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RIM Loses Another Round

Research in Motion (RIMM) isn't getting many breaks in its bitter patent dispute with rival NTP. On Nov. 30, James Spencer, the Virginia U.S. district court judge who is hearing the case, chipped away further at RIM's room for maneuvering. First, he said a tentative $450 million settlement, struck in March only to fall apart in June, wasn't enforceable.

The judge also decided not to delay the case, pending a review of NTP's patents by the U.S. Patent & Trademark office.

While most expected that the judge wouldn't wait for the Patent Office, there was some uncertainty about the settlement. Though unlikely, it wasn't entirely out of the question that the judge would consider the settlement binding, lawyers following the case say. With those question marks out of the way, the court now moves onto the next round of business: scheduling the review of damages and considering the reinstatement of an injunction that would shut down RIM's popular BlackBerry wireless e-mail service in the U.S.

HOLDING FIRM. Meantime, RIM and Arlington (Va.)-based NTP came a step closer to trying to resolve the dispute through a newly negotiated settlement. For some, the question isn't if a deal will be struck, but when and for how much. "The reasonable thing that should happen is that there should be a settlement," says Daryl Armstrong, an analyst at Citigroup (C).

"The only question is: Does it happen before an injunctive order or after? If it's after, the price goes up." The amount that some analysts estimate the company could end up paying ranges from $700 million to $1 billion (see BW Online, 10/29/05, "RIM: Backed Into a Corner?").

While NTP says it's ready to talk, RIM hasn't indicated any willingness to sit down at a bargaining table just yet, says Donald Stout, NTP co-founder. "RIM has the keys to its own jail cell, they know they can get a settlement that's fair and protects their business," says Kevin Anderson, an attorney for NTP with the Washington firm of Wiley Rein & Fielding.

RIM declined to discuss the ruling, beyond issuing a statement. In its release, RIM showed no sign of flagging, outlining legal options and once again raising the specter of a technical resolution that would let it continue operations in the U.S. without infringing on NTP patents. Indeed, as the prospect of a shutdown looms, RIM is alluding to a so-called workaround more regularly, though it has yet to implement any such software fix publicly.

CUSTOMER DEMANDS. RIM first brought up the possibility of a workaround earlier this year. Two weeks ago at a conference in New York, RIM co-CEO Jim Balsillie announced that RIM had completed testing of the software and conducted focus groups. Analysts say the workaround would likely involve a download of software onto a BlackBerry device, as well as a modification to the BlackBerry servers and the software running the company's main networking centers.

The workaround may in part be a bargaining chip to use at the settlement table, partly a way to soothe worried customers. But because RIM has discussed the technology with analysts and customers only in broad outlines, it's difficult to judge how much leverage it brings. And in a market that's getting crowded with the likes of Microsoft (MSFT), Nokia (NOK), Good, and Palm's (PALM) Treo, even little problems could cause customers to flee.

Which is why RIM probably won't use the workaround except at as a last resort, analysts say. "One of the things that has kept them at the top of the market is the reliability of the service and the optimization of the user service," says Gene Signorini, an analyst at researcher Yankee Group. "If those suffer, their relationships are at stake."

MULTIPLE FRONTS. Just as problematic could be the new legal minefields any workaround would encounter. To ensure that the new version doesn't infringe on patents, RIM may need to do more than make cosmetic changes by swapping in one type of code for another, lawyers say. And RIM can be sure that the minute it releases any workaround, NTP will go over it with a fine-tooth comb, with an eye to filing a lawsuit. "If NTP has even a reasonable argument, they will be right back in court," says Thomas Carulli, a patent attorney at Kaplan, von Ohlen & Massamillo.

Spencer's decision is only the latest twist in a case that has dragged on for four years. Patent holding company NTP filed suit against RIM in November, 2001, alleging the Canadian company's wireless e-mail technology infringes on NTP patents. Spencer issued an injunction in 2003 after NTP won its suit but stayed the injunction pending an appeal. In August, an appeals court scaled back part of the ruling.

As he decides how to proceed with damages and an injunction, Spencer will consider several issues, including the number of claims against RIM. Since the case was first filed, the courts have reversed or vacated 9 of the 16 patent claims at the heart of NTP's original lawsuit. But RIM has to win some even bigger battles on other fronts, whether in the technical arena or at the negotiating table, in the patent war with NTP. And even then, the best it may hope for is a draw.


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