Moto and RIM begin cross-licensing dance

One of the typically opaque aspects of the cellular handset industry erupted into view over the weekend as Motorola Inc. and Research In Motion Ltd. sued each other.
The familiar culprit: failed negotiations to renew a cross-licensing agreement. A 2003 agreement expired at the end of 2007 and talks since then have failed to renew the pact, according to media reports.
Neither firm was able to immediately respond to requests for comment on the matter.
Motorola has filed suit against RIM in U.S. District Court in Delaware and in the Eastern District of Texas, while RIM counter-sued in the Northern District of Texas.
Moto’s stock bounced up and down after the start of trade today and was up nearly 1% over its $11.40 opening value by early afternoon. RIM’s stock also gyrated and was close to regaining its $96.46 opening value by early afternoon.
Motorola seeks a ruling that it doesn’t infringe on five RIM patents, including two that appear to relate to the Moto Q device, and also charges that RIM’s Curve and Pearl devices, among others, violate seven Motorola patents, including software that links devices and corporate servers.
RIM, in turn, claimed that Motorola infringes on nine patents and is demanding “exorbitant” royalties for its patents.
The dispute shines a spotlight on one of the cellular industry’s seemingly intractable aspects: to conduct business requires reliance on a web of cross-licensing agreements, in which companies agree to allow competitors and allies both to use their technology in exchange for the same. If one party is deemed to hold a more valuable patent hand, it may require cash payments to balance the agreement, which annually can run into the hundreds of millions of dollars.
Cross-licensing agreements, however, are founded on a mutual sense of mutual value — and when that mutuality inevitably dissipates over time, negotiations fail and lawsuits fly.
Settlement prior to entering the courtroom typically is predicted as in the best interests of both parties, but competition is so fierce that both sides will often engage in brinksmanship to force a resolution.
At least that appears to be the pattern in the famous, ongoing case with Nokia Corp. and Qualcomm Inc., which have been hurling lawsuits at each other over the past year in an effort to come to terms. Both companies have been performing exceptionally well but no longer book expected revenue from their former partner — “expected revenue” being in dispute — and that has dampened their share prices, analysts have said. Although it would appear to be in both companies’ — and the industry’s — best interest to settle, little visible progress has been made in nearly a year.
In Motorola’s and RIM’s case, both companies also have vital interests at stake as they enter a potentially protracted period of legal skirmishing.
Motorola, of course, is under new leadership and in the midst of re-evaluating its businesses as it heads toward an annual shareholders’ meeting this spring with activist Carl Icahn clamoring for four seats on its board. Earlier this month, CEO Greg Brown said he would personally lead the failing devices business while also contemplating whether to transform it into a standalone entity. Daily headlines foretell of a Motorola-Nortel Networks Corp. infrastructure joint venture, though nothing concrete has been announced.
Motorola’s share of the global handset market has plummeted and it is staving off challenges to its supremacy in its home market in the United States. RIM, in contrast, has grown rapidly to claim 45% of the U.S. smartphone market, once the purview of the enterprise but increasingly drawing consumer interest as well.
RIM continues to surge in subscriber numbers and device sales for its signature BlackBerry e-mail service as it expands its presence in international markets. While it is performing well, the company is facing renewed competition from several enterprise market contenders, including Nokia, Microsoft Inc., Palm Inc., Hewlett-Packard and Apple Inc., among others.