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Appeals court lets Vonage take in new clients

WASHINGTON -- Vonage Holdings, the leading Internet phone service, received an emergency reprieve from a federal appeals court yesterday after a separate ruling hours earlier threatened to bar the company from adding new customers because it had violated patents owned by Verizon.

The court's swift intervention capped a fateful day for Vonage, which is struggling to survive after a federal jury ruled last month that it had infringed three patents, including a crucial one connecting the company's network with the public telephone system.

US District Judge Claude Hilton had ruled yesterday morning that Vonage could no longer acquire new customers but would be permitted to maintain service to its existing 2.2 million customers. Vonage's lawyers argued that even this partial injunction would doom the firm because it would be prevented from compensating for customary defections of customers in the competitive telephone market. That ruling had been scheduled to take effect next week.

"You are slowly strangling Vonage because it cannot replace that customer base," said Roger Warin, a lawyer for Vonage, at the morning hearing in Alexandria, Va. He projected that Vonage would lose about 650,000 subscribers over the next year, a major blow for a company already facing mounting competition, soaring court costs and a plummeting stock price.

Warin told Hilton that distinguishing between a partial and a total ban is like choosing between "cutting off the oxygen as opposed to a bullet to the head."

Then, in the afternoon, the US Court of Appeals for the Federal Circuit intervened, postponing the injunction. Now, Verizon has a week to respond to the emergency stay. The appeals court will then review Verizon's arguments and decide whether to allow Vonage to keep selling its service.

The appeals court could decide to revise its emergency stay and eventually impose a new one along the same lines ordered by Hilton.

Either way, existing customers do not face the prospect of an immediate shutdown.