Vonage Could Face Bankruptcy Without Stay on Patent Injunction

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Vonage Could Face Bankruptcy Without Stay on Patent Injunction

7:20 am on April 19, 2007 | Category: Business, VoIP, Telephone, Law

The embattled VoIP provider, Vonage, admitted in a filing with the Securities and Exchange Commission on Tuesday that it may ultimately be forced to declare bankruptcy if a threatening patent injunction against the company is not stayed permanently.

“We are, and may in the future be, subject to damaging and disruptive intellectual property litigation that could materially and adversely affect our business, results of operations and financial condition, as well as the continued viability of our company,” Vonage explained in the 10-k document.

Things have gone steadily downhill for the VoIP pioneer since March, when the courts ruled that its services had infringed on patents owned by larger rival, Verizon Communications. Vonage was ordered to pay $58 million in damages, and soon after faced an injunction preventing it from signing-up new customers – the life blood of its business model.

The injunction was temporarily stayed, but could be re-implemented as soon as April 24 if Vonage is unable to convince a judge to leave the stay in place, pending an appeal.

Without a permanent stay, Vonage will likely face complete bankruptcy by the end of 2008, when $250 million of corporate debt will have to be paid. The company is currently sitting on around $420 million in cash, most of which was raised in its ill-fated IPO last spring, and should be able to make that money stretch through next year.

“They could be facing a liquidity issue within a year and a half,” commented Stanford Group analyst, Clayton Moran. “But I don’t expect them filing for bankruptcy in the next few months. They have enough cash to survive.”

As Vonage bleeds customers at an alarming rate, however, survival will surely be a time-limited affair.