Vonage: Dead Company Walking?

Vonage attempted today to reassure its 2.2 million customers that its Internet telephone service is not in jeopardy despite a looming permanent injunction that could prohibit Vonage calls from connecting to traditional telephone networks.

On April 6, U.S. District Judge Claude Hilton is expected to sign the permanent injunction he issued last Friday. The injunction would bar Vonage from using Verizon technology that a jury ruled Vonage infringed, awarding Verizon $58 million in damages.

“To paraphrase Mark Twain, the rumors of Vonage’s death have been greatly exaggerated,” Mike Snyder, Vonage CEO, said in a statement. “Friday’s events represented one small step in what is sure to be a long legal battle.”

Snyder said Vonage, which lost $65 million last quarter, had been preparing for the verdict and the possibility of an injunction for months, although he did not mention any workaround of the three Verizon patents in question.

He also pointedly criticized the markets for punishing Vonage’s stock price in the immediate aftermath of Friday’s opinion. Vonage’s shares plunged 26 percent Friday afternoon to the company’s lowest price ($3) since going public in June. In after-hours trading today, Vonage is up to $3.44 a share.

“For the market to react the way it did to the recent rulings shows an unfortunate lack of understanding of the judicial/appellate system, a lack of appreciation of Vonage’s resourcefulness, or, perhaps, both,” Synder said. “Anyone who’s counting Vonage out is making a huge mistake.”

Sharon O’Leary, Vonage’s executive vice president and chief legal officer, said Vonage is “optimistic” Hilton will stay the permanent injunction pending appeal. In the event he doesn’t, O’Leary said it is prepared to immediately file for a stay with the Court of Appeals for the Federal Circuit. Vonage also plans an appeal to set aside the jury verdict.

“No matter what happens on April 6, the reality is this litigation is going to take years to make its way through the legal system,” said O’Leary in a statement. “And once the case is up on appeal, we are confident that the appellate court will overturn the verdict based on the faulty claim construction of the patents involved.”

O’Leary said the Court of Appeals has reversed prior verdicts involving flawed claim constructions approximately 40 percent of the time.

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