Vonage to pay AT&T to settle patent dispute

SAN FRANCISCO, Dec 28 (Reuters) - Internet phone service Vonage Holdings Corp (VG.N) said on Friday it agreed to settle a patent dispute with U.S. telephone giant AT&T Inc (T.N) that calls on Vonage to pay AT&T up to $7.8 million a year.

Vonage said in a statement the five-year settlement deal means it must make an upfront payment of $1.95 million to AT&T in January 2008 and then pay $650,000 per month over the life of the multiyear contract. The $1.95 million is pre-payment on the last three months of the deal.

In addition, Vonage said AT&T had granted it non-exclusive rights to AT&T patents related to Voice over Internet Protocol and dual-mode wireless services. The agreement does not grant Vonage any rights or license to operate a wireless network to provide any wireless service, it said.

Shares of Vonage closed off 7 cents or 3.4 percent at $2.00 on the New York Stock Exchange ahead of the annoucement. In extended trade, the stock declined another 3 cents to $1.97. (Reporting by Eric Auchard; Editing by Braden Reddall)