Research in Motion is facing added pressure to strike a new settlement agreement to end a patent infringement lawsuit that could lead to the suspension of the firm’s popular BlackBerry mobile e-mail service in the United States.
A judge yesterday refused to enforce an earlier agreement between RIM and NTP Inc. that called for the case to be closed with RIM paying US$450 million and also declined to delay any further rulings until the U.S. Patent and Trademark Office completes a review of the patents involved.
Analysts now say RIM will likely be prompted to offer a much larger settlement, possibly paying out as much as $1 billion in order to end the lawsuits without jeopardizing its service, which is widely used by business travelers and others to retrieve e-mail from the road.
Research in Motion also said it was at work on a backup plan that would enable its 3.65 million users to continue to access their e-mail accounts without the disputed technology, though some analysts doubted such a move was possible in a short time frame.
The company said it would continue to explore various legal options, though those may be limited given that the U.S. Supreme Court has already decided once not to take up the case when RIM asked for an emergency injunction against enactment of the ruling that it shut down its service.
“While further review by the Supreme Court is generally uncommon, RIM continues to believe this case raises significant national and international issues warranting further appellate review,” the company said in a statement.
RIM is also hoping to get help from another high-profile technology case. The company said the Nov. 28 decision by the Supreme Court to hear an appeal in the case of MercExchange versus eBay will raise questions about the use of injunctions in patent cases that are relevant to its own case.
RIM shares were hit in the wake of the ruling, dropping more than 5 percent in afternoon trading yesterday before gaining back some ground early this morning as investor optimism about a potential settlement rose.
Most analysts now believe a new settlement will be reached, with RIM doing whatever necessary to avoid even a temporary shutdown of its service. Analysts said the risks are greater now for RIM than in the past because there are more alternatives for getting e-mail onto mobile devices, including a new version of the Treo handheld due out early in January that will use Microsoft’s Windows Mobile and enhanced smartphones, such as those from Nokia, that have push e-mail capabilities.
In addition, the U.S. accounts for nearly 70 percent of RIM’s total market and the company recently acknowledged that its subscription growth rate had slowed.
“We would hope these significant developments would bring them back to the negotiating table,” said James Wallace, one of the attorneys representing NTP, which filed suit in 2001 and won a jury verdict in 2002.
The Patent Problem
“RIM and NTP will hammer out an agreement,” Canaccord Capital equity analyst Peter Misek said in a research note.
Citigroup analyst Daryl Armstrong agreed, saying that the danger of facing an injunction “probably forces RIM to the settlement table, where NTP would largely set the terms.”
Others, meanwhile, see the case as an example of deep-seated problems with the granting of patents in the past, with relatively low thresholds for obtaining patents in the early days of the Internet boom leading to many of today’s patent disputes. In fact, the patent office has since denied some of the patents originally granted to NTP for the mobile e-mail technology, a ruling that NTP can appeal as well.
Some analysts, meanwhile, say it may be BlackBerry users who eventually pay for a larger settlement, with RIM forced to raise monthly fees to cover the costs.
Gartner analyst Ken Delaney said those same users should not face a sudden disruption in service. Many large corporations and even government agencies rely upon BlackBerries to keep in touch with mobile workers and courts would likely craft a plan to have users switch to other systems.
“Our advice to RIM customers and partners is not to panic,” he said.