Research In Motion (RIMM) and patent holding company NTP ended a long and bitter battle over a set of patents on Mar. 3, settling the matter with a one-time payment by RIM of $612.5 million. In exchange, the Canadian wireless concern will be granted a license that will enable it to continue its BlackBerry mobile e-mail service.
The deal came together after a U.S. District Court judge scolded both sides in a hearing last week for not having reached a settlement and for risking an injunction that threatened to shut down the U.S.-based operations of the popular BlackBerry service, which is used by more than 3 million people.
SURGING SHARES. James Balsillie, RIM's co-CEO, had seemed willing to play a game of legal brinksmanship, proudly proclaiming his plans for a technical workaround in the event it did not prevail in court. In the meantime, RIM worked a parallel strategy that involved attacking the validity of the disputed patents with the U.S. Patent & Trademark Office.
Users aren't the only ones elated by the resolution. RIM shares surged $12.06, or 17%, in extended trading, to $83.98, after the settlement was announced.
Relief that the multiyear legal dispute had been resolved outshined other dour news from RIM. The company released preliminary results for the current quarter, saying it added 620,000 to 630,000 subscribers, compared with a previously forecast 700,000 to 750,000.
The company cited uncertainty surrounding the patent litigation as the primary reason for the slow growth. It also said revenue for its fiscal fourth quarter will be flat, at $550 million to $560 million, compared with a earlier forecast of $590 million to $620 million. It reports earnings on Apr. 6.
ESCROW ACCOUNT. The size of the payout to NTP was smaller than many analysts had predicted. Estimates as high as $1 billion or more had circulated as the case wound its way through the courts in recent weeks.
The settlement is, however, steeper than the $450 million the two had agreed to when they reached a preliminary deal early last year. That later collapsed over unspecified disagreements. The payment includes money already paid into an escrow account by court order, which amounted to $450 million, and an additional $162.5 million, which will be accounted for at the end of the current quarter.
RIM gets unfettered rights to sell its products without threat of further litigation from NTP. The court case has been officially dismissed. It also liberates RIM's BlackBerry partners, including wireless service carriers, from the threat of lawsuits from NTP.
RISING PRESSURE. Balsillie had pinned hopes on a review of the patents by the U.S. Patent & Trademark Office, which has so far rejected them, tantamount to saying they shouldn't have been issued in the first place. RIM tried unsuccessfully to convince the court to hold off on any decision that would result in a shutdown of the service, pending the outcome of the patent office's review. "Everyone knows these patents are gone," he said in an interview.
Donald E. Stout, NTP's co-founder, said in a written statement: "We are pleased to have reached an amicable settlement with RIM. We believe that the settlement is in the best interests of all parties, including the U.S. Government and all other BlackBerry users in the United States."
Pressure on RIM to reach the settlement has been rising with every courtroom victory won by NTP. The last one came on Feb. 24, when U.S. District Judge James Spencer said RIM indeed had infringed on NTP's patents (see BW Online, 2/24/06, "BlackBerry's Waiting Game"). At the time, Spencer held off issuing an injunction that would have shut down the BlackBerry service across the U.S., but he urged both sides to arrive at a negotiated solution.
LONG AND BITTER. RIM and NTP had been down that road before –- to little avail. The tentative $450 million settlement they had reached in March, 2005, dissolved three months later.
NTP offered a settlement in October, predicated on RIM's revenue through 2012, that would have totaled around $1 billion, according to analysts. But RIM said no. The proposal would have covered service sold by RIM but not its partners, according to RIM (see BW Online, 2/28/06, "The BlackBerry Wrangle Gets Weirder").
The patent dispute has been long and bitter. NTP first sued RIM in late 2001 in U.S. District Court for the Eastern District of Virginia. Arlington (Va.)-based NTP alleged that the Canadian outfit's wireless e-mail technology infringed on patents held by NTP for inventions by Thomas Campana Jr., an NTP co-founder who died of cancer in 2004.
BOOMING MARKET. Campana's second wife and NTP co-founder Donald Stout together control more than 50% of the company's shares (see BW Online, 12/8/05, "The BlackBerry Widow's Tale").
RIM began selling the popular BlackBerry device at the center of the squabble in the late 1990s. After a decade of developing technology to deliver wireless e-mail, BlackBerry became a phenomenon.
It built from scratch the now-booming market for mobile e-mail devices and software, prompting companies ranging from startup Good Technologies to Microsoft (MSFT) to join the fray. But in NTP's eyes, RIM's method for delivering those e-mails infringed on the work Campana had done.
"THE PRAGMATIC THING." RIM lost the trial in 2002, but dug in for a fight. An injunction imposed by the court was stayed as RIM began a long process of appeals, even attempting to get the U.S. Supreme Court to intervene.
Whatevever the outcome of the patent review, the terms of the settlement won't change, Balsillie says. The settlement is "nothing I feel that good about," he says. "We did the pragmatic thing. We decided to bring back some certainty to our business. There is a great deal of pent-up customer demand. It's nice to get the uncertainty out of the way."
The company had little luck. Although an appeals court last August pared back the jury's initial ruling, it still found that RIM infringed on two of NTP's patents. That sent the case back to U.S. District Court, where the Feb. 24 decision by Spencer paved the way for what could become the final chapter in RIM's long and torturous wrangle.
Hesseldahl is a reporter for BusinessWeek Online in New York, and Green is BusinessWeek's Internet editor in New York
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