The latest ruling in the closely watched legal battle between BlackBerry maker Research In Motion Ltd. and patent holding company NTP Inc. offered somewhat of a mixed bag. A U.S. federal appeals court affirmed 11 of NTP’s 16 claims against RIM-a potentially serious blow for the device maker-but sent back the remaining five claims to a Virginia district court for further consideration.
The ruling has no immediate affect on RIM or NTP, although it further limits RIM’s options for victory. NTP has won a series of legal skirmishes since a jury found in 2002 that RIM’s BlackBerry service infringes on five of NTP’s patents.
The ruling took investors on a wild ride. RIM’s stock shot up from around $90 per share to almost $105 per share last Tuesday on news of a decision in the case. Nasdaq then halted trading to give investors a chance to review the information. When trading resumed, RIM’s stock dropped to around $85 per share. The company’s stock price then leveled out to around $82 per share.
Both NTP and RIM found parts of the ruling to applaud. NTP said that the appeals court “unanimously affirmed the prior jury verdict” and that it was confident it would win a favorable ruling on the remaining five claims. RIM, on the other hand, pointed out that the U.S. appeals court vacated the district court’s judgement as well as its injunction. The district court last year issued an injunction on the sale of RIM’s products-which would have forced the company to turn off its BlackBerry sales and service-but also stayed the injunction pending appeals. However, the threat of an injunction still looms as a final outcome.
RIM also pointed out that the U.S. Patent and Trademark Office is re-examining NTP’s patents, a move that creates a further layer of ambiguity to an already complicated case. The patent office could take at least another year to make a ruling on the patents, and it’s unclear what effect the ruling would have on the ultimate outcome of the case.
Observers agree that an injunction is highly unlikely as it wouldn’t benefit RIM or NTP-if RIM ultimately loses, it would likely sign a licensing agreement with NTP. The district court’s ruling sets RIM’s royalty rate to NTP at 8.55 percent, which is higher than most royalty arraignments in the wireless industry. NTP said that RIM now owes it $135 million in royalties based on past sales. RIM has been putting away potential payouts into an escrow account every quarter in case it loses and must pay NTP.
The court battle stretches beyond just RIM and NTP. RIM launched its BlackBerry Connect licensing program last year, and now counts Nokia Corp., Motorola Inc., Sony Ericsson Mobile Communications L.P. and others as licensees. The program gives handset vendors access to BlackBerry software, which allows users to connect to BlackBerry servers and receive wireless e-mail. The program is an important avenue for RIM’s strategy and growth.
It’s unclear whether the NTP case will affect RIM’s licensing program if the company loses its appeals. NTP has previously declined to comment on whether it would sue RIM’s BlackBerry Connect licensees.
Further, the case could also affect RIM’s wireless e-mail competitors like Good Technologies Inc., Visto Inc. and others. Legal observers have said that NTP’s patents are so broad that they could apply to a variety of wireless e-mail offerings, which would cause a major stir in a market built around the service.
Investment firms cautioned patience on the case, which they said could still take years to ultimately resolve. Goldman Sachs reiterated its neutral rating on RIM, while ThinkEquity said it remains bullish on the company. Both firms make a market in RIM securities.
The whole issue has served to somewhat dull what otherwise has been a stellar year for Research In Motion. Many agree the company has hit its so-called inflection point, and it now counts more than 2 million BlackBerry customers. In its most recent quarter RIM reported $310 million in revenues, more than double its haul during the same quarter a year ago. The company’s net income totaled $88.9 million, but it deposited $18.3 million of that amount into its escrow account for NTP.
RIM is scheduled to report its third-quarter results this week and analysts expect the company to report $364.2 million in revenues, according to an average of 16 analysts polled by Yahoo!. RCR
