ShoreTel IPO Marred By Patent Infringement Suit

ShoreTel hit a stumbling block on the road to its IPO as rival Mitel Networks slapped the VoIP vendor with a patent infringement lawsuit that appears to have delayed trading of its shares.

Shares of ShoreTel were expected to begin trading Thursday morning after the Sunnyvale, Calif.-based company priced its IPO at $10.50 per share on Wednesday, raising $83 million.

As of press time Thursday, however, ShoreTel shares, expected to debut on NASDAQ under the symbol "SHOR," had not begun trading.

Mitel Wednesday said it had filed a lawsuit against ShoreTel in the U.S. District Court for the Eastern District of Texas. The suit alleges that ShoreTel has infringed on four Mitel patents, according to a company statement. Mitel did not disclose the focus of the patents or what damages or actions Mitel is seeking against its competitor.

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"Mitel has invested significant resources into intellectual property in support of its communications innovations and we intend to assert our rights against those that infringe on that intellectual property," said Christian Szpilfogel, from the office of the CTO at Mitel, Ottawa, Ontario, in the statement.

ShoreTel representatives did not respond to requests for comments.

Solution providers working with ShoreTel said they see the IPO as a good move for the vendor and expressed hopes that the money raised will help the vendor continue to develop technology and grow product sales, which partners said have already been building even without the cash infusion.

"We hope to see more engineering resources, more marketing resources and more sales development," said Dave Casey, principal at Westron Communications, a ShoreTel partner in Carrollton, Tex., that has doubled its ShoreTel business over the last 12 months to about $2 million annually. "They've run a pretty lean staff in terms of sales and marketing, so we hope to see a boost."

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Peter Proulx, CEO of Premcom, a ShoreTel partner in Amherst, NY, agreed that the channel could use some more help from the vendor in marketing its products. Premcom has also doubled its ShoreTel business over the past year, growing it to about $3 million, roughly half of the company's overall revenue, Proulx said.

"Marketing has been pretty much up to the resellers at this point. We've been out there educating the customers. If they could use some of the money to do a little more advertising, they could take advantage of the momentum that's building," Proulx said. "People are starting to recognize their name, so they would benefit from it."

Helping drive ShoreTel sales is the simplicity of the vendor's wares, solution providers said.

"VoIP can be very complicated to understand, and ShoreTel's hallmark is that it is an easy system to install and manage," Casey said.

Rivals have been taking notice of ShoreTel, said Proulx.

"ShoreTel is the talk of all of our competitors because they just make a product that works. We're winning deals," Proulx said.

ShoreTel's growing success could be one reason Mitel has targeted it with a lawsuit, partners said.

"[ShoreTel President and CEO] John Combs came from Mitel, and he has in particular targeted Mitel," Casey said. "I'm not too concerned about it. It's a sign that others are recognizing that they're a voice leader."

Partners said they have had no communication from ShoreTel on the status of the IPO. One channel executive's broker told him shares are now expected to begin trading on Friday.

ShoreTel has been in the VoIP equipment business since its founding in 1996 as Shoreline Communications. It changed its name to ShoreTel in 2004.

Revenue for fiscal year 2006, ended June 30, 2006, hit $61.6 million, up from $35.5 million in 2005. The company earned $4 million in 2006, compared to a loss of $1.4 million in 2005, according to a filing with the Securities and Exchange Commission.

The company is issuing 7.9 million shares through its IPO and expects to use the proceeds for working capital and potential technology acquisitions, according to the filing.

ShoreTel's move to go public comes as Avaya, one of its main rivals, is going private. Avaya, Basking Ridge, NJ, is in the midst of an $8.2 billion merger with investment firms Silver Lake and TPG Capital.