Is Vonage doomed?

Vonage is still able to sign up new customers, but has a legal noose around its neck. We answer some of the questions about the future of the voice on IP (VoIP) provider.

A US district court judge Friday barred VOIP provider Vonage from signing up new customers after the company lost a patent infringement lawsuit to Verizon. The judgement is in abeyance at the moment, thanks to a temporary stay granted by an appeals court on Friday, allowing Vonage to continue signing up new customers until the appellate court can hear Vonage's request for a permanent stay.

On March 8, a federal jury found that Vonage infringed three Verizon patents and must pay $58 million in damages plus royalties. Verizon sued Vonage last June, alleging the VOIP provider had violated seven of its patents involving packet-based calling technology.

Here are some questions and answers to the what, why and how of Friday's ruling.

Is Vonage fried now that a federal judge ruled Friday that it is barred from signing new customers?

No, but this doesn't bode well for the VOIP service provider. Vonage's own lawyer called the ruling "as devastating as an injunction that would have affected Vonage's 2.2 million existing customers," according to an article in USA Today.

The patent ruling has led observers to question Vonage's long term future.

What type of injunction could have affected Vonage's customers?

The original injunction handed down by the court in late March barring Vonage from using the technology named in Verizon's patents. The injunction came after Vonage was found guilty of patent infringement. But the injunction didn't go into effect immediately. The judge decided to take a different route instead limiting the company's growth while it settles its legal woes.

What do the Verizon patents that were violated include?

According to reports, the patents cover technology that enables voice calls to be transferred from an IP network to a traditional telephone network, call waiting features and wireless handset support.

Why did the judge bar Vonage from signing new customers?

As punishment for infringing on Verizon's technology patent even after a jury found Vonage guilty of doing so last month. If Vonage stops infringing on Verizon's patents then it could sign on new customers.

So why doesn't it stop?

That would require one of two things. First, it could create a technical "work around" which Vonage is said to be working on. Second it could come to an agreement with Verizon and pay it royalties. That's most likely what will happen.

Didn't Vonage recently have an IPO? So why doesn't it have cash to fix the problem?

Yes it did have an IPO, but it has been lacklustre at best. Late last month a financial analyst speculated that Vonage could be bankrupt within two years.

Can it survive if it doesn't sign new customers?

The short answer is no, not in the long term. According to a story in the Wall Street Journal "adding new subscribes is critical for Vonage, which promised investors it will grow quickly and reach profitability." That simply can't happen without new revenue.

Isn't Vonage required to pay Verizon damages? Doesn't that settle the score?

In early March, a jury found that Vonage did infringe on three Verizon patents and that Vonage must pay $58 million in damages plus royalties to Verizon. But the judge wasn't satisfied with that payment alone while Vonage continues to infringe on Verizon's three patents. The judge is also requiring Vonage to post a $66 million bond, according to the Associated Press.

When does the judge's injunction, barring Vonage from signing on new customers go into effect?

April 12.

What's Vonage's next step?

An immediate appeal, company lawyers said Friday.

If a higher court sides with Vonage are its legal troubles over?

No. Sprint Nextel filed suit against Vonage in a patent infringement case in October 2005. That case is expected to go to trial in September.