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Saturday, October 08, 2005

Will they shut off my BlackBerry? 

This could be extremely bad news:
A court decision Friday renewed the possibility that service to BlackBerry wireless e-mail devices might be cut off for most users in the United States.

The United States Court of Appeals for the Federal Circuit in Washington rejected a request by Research in Motion, the Canadian company that makes the BlackBerry, to rehear its appeal of a patent infringement case brought by NTP Inc., the patent holder. A three-judge panel of the court ruled in August that Research in Motion had violated seven of NTP's patents.

As part of that litigation, NTP, whose only assets are wireless e-mail related patents, had been granted an injunction banning the sale of BlackBerry devices in the United States and forcing Research in Motion to stop providing e-mail services to all American customers except government account holders....

Kevin Anderson, a lawyer for NTP, said the company would now ask the court to apply the injunction to the patent claims that are no longer under review. Those patents, he added, are broad enough to prevent Research in Motion from continuing service in the United States, which accounts for about 70 percent of its revenue.

"The case is pretty much over," Mr. Anderson said.

I am not at all educated on this case, but it has piqued my interest on account of my addiction to my CrackBerry. Why, then, have I not descended into catatonia, thumbs twitching only to the memory of their muscles? Because while it is increasingly likely that NTP will win its injunction, it is highly unlikely that NTP will enforce its injunction, whatever the speculation of the New York Times.

NPT's only assets are the wireless email patents that BlackBerry's owner, Research in Motion, apparently infringes. Unless the owners of NPT are insane, they do not want to destroy Research in Motion (which rejoices in the dubious ticker symbol: RIMM). They want to extract damages and royalties from RIMM's stockholders. Since RIMM has more than 1.2 billion Canadian dollars in cash, essentially no debt and more than C$600 million in operating earnings every year, NPT figures that it can negotiate for more than the $450 million than it almost took in settlement last spring.

NPT and RIMM are locked in a game of chicken with a ticking clock. THE US Patent and Trademark Office is "re-examinating" NPT's patents, so NPT is at some risk of losing the claims that got them this far. The courts, however, have concluded that those patents are valid at least until the PTO says otherwise, and they have at various levels favored NPT's case. As soon as the case clears these last appellate hurdles, NPT has the perhaps temporary power to destroy RIMM's business, most of which comes from the United States. RIMM would probably pay a lot to avoid the destruction of its business. On the other hand, if NPT actually enforced the injunction everybody and his brother will switch to an alternative system and RIMM's gushing river of cash will dry up like the Colorado River in California. Without that gushing river of cash, NPT will not collect the billion dollars that it probably wants to settle. RIMM knows that the prospect of losing its grasp on a billion dollars diminishes the likelihood that NPT will enjoin RIMM, but NPT knows that RIMM will just stall if it does not credibly threaten to enforce the injunction.

How, therefore, should NPT boost the credibility of its threat to enjoin RIMM, which will paradoxically decrease the probability that it actually does enjoin RIMM? The answer, obviously, is to appear irrational. NPT has the huge advantage that RIMM has public stockholders and NPT does not. That means that RIMM's management cannot afford to appear to be reckless, so it must negotiate with great sobriety (else it will get sued, fired, shamed, etc.). NPT, however, can appear to be just nuts enough to shut down RIMM. If I were NPT I would concoct some moderately credible alternative to settlement with RIMM -- perhaps it should threaten to sell the patents and the lawsuit to Microsoft, for instance -- and then act all insanely nutty in my discussions with RIMM. If NPT convinces RIMM that it hates RIMM so much that it is willing to put up with some much less appealing deal (the Microsoft fantasy option, for example) than permit RIMM to get away with "stealing" NPT's "inventions," NPT will scare RIMM's sober fiduciaries into settling at some level closer to their point of indifference. Which is, after all, what NPT needs to do to maximize the value of its lawsuit.

So, no, I'm not worried that somebody will shut off my BlackBerry. But if NPT is smart, it will lead RIMM's management to believe that it might just be that crazy.

7 Comments:

By Blogger sirius_sir, at Sat Oct 08, 11:12:00 AM:

Don't you just love it? My solution would be to settle for a modest dollar amount now and some percentage of future revenues. I don't know anything about either company, but if NPT is still in the "inventions" business, wouldn't it benefit both parties to partner? Another way to ask the question: Would either party be in such a favorable position to make money without the other?  

By Anonymous Anonymous, at Sat Oct 08, 08:33:00 PM:

A cogent analysis by Tigerhawk. What he doesn't take into account, however, and is unlikely aware of is the identify of the lawyers on both sides of the ball. RIM is represented by Howrey and Simon, one of the more aggressive and some would say unscrupulous major firms in the country. If history is any guide, Howrey will do anything and everything it can to make sure that it extracts every last dollar of fees out of this matter. That would suggest that the settlement scenario Tigerhawk outlines might not come to fruition as long as Howrey can find a way to draw things out further.  

By Anonymous Anonymous, at Sat Oct 08, 11:29:00 PM:

It'll settle. It's all about money and a dead company is in neither party's interest.  

By Anonymous Anonymous, at Sun Oct 09, 06:47:00 PM:

All eight of NTP's patents that relate to this lawsuit have been rejected by the US patent office. Debating whether RIM will be forced to stop selling BlackBerries in the USA is a non-issue at this stage because the patents no longer apply. The only true recourse NTP has is to appeal the patent office rulings hoping to regain some of their lost ground. The really amazing thing that NTP did was refuse to accept the $450m from RIM because they wanted to hold out for even more. With luck, NTP will fold soon because the good guy should win every now and then.  

By Blogger TigerHawk, at Mon Oct 10, 06:14:00 AM:

Anonymous guy:

NTP's patents are undoing a "reexamination" at the behest of RIMM. The PTO always rejects most if not all of a patent holder's claims in the first round of a reexamination. Without knowing more, that first round rejection means nothing. And, in any event, it is a matter of timing. The NTP patents are valid and enforceable until the PTO completes its reexamination, which could take a long time. The judicial process is outrunning the administrative process, and if it gets to the finish line first RIMM will pay a great deal more than $450 million to settle. But it will settle, which is why I'm not worried about my Blackberry!  

By Blogger Ed, at Thu Oct 13, 07:19:00 AM:

Watch for RIMM to take over NTP.  

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