Vonage (NYSE:VG) shares rose $0.12, or 3.88%, to $3.21 after a federal appeals judge suggested a reprieve that might allow the VOIP provider to avoid its patent problems with Verizon. This is a critical legal battle for Vonage that could drive it into bankruptcy if the lower court decision is upheld. The company's shares have reflected this risk, dropping over 50% this year alone. Meanwhile, if the company's patent issues go away there could be significant share appreciation from these depressed levels.

So, what was this reprieve? Well, the federal appeals judge suggested that instead of blocking Vonage from using Verizon's patented technology, perhaps the startup company could be given a time period to develop an alternative method of developing its online telephone service that doesn't violate Verizon's patents. If other judges agree, the courts would then pass the case back down to lower courts with instructions to consider that possibility. However, the lower courts could decide to not even reconsider. So, there is a lot of possibilities with only one leading to a positive outcome for Vonage.

Meanwhile, Vonage indicated it was working on such a technology in May, but said it could take months to get operational. The problem the company is facing is the downtime between the development and implementation of this new technology where it would be forbidden from making any income. If a judge were to give the company time, it could save the company from bankruptcy and give it a second chance at life. This makes VG a stock worth watching!

Related Companies
AT&T Inc. (T)
Sprint-Nextel (S)
Alltel Corporation (AT)