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Dwindling Legal Options for RIM?

Research In Motion, the Canadian maker of the popular BlackBerry wireless e-mail device, has had another door slammed in its face by a U.S. federal court in a back-and-forth legal dispute that ultimately threatens to shut down its U.S. business. A U.S. Court of Appeals on Oct. 21 denied a motion that would have put the case on hold while RIM tries to get the U.S. Supreme Court to review the matter.

The dispute hinges on whether RIM (RIMM) infringed on patents held by NTP, a Virginia holding company set up to manage a patent portfolio of Thomas Campagna, an inventor who died in 2004. A lower court ruled against RIM in 2002, handing down an injunction that would ban the sale of BlackBerry devices in the U.S. and shut down the BlackBerry wireless e-mail service.

That injunction has been stayed while RIM pursues other legal avenues. And while analysts say a U.S. shutdown remains unlikely, RIM's options for getting the injunction thrown out by a court may be dwindling.

RISING PRESSURE TO SETTLE. The main upshot of the Oct. 21 Appellate court's decision: It puts the outstanding legal issues between the two companies -- save for RIM's hope to have the matter settled by the Supreme Court -- squarely on the shoulders of a U.S. District court. There, NTP says it will seek a reconfirmation of the 2002 ruling that would pull the plug on the service, although it says BlackBerry users working for federal, state, and local government agencies will not be affected.

But with more than 70% of RIM's sales in the U.S., pressure on the company to seek a negotiated settlement is on the rise. Indeed NTP has indicated it wants a settlement. In a filing to the Appellate court dated Oct. 18, NTP says that it has "repeatedly made settlement offers that fully address RIM's business needs -- many of which during the litigation RIM failed to even answer. RIM has the ability to extricate itself from its present infringement dilemma."

Concern over RIM's ability to do such extricating sent its shares lower by $2.32, or 3.6%, to $62.34 on Oct. 21. Executives at RIM did not immediately return messages seeking comment.

VACATED CLAIMS. The two parties announced in March of this year that they had reached a settlement under which RIM would pay NTP $450 million for unfettered use of a batch of patents, which the latter has accused RIM of infringing with its BlackBerry devices and service. But that settlement collapsed in June for reasons not yet disclosed by either side.

That settlement -- and whether or not it is enforceable -- is one of the issues the two sides will argue once they return to the district court. "They have to decide whether there was a settlement or not," says analyst Rob Sanderson of American Technology Research in San Francisco. "If the court says there was, they'll go to arbitration and work it out."

A second issue concerns the number of claims against RIM. So far, the courts have reversed or vacated 9 of the 16 patent claims at the heart of NTP's original lawsuit. The number is important as it may affect how much RIM shells out to NTP in a settlement, Sanderson says.

Finally, NTP will use the district court to argue for its injunction shutting BlackBerry sales and service down in the U.S. But Sanderson says the shutdown scenario is unlikely. "Courts don't like to shut down businesses, especially one that has shown it is willing to settle," he says.

NOT OVER YET. Meanwhile, on other fronts outside the courts, RIM has been winning. The U.S Patent & Trademark Office has been reviewing the disputed NTP patents and, in a series of actions, rejected them all (see BW Online, 09/30/05, "A Red Letter Day for BlackBerry"). That process, which allows NTP to appeal the patent office's findings, is far from complete.

The Appeals Court's action follows another legal setback for RIM in that court. In early October, it declined a RIM request to re-hear the case based on new assumptions, following the patent office's rejections of the NTP patents (see BW Online, 10/10/05, "RIM Edges Closer to the Edge").

For the sake of its U.S. business -- and the millions of people who depend on BlackBerry pagers -- RIM will need better luck at the bargaining table than it has had in the courts.


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