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RIM's Race with the Clock

The BlackBerry saga continues. NTP, the Arlingon (Va.) company that's suing BlackBerry maker Research in Motion (RIMM) for patent infringement, says a flurry of proposals and counterproposals aimed at ending the bitter dispute have been exchanged in recent days. Yet, according to NTP co-founder Don Stout, both sides remain at odds, leaving the specter of a court-ordered injunction hanging over the U.S. BlackBerry service. RIM's lawyer declined to comment.

As a result of all the back-and-forth, a negotiating number is now on the table. Stout says that NTP will settle the case for 5.7% of RIM's projected U.S. sales through 2012 (when the patents in dispute expire), minus an agreed-upon discount rate.

Though most Wall Street analysts don't project longer than three years for RIM, a back-of-the-envelope calculation puts such a lump-sum settlement at somewhere in the range of the $650 million to $1 billion -- around what the Street had been expecting, says SG Cowen analyst Robert Stone (see BW Online, 12/08/05, "The BlackBerry Widow's Tale").

"FAIR OFFER." That's higher than the $450 million settlement tentative reached by the two companies in March, 2005. That agreement fell apart two months later over disagreements about the deal's scope. RIM, though, has the wherewithal to pony up. As of its last reported quarter, it has about $1.9 billion in cash and cash equivalents on hand.

Stout says that NTP sent a contract proposal to RIM last week. RIM responded with a counterproposal on Dec. 8 that NTP declined, according to Stout. "We prepared what we thought was a fair offer," he says. "We're serious about what it will take to settle the case."

The royalty percentage is based on the amount that a jury awarded NTP in November, 2002, when RIM was initially found guilty of infringing five of NTP's patents, says Stout. The judge in the U.S. District Court of Eastern Virginia subsequently increased the royalty rate to 8.55%. NTP's 5.7% offer was first reported in The Globe and Mail of Canada on Dec. 9.

INCENTIVE TO DELAY. NTP, though, wasn't the only side putting forward an offer. RIM also proposed paying NTP an undisclosed amount of money to temporarily stay the case to let the U.S. Patent & Trademark Office finish a review of the disputed patents, says Stout. NTP turned down that proposal, he says. "We're not willing to stay this case," Stout explains.

It's little wonder that RIM is eager to delay the case to await the Patent Office review. Under RIM's urging, the feds began reviewing NTP's patents two years ago. In preliminary reviews, all of the eight NTP patents initially discussed in the trial have been rejected. Given these early findings, it's clearly in RIM's interest to delay until patent officials complete their work.

At stake is an ultimate opinion on whether NTP's patents are valid, and thus whether RIM is liable for infringing them. But the judge hearing the case has shown little inclination to wait for the Patent Office's determination. It could take the office weeks or even months to issue its final decision. Even then, NTP can appeal any verdict to an appeals panel within the office, and then to federal courts.

JITTERY CUSTOMERS. RIM has said it has prepared a workaround so that its service could remain operational in the face of an injunction. But since the BlackBerry maker has only released broad details about such a technical fix to analysts or customers, worry and skepticism are growing.

"They have been pretty tight-lipped about it," says Ryan McEnroe, director of operations, systems, and technology at law firm Reed Smith, which uses 1,300 BlackBerry units. "We have concern to the point that we're doing some presentations about options to the most senior levels of the firm." For the moment, Reed Smith is sticking with BlackBerry.

The battle has been long and bitter. NTP first sued RIM in late 2001. It alleged that the Canadian outfit's wireless e-mail technology infringed on patents held by NTP and invented by Thomas Campana Jr., an NTP co-founder who died of cancer in 2004 (see BW Online, 12/8/05, "The BlackBerry Widow's Tale").

NEXT STEPS. After losing the jury trial in 2002, RIM initiated a series of appeals. An appeals court in August pared back the initial ruling, but still found that RIM infringed on some NTP patents. It sent the case back to the U.S. District Court for the Eastern District of Virginia.

Time is running out for any kind of settlement. At the end of November, U.S. District Court Judge James Spencer rejected RIM's motions to have him either enforce the previous $450 million settlement or wait for the Patent Office review (see BW Online, 12/01/05, "RIM Loses Another Round"). Patent lawyers expect the judge to set up a schedule before Christmas for both sides to submit briefs on awarding damages or on imposing an injunction.

The judge could then decide to hold hearings -- or he might simply render a ruling, possibly as early as January, based on filings. With the clock ticking, its little wonder that the newest round of talks is off to a big start.

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