Did RIM Pay Too Soon?

A month after forking over $450 million to NTP for five patents, one was rejected by the patent office. Others may meet the same fate

By Lorraine Woellert

Research In Motion (RIM ), maker of the ubiquitous BlackBerry, last month paid $450 million to settle a furious legal battle over five patents held by NTP. The markets welcomed RIM's decision to settle, boosting its stock 8% overnight, to $64.85. But RIM might soon regret that it ever made a deal.

On Apr. 6, the U.S. Patent & Trademark Office rejected one of the five patents NTP had accused RIM of infringing and gave a strong indication that the other disputed four might soon be rejected upon reexamination as well. The agency has been taking a second look at more than 2,000 claims made on a total of eight NTP patents, including the five that RIM allegedly infringed, ever since Arlington (Va).-based concern sued RIM in December, 2002. After more than two years, the officials have rejected all 523 claims NTP made on three of those patents.


  RIM Vice-President Mark Guibert declined all comment on the patent-office announcement. The company has called the settlement "full and final." And NTP attorney James H. Wallace Jr., a partner at Wiley Rein & Fielding, said the patent office's overturning of the patents represents a mere interim step likely to be appealed. "Don't declare who's won the baseball game at the top of the first inning," Wallace said. "That's just the first step in a multiyear process."

This latest development in the BlackBerry saga -- and patent holding company NTP's admission that the case is far from over -- serves as the surest sign yet of the pressing need for reform of the patent system (see BW, 4/18/05, "How Ampex Squeezes Out Cash "). Patents have become too easy to get, and the current judicial culture makes them all-too-convenient to defend in court as well.

The situation has put many businesses at the mercy of so-called "patent trolls," outfits that exist solely to buy up hundreds or thousands of obscure patents with the expectation that they'll eventually manage to extract lucrative licensing agreements from businesses in need of the technology, or sue for infringement if they can't.

Everyone has a right to protect his or her intellectual property. But the underfunded, hidebound patent office consistently errs on the side of approving questionable grants, and the specialized Federal Circuit Court, created in 1982 to hear nothing but patent appeals, often shows bias toward intellectual-property owners.


  In a knowledge economy heavily fueled by intellectual property, the existing dynamic puts an awful lot of power into the hands of a few. As a result, in recent years, large companies, Microsoft (MSFT ) among them, have gone on the defense, amassing hundreds of patents in an attempt to fend off unscrupulous players.

Nonprofit groups have begun organizing to buy patents out of bankruptcy to put them in the public domain and keep them out of the hands of patent trolls. Prodded by intellectual-property owners of all stripes, from Microsoft to small inventors, Congress this year will begin studying ways to fix the system.

In the case of Waterloo (Ontario)-based RIM, the broken patent system has concrete effects. Some RIM rivals, including Good Technology, agreed to license patents from NTP rather than join the legal battle. And RIM is out the more than the $450 million it paid to license NTP's patents in perpetuity.


  On Apr. 6, the day the patent office rejected one of the litigated NTP patents, RIM reported a $2.6 million, fourth-quarter loss that it blamed in part on its ongoing litigation with NTP. The resulting 7% stock drop -- RIM shed $5.20 a share in after-hours trading -- wiped out any gains it saw from its settlement in March. Jim Balsillie, Rim's chairman and co-CEO, sounded upbeat about the settlement in his conference call with analysts: "It's safe to say we're pleased to put this matter behind us and focus on the business of building BlackBerry."

The matter might be behind RIM, but it certainly isn't over. NTP will surely appeal the patent office's rejection of its patents, a process that could take years, and end up right where it started -- back in the Federal Circuit Court.

Woellert is a correspondent in BusinessWeek's Washington bureau

    Before it's here, it's on the Bloomberg Terminal. LEARN MORE