Bloomberg News

Research In Motion Wins Ruling on BlackBerry Patent

February 01, 2006

Research In Motion Ltd. (RIM) won a preliminary ruling from the U.S. patent office in its fight to keep its U.S. BlackBerry service operating.

The U.S. Patent and Trademark Office ruling today triggered a 9 percent surge in Research In Motion shares. Investors were also anticipating an after-market filing by the U.S. government on whether a judge should shut down BlackBerry service in the U.S. based on a finding of infringement that covered the patent ruled on today.

The patent office issued a ``non-final'' ruling that the BlackBerry patent, owned by NTP Inc. of Arlington, Virginia, didn't cover a new invention and should be canceled, said James Wallace, an NTP lawyer.

``This is good news for investors,'' said Michael Koskuba, an analyst and fund manager with Victory Capital Management. ``For investors that held on, I'm sure they're seeing relief in the stock today.''

Research In Motion shares rose $6.08, or 9 percent, to $73.61 in Nasdaq Stock Market trading. Research In Motion argues that questions about the validity of patents for the BlackBerry service mean the system shouldn't be shut down in the U.S.

A court order stopping the service might deprive most of 3.2 million U.S. customers of the device, which is used by Wall Street executives and members of Congress.

Justice Department Filing

The Justice Department, in a filing in a Richmond, Virginia, federal court, sought to delay any shutdown of the system until a hearing can be held on how to implement it without affecting government services.

The government didn't take a position on whether a judge should shut down the BlackBerry. Its filing today centered on how any such order, called an injunction, can be implemented.

Research In Motion said in a statement that today's patent office decision was ``comparable to a final office action.''

The decision ``maintains the outright and complete rejection'' of the patent, including elements that were found to be infringed, Research In Motion said in its statement.

``In all of the Patent Office rulings to date relating to the reexamination of all eight of the NTP patents, NTP's arguments on the merits of patentability have been rejected by the Patent Office,'' Research In Motion said.

``We're not rolling over on this and playing dead,'' said NTP co-founder Don Stout, saying the company will appeal if the ruling becomes final. ``This is going to be reversed.''

Stout said he hadn't seen the paperwork and wasn't sure if it should be considered a final rejection or not.

30 Days to Respond

NTP has 30 days to respond to the provisional ruling, NTP's Wallace said. A final rejection by the office can be appealed, he said.

The office has issued preliminary rejections of all five NTP patents that cover the BlackBerry system.

On Feb. 24 a judge will hear arguments on whether sales and service of the BlackBerry should be shut down in the U.S., taking into account arguments made today by the government and the companies.

Shares of Research In Motion have risen six-fold during the patent litigation, which started in November 2001.

``I think the odds of it getting shut down are very, very slim at this point,'' said Matt Kelmon, portfolio manager at Kelmoore Investment Co. in Palo Alto, California. ``As an investor, it's going to be a very, very choppy stock between now and February 24. It's not for widows and orphans. That being said, the stock is cheap. When the overhang's gone, the stock will go higher.''

`Serious Questions'

``There are still a number of serious questions to be answered as to how an injunction can be implemented so as to continue Blackberry service for governmental and other excepted groups,'' the Justice Department wrote in today's filing.

By law, the federal government is exempt from any injunction. NTP has said exemptions should be granted for state and local governments, emergency workers such as the Red Cross, and the 12 regional Federal Reserve Banks.

The government said that if any injunction is ordered, a second hearing should be held to determine how to implement it without affecting the exempt users.

``While we are mindful of the court's desire to conclude this litigation, nevertheless in our view the record so far does not reflect a sound basis for concluding that the exceptions will be feasible to implement,'' the Justice Department wrote.

U.S. District Judge James R. Spencer, who presided over the November 2002 trial, has refused to delay the case for the patent office review because appeals of its decisions could take a year or more.

In a separate filing today, Research In Motion argued that Spencer shouldn't shut down the Blackberry service in the U.S. because NTP could be compensated with money damages. NTP countered in its own filing that the infringement finding entitles it to an injunction.

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

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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