Vonage, confronted recently with a barrage of patent litigation, settles the last of them with an agreement that involves limited cross-license to three Nortel and three Vonage patents.

Vonage Holdings Inc., the VoIP (Voice over Internet Protocol) provider, and Nortel Networks Corp., the Canadian telecom equipment manufacturer, have settled their patent litigation. Their agreement allows for cross-licensing of the telecom companies' technology and does not call for any payments by either party.

Nortel had filed a lawsuit against Vonage in the US District Court in Delaware for allegedly violating nine patents related to Internet phone services features, such as 911 and 411 calling and click-to-call. But the Nortel lawsuit is just one among the many legal problems that has cost Vonage millions of dollars in settlement payments, the customers it has won in the past, and its reputation among investors and industry experts. Late last year, it settled one patent lawsuit after another, paying $80 million to Sprint Nextel, $120 million to Verizon, and possibly $39 million over the next five years to AT&T.

As for Nortel’s lawsuit, it started in 2004 when Digital Packet Licensing sued Nortel for violating three patents. When Vonage acquired DPL, it continued the case, saying the US Patent and Trademark Office shouldn’t have issued the patents. In response, Nortel countersued, claiming Vonage violated 13 of its patents, and asked that Vonage be kept from using the technology.

The settlement with Nortel brings to a close the last major litigation against Vonage. According to Vonage Chief Legal Officer Sharon O'Leary, "We are pleased to resolve this issue and enter into a productive relationship with Nortel.”

Under the agreement, both companies will cross-license each other’s technology (involving three Nortel and three Vonage patents), which is used to make emergency calls and dial 411. And Vonage won't have to pay Nortel for any alleged unauthorized use of its technology.

In patent law, a cross-licensing agreement is an agreement according to which two parties grant a license to each other for the exploitation of the subject-matter claimed in patents. In other words, cross-licensing is the mutual sharing of patents between companies without an exchange of a license fee if both patent portfolios are about equal in value.

Large corporations use this method to pile up more licenses for technology developed by other companies. They have many patents that can be used for such cross-licensing. Large corporations can force small companies to share their patents with the large company in a cross-licensing agreement or face legal problems from the large company which has patents that are infringed by the small company.

To a large extent, cross-licensing agreements are legal, otherwise this could completely block the exploitation of a technology of which two or more inventions are patented by different companies. But this can easily become a complex issue, involving (as far as the European Union is concerned) Art. 81 and 82 of the EC Treaty (abuse of dominant position, etc) as well as licensing directives, cartels, etc. To insure they will have plenty of patents to cross-license, each large company may patent every conceivable way of doing something.

http://en.wikipedia.org/wiki/Cross_licensing