The US Appeals Court for the Federal Circuit ruled Tuesday that Internet phone company Vonage can subscribe new customers while it appeals a lower court finding that it infringed three patents held by Verizon Communications, Inc. In the wake of the finding, US District Judge Claude M. Hilton issued an order prohibiting Vonage from subscribing new customers. Vonage will also continue paying a 5.5 percent royalty rate on all future sales to an escrow account while the appeal is pending. The appeals court scheduled oral arguments for June 25.

Verizon filed a patent infringement lawsuit against Vonage in June, accusing it of violating seven Verizon patents. On March 8, a federal jury returned a verdict finding that Vonage had violated [Verizon press release; Vonage press release] three voice-over-Internet Protocol patents held by Verizon, awarding Verizon $58 million dollars in compensation plus future royalties amounting to 5.5 percent of Vonage's revenues if Vonage continues to use the patented technology. Hilton, saying he did not wish to irreparably harm Vonage's business, issued the partial injunction as a less severe punishment than one he initially proposed, which would would have disrupted phone service for Vonage's 2.2 million existing customers. Vonage lawyers argued in response that the ruling would "slowly strangle" Vonage because it would be unable to compensate for customers that routinely switch services in the highly competitive industry. Vonage lawyers projected that the phone service would lose approximately 650,000 subscribers over the course of next year. Earlier this month, the US Court of Appeals for the Federal Circuit issued an emergency stay of the injunction.