Tumultuous times for troubled Vonage

These are tumultuous times for VoIP provider Vonage Holdings Corp. The New Jersey-based firm announced on April 12 that its CEO, Michael F. Snyder, had resigned, to be replaced by the company’s chairman, Jeffrey A. Citron, who will serve as interim CEO. The news comes hot on the heels of two court rulings that threaten to cripple the firm, and perhaps even drive it out of business altogether.

The first was an order from a U.S. federal court to pay US$58 million to rival Verizon for allegedly infringing on Verizon patents. It was also ruled that Vonage would be required to pay a 5.5 per cent charge to Verizon on future sales.

In what could perhaps turn out to be an even more severe blow to the company’s fortunes, however, another U.S. federal ruling decreed that Vonage would be prohibited from enlisting any new customers that it envisioned using the technology at the centre of the ruckus. (The technology in question, by the way, is believed to be used for switching phone calls from an IP network to a traditional voice infrastructure. Seven patents in all were said to be violated.)

The impact of the second ruling was muted when the courts issued a short-term stay on the customer-sign-up prohibition. This, however, will only be in place until Vonage has its voice heard about attaining a permanent stay.

If the ruling holds true, the long-term viability of the service provider will certainly be called into doubt; not being able to round up new business that would depend on using what seems to be a fundamental piece of technology in the VoIP scenario would be tantamount to taking engines out of cars and asking auto-makers to sell them.

The ruling around customer sign-up makes sense, if the technologies were in fact pirated. Business should not be allowed to be drummed up on the back of a technology pilfered from a competitor.

And if Vonage manages to triumph, it won’t be out of the woods: Sprint Nextel is waiting with an infringement case all its own. It is slated to be heard in the fall. 072286

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