g
ainst Sprint in the case, pursuant to the settlemen
t
a
g
reement with Sprint. Also, the parties filed a motion to
dismiss all claims against SBC Internet Services, Inc. in th
e
case o
f
D
igital Packet Licensing Inc. vs. SBC Internet Serv
-
i
ces
,I
nc. et a
l
.pending in the Northern District of Texas,
w
hich alleged patent infringement against
S
B
C
Interne
t
S
ervices Inc. That case was dismissed a
g
ainst
S
B
C
Internet
S
ervices Inc. as part of a settlement with AT&T relatin
g
to
l
iti
g
ation concernin
g
the ‘200 Patent. On December 28
,
2007
,
Nortel Networks Inc.
,
the
f
inal named de
f
endant in
t
he Texas Litigation, and Vonage entered into a Memo-
randum of Understanding
(
“Nortel M
O
U”
)
to settle th
e
T
exas
Li
t
i
gat
i
on, as we
ll
as t
h
e
li
t
i
gat
i
on
d
escr
ib
e
db
e
l
ow as
t
he “Nortel Delaware Liti
g
ation”. The Nortel M
O
U
g
ranted
th
e part
i
es certa
i
n
li
censes, su
bj
ect to restr
i
ct
i
ons, to cer
-
t
a
i
n patents.
N
e
i
t
h
er part
y
w
ill
pa
y
t
h
eot
h
er an
y
mone
y.
The parties entered into a de
f
initive settlement a
g
reemen
t
on these terms on March 10
,
2008.
F-2
9