Experts Question RIM’s Proposed ‘Work-Around’ for Blackberry

Experts are raising uncomfortable questions about Research in Motion’s proposal to maintain the viability of its Blackberry wireless network through a technological “work-around” if the U.S. District Court in Richmond, Va. issues an order to shutter its services in the U.S.

The work-around — as currently envisioned publicly by RIM — may not actually be workable, according to industry insiders. Earlier this week, RIM issued a statement indicating that it would enact a work-around to comply with any court orders, after a preliminary ruling was issued by Judge Spencer in the matter, NTP v. RIM.

Watching, Waiting

“We are watching the developments of the continuing dispute between Research In Motion. and patent holding company NTP case very closely,” said Howard Gutowitz, chief executive officer of Eatoni Ergonomics, a New York-based developer of text entry software for hand-held devices “We are skeptical about RIM’s ability to implement a ‘work-around’ that will provide the same level of service that Blackberry customers have come to expect.”

The technology guru also said that he questions whether any work-around won’t violate others’ intellectual property rights. “A persistent issue for RIM that it continues to ignore — RIM’s arrogance in consistently ignoring U.S. patent protections is getting quite tiresome,” said Gutowitz.

The litigation between RIM and NTP has been contentious. Earlier this week, Judge Spencer ruled, in a sealed ruling, that a purported agreement between the companies to settle the patent litigation for about US$450 million was invalid. The case, however, continues.

“The judge has declined to stay the proceedings,” said Marc Hubbard, an intellectual property attorney with Munsch Hardt Kopf & Harr, based in Dallas. “However, he has not issued an injunction. His original injunction was vacated by the appeals court. Everyone is assuming that he will, but we’ll have to wait and see.”

Limited Options

The technology work-around is but one of three options that RIM has if it loses the case, Hubbard said.

“RIM has three choices,” said Hubbard. “Pay NTP. Shut down its U.S. service — except, perhaps, the U.S. government. Or change its system so that it is not infringing.”

The company is being represented by a number of lawyers in court, including the firm of Jones Day in Washington D.C., which was unavailable for comment.

The wireless service provider has been lowering expectations about its overall performance, lately, however.

A statement last week indicated that executives had reduced new subscriber predictions for the company’s fourth fiscal quarter, which ends March 4, 2006. The firm is now expecting subscriber additions in its fourth quarter to be around three percent lower than the 775,000 to 825,000 range it had once predicted.

The company continues to place third-quarter revenue in the $540 million to $570 million range, but it doesn’t expect its previous fourth-quarter guidance to shift due to the lower levels of new subscribers, RIM said in a statement.

Experts said that that there is not a compelling argument — at least legally — for the judge to forbear and not issue an injunction against RIM at some point. “In this case, what’s the worst thing that can happen to users like me?” said Hubbard. “I will have to find another way to get e-mail when I’m out of my office, or simply do without, which might be a good thing. Yes, it is unfair. It would cost me and my firm money. However, if we consumers are left holding the bag, then I think we have RIM to blame for that.”

Cash Flow Danger

According to M. Miller Baker, a partner in the law firm of McDermott Will & Emery, based in the firm’s Washington, D.C. office, another legal implication is that RIM could face enormous damages. That could harm its cash flow — and impair its operations by itself, irrespective of any work-around.

“No court should issue an injunction in this kind of situation, where it could injure millions of third party users. RIM should be immune from liability to its users if the injunction issued, resulting in service disruption. There is a doctrine in the law that breach of contract due to legal impossibility is an excusable defense,” said Baker.

There are other issues that will hamper RIM — even if it does reach a technological work-around and keep its subscribers online.

“Depending upon its agreements with its licensees and resellers, RIM may have to compensate them,” said Hubbard. “However, I’m not sure that end users have any recourse.”

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