April 09, 2007
Vonage on Life Support After Court Orders End to New Business

By Spencer D. Chin
TMCnet Web Editor

Like a fighter pummeled through repeated blows, Vonage (News - Alert) continues to remain standing—but only barely--- as the company was dealt another hard punch last week.
 
The end seems to be nearing for the VoIP phone provider as Vonage was ordered last week by a federal judge to stop signing up new customers. Though the injunction was originally supposed to take effect last Thursday, the U.S. Court of Appeals for the Federal Circuit in Washington, D.C. did grant Vonage a temporary stay until the court rules on the company’s appeal.
 
According to an Associated Press report, the judge stated that applying the injunction to new customers rather than Vonage’s entire customer base would enable customers to conduct business. However, the decision will likely only temporarily forestall the agonizing end of the VoIP phone company which rose to prominence by offering a lower-cost alternative to traditional dial-tone service.
 
The past month has been particularly brutal for Vonage. A month ago, a federal jury ruled Vonage infringed three key patents held by Verizon (News - Alert) and would have to pay $58 million in damages as well as a 5.5% royalty rate going forward. On March 23, the U.S. District Court in Alexandria, Va., issued an injunction preventing Vonage from using Verizon’s patents, though the injunction was not immediately effective.
 
Vonage has continued to reassure customers it is financially solvent and committed to not only remain in operation but expand its business. But so far, the company has been unable to resolve technology workaround issues related to the patents, placing its future on shaky footing.
 
In the aftermath of the court’s decision to stop Vonage from pursing new business, Vonage will have to react quickly to prevent further erosion of its existing base of 2 million customers. But the financial strain for Vonage is likely to worsen as the company has been ordered to post a $66 million bond to cover the jury award and other expenses, according to the Associated Press report.
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Spencer Chin is a contributing editor for TMCnet. To see more of his articles, please visit his columnist page.
 
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