Vonage gets 'stay of execution' over new customers

Vonage may continue to sign up new customers while appealing a patent infringement loss to Verizon, a US federal appeals court has ruled.

In another reprieve for the struggling internet phone company, the decision arrived just hours after a three-judge panel at the US Court of Appeals for the Federal Circuit in Washington spent nearly two hours listening to arguments from both parties. The stay, which arrived without comment from the judges, was part of a brief order that also dictated the schedule for the appeals process.

Vonage chairman and interim CEO Jeffrey Citron applauded the decision and said the company would continue working to add to its some 2.2 million subscribers. "We remain focused on growing and strengthening our business and driving toward profitability," he said in a statement.

Citron added: "We continue to believe we have not infringed on any of Verizon's technology and remain optimistic that we will ultimately prevail in this litigation."

While the appeal is pending, the internet phone company also plans to continue paying a 5.5 per cent royalty rate on all future sales to an escrow account, and it has posted a $66m bond required by the lower court.

Verizon deputy general counsel John Thorne said he expected the verdict would be upheld on appeal, which he said the court has decided to hear within two months.

Thorne said in a statement: "The expedited schedule will accomplish the same thing that a partial stay of the injunction pending a longer appeal would have accomplished - limiting Vonage's infringement during the appeal."

The appeals court has instructed the parties to file briefs and has scheduled oral arguments in the case for 25 June. That's an unusually quick timetable for a patent appeal, which can often stretch on for at least a year.

Shares of Vonage surged nearly 50 per cent after the company announced the stay had been granted. The stock closed at $3.72, up 83 cents, or nearly 29 per cent.

The ruling may be good news for Vonage and its investors for now but analysts warned that an uphill battle still lies ahead. The company has already admitted in a recent Securities and Exchange Commission filing that its legal woes could lead to bankruptcy, and it was losing customers even before the jury revealed its decision in the Verizon case.

Albert Lin, an analyst with American Technology Research, said: "It's a good day for Vonage but this legal battle with Verizon is not over. Furthermore, natural business competition is intensifying as cable companies are coming on quickly."

Rebecca Arbogast, an analyst with Stifel Nicolaus, said: "Even though legally Vonage can sign up new customers I think they're still going to be kind of swimming upstream over the next couple of months in terms of marketing and commercial appeal."

Anne Broache writes for CNET News.com