Patent Dispute Threatens Prepaid Wireless Service

A patent dispute over prepaid cellular telephones threatens to disrupt service to millions of prepaid wireless customers at several U.S. carriers, including Cingular Wireless.

A federal judge in Boston granted an injunction on Monday against Boston Communications Group Inc., (Nasdaq:BCGI - news) which sells customer management services for prepaid wireless telephones to a number of companies, including Cingular and Alltel Communications Inc.

The court had previously ruled that Boston Communications had infringed on two patents held by Freedom Wireless Inc., and has awarded Freedom Wireless $128 million in damages. Last week, the court added $19.7 million to the award for interest on lost royalties, and said it would explore further damages.

Under the injunction, wireless companies that use the BCGI prepaid wireless services must stop selling them. The companies have 90 days to continue serving current customers, during which they must pay royalties to Freedom Wireless.

BCGI said that the injunction could affect service to 3.1 million prepaid customers, including 400,000 at Cingular, representing 70 percent of its total revenue. It has asked the judge to stay the injunction while it files immediate appeals.

Cingular Wireless spokesman Mark Siegel said the injunction does not apply to the "vast majority" of Cingular's prepaid wireless customers, who use a different type of network technology. He said Cingular would also seek a stay of the injunction while it appealed the case.

"We intend to continue to provide service to all prepaid customers, including those on the BCG platform," Siegel said. He declined to say what steps Cingular might take if the injunction is not lifted.

A spokeswoman for BCGI could not immediately say who the other affected carriers were. The company has sold services in the past to a variety of carriers, including Alltel Corp. (AT.N) and Nextel, now a part of Sprint Nextel Corp.

Cingular Wireless and AT&T Wireless, which Cingular bought last year, were co-defendants in the suit against BCGI. Verizon Wireless was also a co-defendant but reached a settlement with Freedom Wireless before the trial began earlier this year.

Cingular is a joint venture of SBC Communications Inc. (NYSE:SBC - news) and BellSouth Corp. (NYSE:BLS - news)

Copyright 2005 Reuters Limited.

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