Last Friday, a U.S. District Court in Alexandria, Va., issued an injunction against Vonage that limits its ability to offer service to new customers unless Vonage changes the way new customers’ calls are connected to the PSTN. However, the judge stayed the injunction for six days to allow Vonage time to appeal. The bad news for Vonage keeps coming. Here’s a chronology of events:

* On March 8 a U.S. District Court jury in Alexandria, Va., found that Vonage had infringed on patents held by Verizon that define how callers are connected to the PSTN. In that decision, Verizon was awarded $58 million along with future royalties of 5.5% against revenue for continued use of the infringed patents.

* On March 23, the District Court judge ruled that the fine wasn’t punishment enough, and issued an injunction keeping Vonage from using any of technology that violated the patent.

* On April 6, the same judge issued a further injunction preventing Vonage from signing up new customers that would use the technology, and required Vonage to past a $66 million bond. While he could have ruled that Vonage would be required to cease operations, as suggested by Verizon’s lawyers, he did allow Vonage’s current 2.2 million customer to keep their VoIP services.

While Vonage does have alternatives to using the technology, it will require Vonage to offer connectivity to the PSTN through a third party or to dramatically re-build its infrastructure and business model. For example, Vonage is working out a deal with wholesaler VoIP, Inc.’s Voice One network services to carry its traffic via and circumvent Verizon's VoIP patents.

Our analysis: While both alternatives would reduce profit margins and for a company that is already losing money (based largely on high per-customer acquisition costs) the alternatives do not bode well for long term financial success. And if Vonage does elect one of these two choices, an appeals court may ask why the company didn’t choose to begin its business with one of the alternative rather that violating the patents held by Verizon to help build the Vonage customer base. But for now, while Vonage is “down”, both the company and its existing customer base are not “out.”

Steve Taylor is president of Distributed Networking Associates and publisher/editor-in-chief of Webtorials. Larry Hettick is a principal analyst at Current Analysis.