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RIM Edges Closer to the Edge

By Arik Hesseldahl Research In Motion has suffered another setback in a legal dispute that threatens to torpedo U.S. sales of its popular BlackBerry e-mail paging service. The U.S. Court of Appeals on Oct. 7 rejected its request for another hearing on an earlier patent infringement ruling against RIM (RIMM).

It's the latest wrinkle in a long-standing battle between RIM and NTP, a company set up to manage the patent portfolio of Thomas Campagna, an inventor who died in 2004. At issue is ownership of the patents on the groundbreaking technology at the base of RIM's BlackBerry pager. The decision may bring Arlington (Va.)-based NTP a step closer to winning enforcement of an injunction that would force a shutdown of the BlackBerry service.

"We intend to be back in court asking to enforce our injunction as soon as possible," says NTP lawyer James Wallace.

TO THE HIGH COURT? Millions of U.S. customers subscribe to the BlackBerry service supplied via wireless-phone providers including Cingular Wireless, owned by SBC Communications (SBC) and BellSouth (BLS); Verizon Wireless, owned by Verizon (VZ) and Vodafone Group (VOD); and Sprint Nextel (S). NTP says the injunction, if enforced, won't affect BlackBerry users who work for federal, state, or local government agencies. RIM says 77% of its 3.65 million BlackBerry users are in North America, with the lion's share in the U.S.

RIM intends to take its case to the U.S. Supreme Court. In a written statement it said it would ask the high court to review the Appeals Court's decision not to hear its case, saying the company "continues to believe this case raises significant national and international issues warranting further appellate review."

However RIM concedes that the threat of the injunction is real. "While RIM maintains that an injunction is inappropriate given the facts of the case and substantial doubts raised subsequent to trial as to the validity of the patents in question, it ultimately will be up to the Courts to decide these matters, and there can never be an assurance of a favorable outcome in any litigation."

INJUNCTIONS AND STAYS. The district court is unlikely to enforce any injunction until the Supreme Court decides whether to hear the case, notes Dennis Crouch, a patent attorney with Chicago law firm McDonnell Boehnen Hulbert & Berghoff. Still, the high court typically agrees to hear only one patent-related case per year.

News of the rejection sent RIM stock lower, to close down 3.4% at $64.55, while stock in Palm (PALM), which makes the Treo, a wireless phone that's a rival to the BlackBerry, was up 3%, or 82 cents, to $28.12.

The two sides have been locked in battle for years. In 2002 a jury determined that RIM had infringed on NTP's patents, and the court granted the injunction ordering the shutdown of the BlackBerry service and banning the device's sale in the U.S. That injunction was stayed pending an appeal. But in March of this year the two sides announced they had reached an agreement in principle to settle the case.

"NO MEETING OF MINDS." RIM had agreed to pay NTP $450 million for unrestricted use of the patents. But in June the settlement fell apart for reasons that neither side has explained publicly. Given the most recent turn of events and NTP's stated intention to pursue the injunction, RIM may have little choice but to head back to the bargaining table and prepare to write a check for considerably more than the $450 million previously agreed to. In a written statement, NTP said RIM owes it $210 million in damages as of August, 2005, based on a royalty rate of 8.55% for use of the disputed patents.

RIM CEO Jim Balsillie has said previously that despite rulings from the patent office casting doubt on the validity of NTP's patents (see BW Online, 9/20/05, "A Red Letter Day For RIM", and 4/8/05, "Did RIM Pay Too Soon?"), the company still intends to pay up on the settlement. Wallace has said after the initial agreement to settle, there was "no meeting of the minds" over as yet-unspecified details of the settlement agreement. As the legal wrangling wears on, and concerns over enforcement drag on its shares, RIM may well be hoping those minds have a meeting soon.

Hesseldahl is a reporter for BusinessWeek Online in New York

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