Vonage wins patent lawsuit reprieve

Vonage Holdings, the US-based broadband telephony pioneer, won a temporary reprieve late on Friday when an appeals court gave it permission to continue to sign up new customers pending a full hearing of a patent infringement suit.

Earlier in the day, a lower court ordered Vonage to stop signing up new customers after last month’s decision that Vonage had infringed three VoIP (Voice over Internet Protocol) technology patents held by Verizon Communications.

Vonage immediately appealed against the district court ruling which would have allowed it to continue to provide services to existing customers but banned it from signing new ones from Thursday.

Such a ruling would represent a serious blow to Vonage which has yet to report a profit and has relied heavily on signing new customers in order to boost revenues and move towards profitability.

Roger Warin, a lawyer for Vonage, had told the lower court that the choice between a partial stay and a total prohibition on using the Verizon technology amounted to “cutting off oxygen or a bullet to the head” for Vonage.

District Court Judge Claude Hilton had said Vonage could continue to use the disputed technology to serve its 2.2m existing customers while the company appealed against the patent infringement verdict.

He also required Vonage to post a $66m bond as part of his decision to grant a partial stay of an injunction that could have forced Vonage to suspend all its operations.

A jury last month found that Vonage had infringed three patents owned by Verizon, and ordered the company to pay $58m in compensation and 5.5 per cent royalties on future sales.

It subsequently issued an injunction that would bar Vonage from using the disputed technology.

Vonage has insisted that if the patent infringement ruling is ultimately upheld, it will be able to find a technology ‘work around’ enabling it to continue operating. However, analysts have noted that the company also faces patent suits from Sprint Nextel and a slew of lawsuits following its IPO last year. Shares in the company, which have lost about 80 per cent of their value since an initial public offering at $17-a-share in May last year, fell more than 6 per cent on Thursday abefore the latest court rulings.

Investors have become increasingly concerned about Vonage’s prospects amid increasing competition from cable companies and rival VoIP providers.