27 September 2007
Shares in Internet phone service Vonage fell below $1 yesterday amid mounting concerns the company will be run out of business by patent problems with rivals Verizon and Sprint.
Vonage was hit with its second major legal setback in two days when a federal appeals court upheld a ruling that Vonage's technology infringed two Verizon patents.
The decision bars Vonage from using the patents in its core technology for making Web phone calls and leaves the company on the hook for millions of dollars in damages.
The original court ruling ordered Vonage to pay Verizon $58 million in damages and 5.5 percent of future royalties, but an appeals court, which rejected a third patent infringement claim by Verizon, ruled those numbers need to be re-evaluated.
In a statement following the ruling, Vonage Chief Legal Officer Sharon O'Leary said it's "business as usual" for the company, and claimed that Vonage already has figured out how to work around the patents.
But Blair Levin, a telecom analyst for Stifel Nicolaus, said the decision is bad news for the company. He said in a note to investors that the key question is whether Vonage's strategy will survive scrutiny by Verizon.
Vonage stock sank 26 percent, or 34 cents, on the news to a new low of 96 cents. The stock is a shadow of its former self. It went public in May 2006 at $17 a share.
The company's problems with Sprint follow a Tuesday court ruling that Vonage infringed on six Sprint Nextel's patents. As part of that decision, Vonage was also ordered to pay Sprint $69.5 million in damages and 5 percent of future royalties.
Holmdel, N.J.-based Vonage hasn't made a profit since it was founded in 2000 by entrepreneur Jeffrey Citron, who is now in his second stint as CEO of the embattled company.
Analysts said Vonage can't afford the financial penalties of the patent cases at a time when it is incurring heavy losses and facing tough competition from deep-pocketed cable companies.
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