By Peter Kaplan
A federal judge dealt a blow to Vonage Holdings Corp. that sent its
stock reeling on Friday, when he agreed to bar the company from using
Internet phone call technology patented by Verizon Communications Inc.
Vonage said it was confident its customers would not experience
service interruptions, but investors sent its shares down nearly 26
percent.
U.S. District Judge Claude Hilton said he would delay signing the
order for two weeks to give Vonage time to try to convince him to stay
the injunction while it appeals the entire patent infringement
case. "I will sign the injunction at the time I rule on the stay,"
Hilton said at a hearing.
Hilton agreed with Verizon that it would suffer irreparable harm if he
allowed continued infringement of the Voice-over-Internet Protocol
(VoIP) technologies that allow consumers to make calls over the Internet.
He rejected arguments by Vonage that the harm to Verizon, the No. 2
U.S. telephone company, was outweighed by other factors, including
the public interest.
"I don't think it's going to kill Vonage," said Albert Lin, an analyst
at American Technology Research. But he said the legal costs and
management distractions were disruptive.
Vonage has been public for less than a year, and its stock has lost
value consistently since its initial public offering at $17 a share in
May. It reached a new low Friday, closing down $1.05 at $3 per share
on the New York Stock Exchange.
Vonage said the patent battle was far from over and the company would
vigorously defend itself.
"Despite this obvious attempt by Verizon to cripple Vonage, the
litigation will not stop Vonage from continuing to provide quality
VoIP service to our millions of customers," Vonage chief executive
Mike Snyder said in a statement.
OPERATING CHALLENGES
Vonage has previously said it is working on redesigned technologies to
avoid infringing Verizon's patents.
"It should likely continue as an independent company, but their
operating challenges will have increased," said Stanford Group analyst
Clayton Moran, who also warned that Vonage's subscriber growth could
slow.
A jury on March 8 found Vonage had infringed three patents owned by
Verizon. The jury said Vonage must pay $58 million plus 5.5 percent
royalties on future sales.
"They could not have been commercially successful if they had not
taken these patents we have and put them into their technologies," Dan
Webb, an attorney for Verizon, said at Friday's hearing on the
injunction request.
Webb also cited documents Vonage filed with the court under seal,
saying an injunction would cause "enormous business difficulties" for
Vonage. Webb said the Vonage filings suggested that Vonage "can't
live with an injunction because of the way their technology is
designed."
Vonage's chief lawyer, Sharon O'Leary, declined to comment on the
sealed documents.
"We will get the stay, either through the district court or the
Federal Circuit Court of Appeals," O'Leary told Reuters outside the
court.
One patent lawyer told Reuters that Vonage has a chance of winning an
appeal, but it was crucial to get a stay of the injunction.
"A one-and-a-half to two-year injunction, even if they win on appeal,
could be very significant to Vonage," said John Rabena, a partner with
the firm Sughrue Mion.
(Additional reporting by Ritsuko Ando in New York)
Copyright 2007 Reuters Limited.
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Peter Kaplan, Reuters News Wire (