By Arik Hesseldahl Research In Motion (RIMM), the Canadian manufacturer of the popular BlackBerry wireless e-mail devices, has scored an important victory in its long-running patent dispute with a Virginia holding company that has threatened to shut the BlackBerry service down in the U.S.
In an action made public on Sept. 28, the U.S. Patent & Trade Office has rejected the last of eight patents issued to NTP, five of which had been at the heart of its claim against RIM. The action isn't final, but RIM attorney David Long says the Patent Office has made efforts in the last year to be more thorough in its reexaminations of this type, making it more likely that the office's final ruling on the matter won't change.
ACTION AND REACTION. At least, that's what RIM hopes. But an independent patent attorney following the case says this "first action" rejection may still be overturned. "There's no evidence that this rejection is more likely to stick," says Dennis Crouch, an attorney with McDonnell Boehnen Hulbert & Berghoff in Chicago.
Crouch cited a recent case in which Microsoft (MSFT)
wound up on the losing end of a patent reexamination in its fight with the University of California and a technology spin-off known as Eolas. In that case, the Patent Office first rejected an Eolas patent at the heart of a $500 million judgment against Microsoft in 2003 but then overturned its own rejection. "In this case [RIMM and NTP], they have gone through a second level of examination, and I believe the Patent Office is trying harder to make the first actions stick," Crouch says. "But these first actions can indeed be overturned."
NTP attorney James Wallace says a rejection at this stage wasn't unexpected. NTP will press ahead with efforts to enforce an injunction against RIM that could force the shutdown of BlackBerry services in the U.S. "The first office action is almost always a rejection," he says. "We would of course be happier if the patent office had simply affirmed our claims. But that is not usually what happens. This is a process that takes a matter of time, and until then we'll go about our business until we can get down to the district court and get our injunction."
That injunction was granted in late 2002, but immediately stayed pending appeal -- which RIM ultimately lost late last year -- and the outcome of the Patent Office examinations. NTP may respond to the rejection, then appeal to the Patent Office, and as a final measure even sue the office to reverse the rejections, a process that could take years.
START FROM SCRATCH. But Crouch says NTP will face a dicey path in which it will be forced to appeal the Patent Office's rejection without making any changes to the patent claims. "Any changes they make would give RIM grounds to argue for a new trial, and NTP doesn't want a new trial," he says. "If the claims are changed, there would have to be a new trial."
In a 106-page ruling written by three senior examiners, the Patent Office cited two main reasons for its rejection. First, it cited a patent filed by RIM co-founder and CEO Mike Lazaridis in 1998 that predated NTP's patent application from 1999. "That Patent Office is saying that it was not NTP that had invented this, but that it was RIM," says RIM attorney Long. Second, it cited other work dating to 1986 and 1989 by Norwegian telecommunications concern Telenor ((TELN)), that predates the NTP patents.
The rejection of NTP's patents will certainly give RIM a stronger basis to obtain a rehearing of its case in federal court. In a petition pending before the federal circuit court, it's seeking a review of the case based in part upon the Patent Office's rejections of NTP's patents. RIM has said it's willing to take the case all the way to the U.S. Supreme Court.
TICKING UP. The confusing, multiyear legal struggle between RIM and NTP until recently had been going in NTP's favor. In March, the two companies announced they agreed to settle their patent-infringement case for $450 million. But in June, the companies said they reached an impasse in hammering out details of that settlement. NTP disputed that a deal had even been reached at all. RIM attorneys and executives declined to comment on the settlement other than to say it still has the matter of enforcing it before a court (see BW Online, 4/8/05, "Did RIM Pay Too Soon?").
The news comes a day after RIM reported quarterly earnings of $111 million on revenue of $490 million (see BW Online, 9/29/05,"RIM Prepares to Defend its Turf"). Investors pummeled the stock, mostly because of slow subscriber growth, pushing it down $7.25, or 9.39%, to close at $70 on a trading volume of more than 39 million shares. It was up 9 cents in after-hours trading. RIM reported $6.6 million in legal expenses related to the case for the quarter.
Hesseldahl is a reporter for BusinessWeek Online in New York