Vonage Holdings (VG-NYSE) may have just been saved, or at least the worst case scenario just got put off to a later date: The U.S. Court ofAppeals for the Federal Circuit in Washington D.C. today issued Vonage apermanent stay of a previous court’s injunction that would have barred it fromsigning up new customers. Vonage sought the stay following an April 6thdecision by the U.S. District Court in Alexandria, Va. enjoining the companyfrom using certain VoIP technology to add new customers. The permanent stayenables Vonage to add new customers as we pursue our appeal. Existingcustomers remain unaffected by the company’s ongoing patent litigation.
It even gets to finance its existence: Vonage will continue to serve existing customers by paying into escrow aquarterly royalty of 5.5% throughout the appeals process and by postinga $66 Million bond as required by the court. The company says its current cashposition allows it to pay these fees to secure the stay as it continues tomake progress on and pursues its legal appeal over the coming months.
Vonage share have just risen some 30% in reaction to the news, so this will be interesting to see where it closes today. This is not a permanent fix, but it’s a much better position than the company was in last week.
There is one potentially hidden benefactor in this if the VoIP issues could be made to "entirely go away," but that "entirely" is a longer term issue and is deemed an unknown. Part of the weakness in the recent Clearwire (CLWR-NASDAQ) IPO has been attributed to their VoIP exposure. True, they are a "near-WiMAX" play, but the company also offers Internet telephony (that is different, but could still have some exposure to the VoIP legal environment if taken a step further). This may or may not see any reaction, because Clearwire has been suffering from its own issues unrelated to this and they are not (and have not been named) as part of this case. So don’t expect that the company’s issues will just entirely go away because of a ‘Potentially’ related case that some have been thinking could come into play.
Jon C. Ogg
April 24, 2007
Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.
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