Nasty Thorns In The BlackBerry Patch
Things are looking dicey for Research in Motion Ltd. (RIMM ), maker of the cultish BlackBerry e-mail device. On Nov. 9, U.S. District Court Judge James Spencer made it clear he was growing increasingly impatient with the protracted battle between RIM and tiny tech investor NTP Inc., which alleges that RIM's wireless e-mail technology infringes on several of its patents. He also said he was "very unlikely" to accede to RIM's request that he postpone the case to give the U.S. Patent & Trademark office a chance to weigh in: "I've spent enough of my life and time on NTP and RIM."
With Spencer pushing to wrap things up, a settlement seems increasingly likely. And it could be a great deal higher than the $450 million RIM and NTP agreed to before talks collapsed in June. Some analysts say RIM could end up cutting a check for $1 billion.
That's a lot of BlackBerrys -- about three million for anyone who's counting. And it will be especially painful for RIM to pay out in the face of stiffening competition. But the Canadian company may have little choice. Barring a settlement, NTP has asked the judge to shut down RIM's U.S. operation. "NTP is in the driver's seat," says James F. Hurst, a patent litigator at Chicago law firm Winston & Strawn LLP. "The validity of RIM's entire business is arguably at stake."
What's RIM's next move? Co-CEO James L. Balsillie hopes to convince the judge to enforce the aborted $450 million settlement. NTP says the agreement was never finalized. If the judge agrees, analysts expect him to give the two sides a couple of weeks to work out a new deal. An emboldened NTP would have the leverage to ask for more money -- a sum that could be $600 million to $1 billion, plus an 8% to 9% royalty, according to Citigroup Global Markets. With that kind of cash in its sights, NTP might figure, "why press for pennies?" says Citigroup (C ) analyst Daryl Armstrong.
Could RIM afford to pay that much? Sure. The company has some $1.2 billion in cash and is expected to earn about $500 million on $2 billion this fiscal year. But RIM is entering a difficult period in its young life. Its popular new BlackBerry aside, RIM is under fierce attack. Citigroup's Armstrong says RIM's partners worry about its fate -- opening the door for competitive vendors such as Microsoft (MSFT ), Intellisync (SYNC ), and Palm Inc. to steal business. Customers such as Cingular Wireless say they're loyal. But that could change.
RIM has an additional worry. Legal experts suggest that if the company ends up settling for more than the $450 million it announced in June, shareholder lawsuits are a given. Disgruntled investors who saw their stock jump on news of a supposed settlement -- only to watch it slide 21%, to $61.22, since -- will likely bring class actions.
No doubt, Balsillie understands all this. Bet on him to swallow his pride and play nice with the judge.
By Roger O. Crockett