A U.S. jury found that Vonage Holdings Corp had infringed patents owned by Sprint Nextel Corp and ordered the Internet phone company to pay $69.5 million in damages, triggering a 34 percent fall in its shares.
Vonage said it would appeal the case, which was the second major patent lawsuit that the company has lost, after it was also found to have infringed patents belonging to Verizon Communications Inc earlier this year.
We are disappointed that the jury did not recognize that our technology differs from that of Sprint's patents, Sharon O'Leary, chief legal officer for Vonage, said in a statement.
The loss-making Internet phone company said it believed any damages awarded were inappropriate, but said it would try to develop technology to work around Sprint's patents.
Sprint sued Vonage in 2005, making 61 claims of violations of seven patents related to telecommunications technology. The U.S. District Court in Kansas had rejected Vonage's motion to dismiss the case last month.
Sprint spokesman Matt Sullivan said the jury, in addition to the $69.5 million award in damages for past infringements, ordered a 5 percent royalty rate on future revenue.
Vonage shares closed down 66 cents at $1.30 on the New York Stock Exchange.
The legal setbacks are only part of the problems facing Vonage, which has posted heavy losses since going public in May 2006.
The shares have fallen 92 percent from their initial public offering price of $17 in May 2006 on worries about competition from cable operators and other companies offering Web-based calling services, as well as concerns about high marketing costs.
Analysts said the Sprint case followed a similar pattern to the case filed by Verizon. A federal jury earlier this year found Vonage had infringed three patents belonging to Verizon Communications, a decision Vonage is seeking to appeal.
This case echoes the trajectory of Verizon's patent infringement suit against Vonage last spring, Stifel Nicolaus analyst Blair Levin said. He also said he expected Sprint to seek an injunction against Vonage.
Sprint shares rose 13 cents to $18.43.
Vonage in August reported a narrower quarterly loss as it spent less on advertising and sacrificed subscriber growth.
It has said it is running ahead of schedule in its plan to turn an operating profit by the first quarter of 2008, but many analysts are skeptical about its outlook.
The company was a pioneer in selling Voice over Internet Protocol (VoIP) services to consumers looking for a cheaper alternative to regular phones. Now cable and other Internet firms offer similar services.
(Additional reporting by Sinead Carew)