The Internet phone company Vonage Holdings faced two separate patent infringement lawsuits initiated by Verizon and Sprint Nextel due to the technology used to provide Web-based communication services for its customers. The threat to Vonage's viability was severe, given its narrow business focus and relatively short business life. Verizon and Sprint Nextel are much larger and better established companies.
REQUIRED:
a. What is a patent, and how is it accounted for on Verizon's and Sprint Nextel's financial statements?
b. Where might a financial statement user find evidence of the suit on Vonage's financial statements, how might it account for this suit, and how might Vonage's external auditors react to this situation?