Analysis: RIM can now literally settle for less with NTP

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Analysis: RIM can now literally settle for less with NTP

Richmond (VA) – Despite the images of millions of powered-down BlackBerrys that pervaded the public airwaves in anticipation of a sweeping, and perhaps more final, decision in the NTP v. RIM case this afternoon, what emerged from US District Court this afternoon resembled less the end of the information economy as we know it, and perhaps resembled something slightly worse: the continuance of legal proceedings.

But clearly, Research in Motion emerged from the courtroom without an injunction against it. And with a second NTP patent having been struck down by the US Patent and Trademark Office, apparently while today’s hearings were in session, the prospects of NTP’s obtaining a major settlement from RIM – despite the judge’s stern warnings – appear to be diminishing. It’s almost like a scene from the latest hit import game show, “Deal or No Deal,” where the contestant has unfortunately picked all the high-dollar suitcases from the field, and the banker’s settlement offer is diminishing by the minute.

And so it was that RIM CEO Jim Balsillie looked more and more like Howie Mandel, after having emerged from the courtroom victorious today, especially after uttering this comment: “These patents are gone…It’s just a timing issue.”

To this point, Judge James Spencer’s opinions have upheld a federal court ruling that RIM infringed upon NTP’s patents. In previous opinions, such as his November 2005 denial of RIM’s motion to stay the proceedings pending the USPTO’s review of the patents, Judge Spencer cited the federal court’s decision on that matter as final, in substantiating his opinion that RIM had no grounds for requesting such a stay. In that November opinion, he wrote that while RIM argued that the Patent Office review process might take only months instead of years, as NTP suggested, “any attempt at suggesting a likely time frame and outcome of the PTO re-examination process is merely speculation. This Court cannot and will not grant RIM the extraordinary remedy of delaying these proceedings any further than they already have been based on conjecture.”

Judge Spencer tried to maintain that same stature in proceedings today, having been quoted by Reuters as saying, “The simple truth, the reality of the jury verdict has not changed.” But as Carmi Levy, senior research analyst for Info-Tech Research Group, noted, the judge couldn’t exactly substantiate his stature today on the integrity of a court ruling citing infringements on patents, some of which no longer exist. “You have a court case on one side and a patent case on the other,” said Levy, “and the patent case is clearly going in the direction of invalidating all of the patents. As a result, how can you then proceed with an injunction based on technology that the plaintiff does not own in the first place? It cuts the legs out from NTP’s case, it essentially renders them with no case.”

Levy covers the handset connectivity space for Info-Tech, and has been closely following the case since NTP first filed the lawsuit in November 2001. Levy believes it would be in NTP’s best interests “to negotiate a final and fair settlement with RIM, so that they can get some money out of the company, because the longer they wait, the smaller the chances that this is actually going to happen. They might have gotten a bit too greedy…They have fewer and fewer options available to them as the number of patents that they continue to hold onto winnows down to eventually zero.”

While Judge Spencer’s language today remained strong, it was clear to Levy that his own case was starting to weaken a bit. Deciding not to impose an injunction today, Levy remarked, is an indication that “he recognizes that the NTP case weakens over time, so that imposing an injunction when the validity of the patents is increasingly being called into question, becomes more difficult with time. I think what he’s doing is, he’s pulling back from the precipice, recognizing that this case increasingly has no merit.”

RIM had been willing to settle the case once before, in a 2004 contract where the company agreed to pay NTP $450 million. But that agreement was nullified after NTP successfully argued that it was not constructed using proper legal templates. Up until yesterday, RIM made overtures that it remained willing to settle for NTP, for even more than the original amount. But Levy believes what precluded such a settlement up to now has been RIM’s fear of how NTP would proceed, once it had the settlement money in hand.

“RIM’s concern is that NTP would then use such a payment as an admission of violation,” Info-Tech’s Levy told TG Daily, “and then they would, in turn, launch new lawsuits against RIM’s partners, their vendors, and against their customers, again to seek out additional licensing revenue streams. So until NTP agrees to finally call this off once they get some kind of settlement, RIM has no choice but to fight this in court, right down to the very end.”

In Jim Balsillie’s comments to CNBC earlier today, he said NTP had been unwilling to talk settlement with RIM, partly because he believed the company was unwilling to even discuss the terms of a settlement – not just the money, but what the settlement would actually mean. Balsillie did not discuss specifics (people tend not to answer questions they haven’t been asked), though this account does coincide with Levy’s observations.

In a statement issued a few hours after the judge’s decision, NTP countered RIM’s characterization of settlement proceedings: “Contrary to RIM’s public stance,” NTP writes, “we always have and continue to offer RIM a license that fully protects everyone – its customers, carriers, and partners. RIM has rejected our efforts, stalled the proceedings and attempted to undermine the process every step of the way. We have acted to protect our interests and will do so in the future as should all patent owners.”

It’s this call to “all patent owners” that has Levy worried. “It’s a pretty frightening place to be if you’re an innovative company that introduces new technology to the marketplace,” he said, “because you always have to be looking over your shoulder, watching for other companies that are coming after you in that way.

“The more money NTP squeezes out of RIM, the greater the potential for subsequent lawsuits grows,” Levy continued. “But certainly, I don’t think the spigot is going to fully close. I think there are always going to be companies out there that go after more established companies that have succeeded in building a client base, and this trend – as long as US patent law stays the way it is, as long as it is not reformed, as long as it is the level of due diligence that’s provided when you apply for a patent is so thin and so limited, things like this are going to continue to happen.”

After hearing tales of the years upon years that plaintiffs have had to wait for the patent re-examination process to conclude, the surprising speed of the USPTO’s actions this week have perhaps thrown everyone for a bit of a loop. “They [the USPTO] clearly stepped on the gas in this case, because they realized this was an issue of national importance, and it was very, very high profile. What the Patent Office has indicated, though, is that it is woefully under-resourced to do this to any great extent across the entire portfolio of patents that it currently holds…Certainly, when they’re finished building infrastructure in Iraq, and then having it blown up by insurgents, when that money starts to become repatriated, that’s when we’ll start to see the USPTO funded at a level that’s a little bit more realistic, relative to market demand. But until then…I believe that this case has emboldened the patent trolls among us to take similar action in the future.”

While RIM continues to walk a tightrope today, Levy believes, its journey certainly hasn’t concluded, and it’s in much better shape this afternoon than it was this morning. “Right now, RIM’s in a very good situation,” concluded Info-Tech’s Levy. “It’s certainly in the driver’s seat. They can watch the Patent and Trademark Office action proceed, they’ve got a workaround that apparently is doing very well with a few dozen pilot users, they’re very pleased with it. Certainly, they would rather not have to use it if they could get away with it, but right now, if we have to handicap the race, it’s Advantage RIM.

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