US VoIP service Vonage as hanging on by the skin of its teeth this week, gaining a stay on an order by a US District Court for it to stop signing new customers.
A Jury trial had previously said that Vonage had infringed on a number of Verizon patents, and Verizon called for the service to be withdrawn. As a compromise, rather than staying with the status quo until an appeals court can hear the Vonage appeal, the Judge said it was okay to service existing clients, but not to sign up new ones. Perhaps the Judge failed to appreciate that this is virtually a death warrant for Vonage, given its churn rate.
Almost no network operator in the voice market could sustain its business while sorting out messy legislation, without the ability to continue signing customers. The most recent similar case involved Research in Motion, which at no stage was stopped, throughout a four year trial, from continuing to sign up new deals, even though the patent infringement was upheld.
In no trial in recent technology history that we can find, has such a step been agreed to by a US court.
Vonage now needs time to submit its case to the US Court of Appeals for the Federal Circuit in Washington, and is still optimistic that the entire affair can be shown to be a thinly veiled attempt by Verizon to shut it down in the courts because it is failing to beat it in the market. The stay will remain effective while the Appeals Court considers whether or not it can make the stay permanent for the duration of the appeals process.
Vonage has to put aside a royalty of 5.5% of its income in case it is ordered to pay that much to Verizon and it has already posted a bond to the court for $66 million against Verizon’s damages.
Given that all he Verizon patents involved are techniques for connecting to an existing phone record and for the combining of various billing issues, it looks like Verizon is attempting to tax VoIP attachment to it services, something that ought not be an issue of patents, but more one of regulatory control from the FCC.
Meanwhile Vonage shares are in freefall, so that if it does require extra money to fight this case, it is unlikely that it will be able to find any through equity or debt.