On Thursday a jury decided that Vonage infringed on three of Verizon's patents regarding commercial VoIP services technology and ordered Vonage to pay $58 million in damages and a 5.5% royalty rate on future sales. The company's stock fell $0.69 to $4.17 on the New York Stock Exchange, losing more than 14% of its value. Verizon is also seeking a permanent injunction to keep Vonage from using the technologies. Vonage plans to appeal. The ruling comes after a string of setbacks for the scrappy service provider, which has yet to make a profit. Vonage was founded in 2001 and has built up its customer base to more than 2.2 million through heavy investments in marketing. The company has claimed Verizon sued in order to eliminate a competitor to the traditional circuit-switched phone service.
Although the judgment is not very big compared to some, it could be devastating to Vonage if it stands, analysts said. "It's a drop in the bucket, but they need every cent they can get. The company is already dealing with shareholder lawsuits over its disappointing IPO last year along with difficulty meeting regulatory requirements like E911 emergency service and the Communications Assistance for Law Enforcement Act," said Will Stofega, a VoIP analyst at IDC. Ovum analyst Jan Dawson also believes Vonage is in trouble: "As this case gets more coverage, potential customers will be worried about signing up for new service with Vonage, and existing customers may churn in larger numbers than usual. Both of these effects would be disastrous for Vonage."
Jeff Pulver, a longtime VoIP booster who co-founded Vonage before leaving the company, was more optimistic on his blog: "This isn't the end of the battle. I hope and trust this decision does not curb innovation and progress in VoIP and other Internet communications products, services, and applications."