Bloomberg News

Research In Motion Judge Rules Against Settlement

November 30, 2005

Research In Motion Ltd. (RIM)'s BlackBerry e-mail pager service came closer to being blocked in the U.S. after a federal judge ruled that a $450 million patent settlement isn't enforceable and rejected a request for a delay in the case.

U.S. District Judge James R. Spencer in Richmond, Virginia, today rejected Research In Motion's argument that a March draft settlement with NTP Inc., a patent-holding company, was final. He refused to delay the suit and told lawyers to prepare arguments on blocking U.S. BlackBerry service and on how much Research In Motion should pay NTP for infringing its patents.

The millions of BlackBerry customers in the U.S., including Wall Street bankers and top executives, will put pressure on Research in Motion to settle, analysts said. The U.S. accounts for 70 percent of BlackBerry sales. NTP co-founder Donald Stout said a decision on blocking service could come in weeks, since Spencer has said he wants the case to move quickly.

``Essentially, the judge is holding a gun to RIM's head to settle,'' said Richard Williams, a Garban Institutional Equities analyst in Jersey City, New Jersey, who rates the shares ``sell'' and doesn't own them. ``Ultimately, we believe there will be a settlement soon and for a lot of money. It's in RIM's best interests to pay a one-time settlement.''

Research In Motion shares fell $3.79, or 5.8 percent, to close at $61.13 in Nasdaq Stock Market trading. They have fallen 31 percent in 12 months. Shares of Palm Inc., which makes the competing Treo device, rose $1.61, or 6 percent, to $28.38.

$1 Billion to Settle

Williams and Pablo Perez-Fernandez, an analyst with ThinkEquity Partners in San Francisco, said it could cost Waterloo, Canada-based Research In Motion from $1 billion to $1.5 billion to end the case.

``They should be concerned,'' Perez-Fernandez said of the company. ``The fact that this settlement is not enforceable means we're one step closer to an actual injunction.''

Stout said Research In Motion could have ended the case for about $50 million early on. Research In Motion has been ``defiant,'' he said. The suit was filed in 2001.

``It's not like we want to shut down RIM down,'' Stout said. The $450 million agreement broke down because ``the conditions that were attached to the payment of the money were totally unacceptable to us,'' he said.

Research In Motion said in a statement it ``maintains that an injunction is inappropriate given the specific facts of this case.'' The company said it is preparing changes to its software that it believes would work around the patent ``which it intends to implement if necessary to maintain the operation of BlackBerry services.''

The `Right to Exclude'

It's unlikely that Research In Motion will persuade the judge to deny NTP's request for a court block of the BlackBerry service, patent lawyers said.

``The law doesn't recognize a compulsory license for infringers,'' said Douglas Miro of Ostrolenk, Faber, Gerb & Soffen in New York who specializes in patent litigation. ``The basic right of a patent is the right to exclude others from using the technology.''

One option would be for the judge to issue the injunction, and then delay its imposition until the other issues, such as an appeal to the U.S. Supreme Court, are completed, said Darryl Woo, a patent litigator with Fenwick & West in San Francisco.

``The likelihood is high that he'll issue the injunction,'' Woo said. ``The odds are good that he'll stay the injunction while these other issues work out. He could grant the injunction because that's what the law says to do, and then stay it because he has more discretion.''

BlackBerry Injunction

Any injunction would not, by law, affect government workers. NTP has said it will ask that it not include emergency workers, such as Red Cross personnel. Research In Motion has said it may be impossible to segregate its users.

Research In Motion, claiming the March agreement was an enforceable settlement, asked the judge to force NTP to abide by a signed agreement outlining the terms of the accord.

Spencer said in a one-page order that no enforceable settlement was reached. The reasons for his decision were in an opinion that he sealed.

Research In Motion asked for a delay in the case while the U.S. Patent and Trademark Office decides whether the NTP patents are valid. In denying the request, the judge said he plans to ``move this litigation forward so as to bring closure to this case.''

Why No Delay

``Valid patents would be rendered meaningless if an infringing party were allowed to circumvent the patents' enforcement by incessantly delaying and prolonging court proceedings which have already resulted in a finding of infringement,'' Spencer wrote.

The patent office, in a preliminary finding, said the NTP patents are invalid. NTP has a chance to rebut that finding, and appeals could last for years, the judge noted.

A settlement would have ended a four-year legal fight started when NTP sued Research In Motion in November 2001. A year later, a jury determined that Research In Motion infringed NTP's patents. The U.S. Court of Appeals for the Federal Circuit upheld part of the jury finding.

NTP lawyer James Wallace declined to say why the talks fell apart in June. In court papers, NTP has denied it was demanding more money.

``They wanted provisions that were unacceptable and were not contemplated at the time of the term sheet signing,'' Wallace said. ``Term sheet'' referred to the provisional accord in March.

NTP was co-founded by inventor Thomas Campana, an electrical engineer who worked during the 1970s and 1980s on ways to develop better pager systems. Campana died of cancer in June 2004, the day after the case was argued before the Federal Circuit.

The case is NTP Inc. v. Research In Motion Ltd., 01cv767, U.S. District Court, Eastern District of Virginia (Richmond).

-- With reporting by John Stebbins in Chicago and Suzy Assaad and Rachel Katz in New York. Editor: Carter.

To contact the reporter on this story: Susan Decker in Washington at sdecker1@bloomberg.net.

To contact the editor responsible for this story: Patrick Oster at poster@bloomberg.net.


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