March 23 (Bloomberg) -- Vonage Holdings Corp. was ordered by a judge to stop using Verizon Communications Inc. technology that lets customers make calls to standard phone lines, threatening the money-losing Internet phone company's survival.

U.S. District Judge Claude Hilton approved a Verizon request that may cripple the service today, sending Vonage shares to a record low. Hilton, in Alexandria, Virginia, said he won't sign the order before a hearing in two weeks on Vonage's request for a stay. A jury found March 8 that Vonage infringed three patents and said it should pay Verizon $58 million.

``My impression is they have to shut down'' if Vonage can't develop a way to link calls that replaces the one that violates Verizon's patents, said Clayton Moran, an analyst with Stanford Group in Boca Raton, Florida, who covers Vonage. ``That's obviously disastrous.''

Vonage, based in Holmdel, New Jersey, said it is developing ``technical workarounds'' to avoid infringing Verizon's patents. New York-based Verizon sued Vonage in June, claiming it lured away more than 1 million Verizon customers by copying voicemail and other services, as well as a method for interpreting so- called Voice over Internet Protocol calls so they can be heard over traditional phone lines.

Shares of Vonage fell $1.05, or 26 percent, to $3 in New York Stock Exchange composite trading, the lowest closing price since they were sold to the public in May. About 9.78 million changed hands, almost nine times the three-month daily average. The decline cut the company's market value to $464.8 million.

Delay Sought

Vonage expects to win a 120-day stay of today's order from Hilton or an appeals court, allowing it to pursue an appeal of the jury verdict, spokeswoman Brooke Schulz said in an interview. Hilton will hear Vonage's request April 6.

``We are confident Vonage customers will not experience service interruptions or other changes as a result of this litigation,'' Mike Snyder, Vonage's chief executive officer, said in a statement. ``Our fight is far from over.''

Vonage's net loss widened to $286 million in 2006 as competition from phone and cable providers slowed customer growth. Before the trial, Vonage forecast sales would rise to as much as $900 million this year from $607.4 million last year, with almost half of that to be spent on advertising to boost its customer total to around 3 million.

Shareholder Lawsuits

Vonage faces lawsuits from shareholders who claim the company misled them about its products and the May 6 initial public offering. The shares have fallen 82 percent from their offer price of $17, including a 14 percent drop the day after the Virginia jury verdict.

The jury found that three of five disputed patents were infringed and all are valid, while rejecting Verizon's claim that the infringement was willful. The patents cover a method of translating calls between the Internet and standard phones, call-waiting features and wireless handsets.

Cash compensation ``does not prevent continued erosion of the client base and the customer base'' of Verizon, Hilton said today. ``The only hardship to the defendant is loss of revenue.''

The damage award was less than the $197 million Verizon sought and the $69 million maximum Vonage said it owed if the patents were infringed. Verizon, the second-largest U.S. phone company after AT&T Inc., had net income of $6.2 billion on sales of $88.1 billion last year.

`Embedded Technology'

``Our technology is embedded in their architecture and they have done nothing since the jury verdict to change that,'' Daniel Webb, a lawyer for Verizon, told Hilton today. ``Money damages are not going to be adequate.''

Verizon shares rose 11 cents to $38.12. They have climbed 14 percent in the past year, valuing the company at $110.9 billion.

Sprint Nextel Corp., based in Reston, Virginia, separately is seeking cash compensation and a court order to stop Vonage from using disputed technology. That case is set to go to trial in September.

The case is Verizon Services Corp. v. Vonage Holdings, 06- cv-682, U.S. District Court for the Eastern District of Virginia.

To contact the reporter on this story: Jeff St.Onge in Alexandria, Virginia, at jstonge@bloomberg.net; Amy Thomson in New York at athomson6@bloomberg.net

Last Updated: March 23, 2007 17:33 EDT