Vonage (NYSE: VG) just can't catch a break.
Since it opened up its checkbook to settle a patent case with Verizon (NYSE: VZ), the Web-calling firm has been inundated with more high-profile lawsuits. Vonage must have rung the dinner bell a little too loudly, because more players with big appetites are bellying up to the legal table asking for damages as well, with the latest request coming from telecommunications equipment provider Nortel (NYSE: NT) last week.
After Verizon greased the skids with a $120 million settlement, Sprint Nextel (NYSE: S) coaxed Vonage out of $80 million. In its latest earnings release, Vonage also stated that it had agreed, in principle, to pay $39 million over five years to AT&T (NYSE: T) for patent infringement as well.
Nortel's lawsuit is actually a countersuit against Vonage claiming the company violates nine patents it holds. Vonage stepped into the latest mess after acquiring three patents held by Digital Packet Licensing last year; Digital Packet had a suit open against Nortel.
The current battle that Vonage is waging is an issue that corporate patent lawyers and attorneys constantly struggle with: If we pay a settlement to make a lawsuit go away, will it just invite others?
In its early days, Qualcomm (Nasdaq: QCOM) took this risk in a long-running patent dispute with Motley Fool Stock Advisor recommendation InterDigital Communications (Nasdaq: IDCC). Rather than prolong a fight, Qualcomm paid InterDigital $5.5 million to settle the suit and cross-license certain patents related to CDMA technology. Things obviously worked out for Qualcomm, as no follow-on lawsuits bubbled up and the company has gone on to be tremendously successful in the wireless market.
But Vonage doesn't appear as lucky -- open hands have been popping up as fast as the company can write checks. While the company had a significant cash and short-term investment balance of $278 million at the end of the last quarter, it's dwindling fast. Even if investors believe Vonage will skirt bankruptcy, the constant beating taken from lawsuits still doesn't bode well for the future.
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