A court has ruled that Vonage cannot sign up any more customers while it appeals a patent infringement ruling, but the company has managed to win a temporary reprieve.
An early Friday ruling barred Vonage from signing up new customers, but an emergency request for a stay was granted later that day.
That’s a glimmer of good news for Vonage, as such an injunction could credibly kill the company.
The voice over IP service provider said yesterday that the Court of Appeals is considering making the stay permanent, and that it is confident it will win the appeal.
The injunctions stems from a March verdict that Vonage’s service infringes on three Verizon patents, which broadly cover the notion of transmitting voice calls on IP networks.
Vonage has had to post a $65m bond to cover the damages it will have to pay Verizon if it loses its appeal. It is also putting 5.5% of its revenue into escrow to pay for royalties if it loses.
Vonage is pleased that existing customers will not experience any interruption in service, the company said in a statement. The company continues to believe it will succeed on appeal and continues to work on designing around the Verizon patents.
The company added it believes the case is an attempt to do in the court room what Verizon could not succeed in doing in the marketplace — which is to put Vonage out of business.
As plausible as that is, it does not change the fact that Verizon, which fears the VoIP upstart as a rival for its traditional landline business, has done a remarkable job of persuading the court to hang large question marks over Vonage’s longevity.
A ban on signing new customers could be a mortal blow to Vonage. The company is in the rapid growth phase of its strategy, investing heavily in acquiring new customers in an effort to capitalize on an early bird advantage.
That strategy, or, rather, the amount of money the company pays to acquire each customer, has been criticized, but it’s essential for Vonage’s profitability plan. The company needs scale if it can hope to compete with the incumbent carriers.
The markets were closed for Easter on Friday, but Vonage’s share price took another 10% dive yesterday, compounding its long-suffering investors’ woes.