RIM gets reprieve – now free to fight

This is a column I wrote for The Globe and Mail

Did you hear that giant whoosh, like the sound of air escaping from an enormous balloon? That was the sound of several million BlackBerry users heaving a sigh of relief yesterday, after Research In Motion Ltd. announced that it had finally settled its four-year legal battle with U.S.-based NTP Inc., the company that sued RIM for patent infringement. And there might have been a few sighs of relief in there from co-CEOs Jim Balsillie and Mike Lazaridis, too, who knows — after all, the current settlement is substantially less expensive than the $1-billion to $1.5-billion (U.S.) that some analysts were projecting the Canadian company might have to cough up.

Plenty of RIM investors were relieved, that much is clear. The stock jumped by more than 18 per cent in after-hours trading, erasing about six months worth of selling in an instant and boosting the company’s market value by $2.4-billion. Some professional investors were also glad to see the millstone removed from around RIM’s neck. “I’m glad it’s over,” said Matt Kelmon, a U.S. money manager with 250,000 shares of RIM who said he had been expecting a settlement of as much as $1-billion. “It was definitely an overhang on the stock . . . it was a good call to get it out of the way.”

In many ways, the deal is a win-win for the Waterloo, Ont., company. Not only does RIM only have to pay $612.5-million, less than half the amount of cash it has on hand (it has been building a reserve to pay any final judgment), but it gets a definitive deal instead of a vague agreement to work out a deal, which is what it wound up with last time. And best of all, it puts an end to the uncertainty and doubt hanging over the company like a cloud the past few years.

The impact of that cloud on the company’s business has been all too tangible: RIM also chopped its estimate of subscriber additions by more than 13 per cent yesterday, in part because of the uncertainty over the case, as it has done in previous quarters. And the firm said operating profit in the latest quarter will fall well below expectations, too — as much as 17 per cent below what analysts were projecting, even before taking into account the cost of the legal settlement.

So what happens now? The simple answer is that RIM gets back to business, back to signing up new subscribers and new telecom partners, without having to soothe their fears about the outcome of the NTP litigation. There is also the chance that being free of that cloud of uncertainty might make Research In Motion a more appealing takeover target for someone like Microsoft — until now, the unsettled nature of the case made RIM a very unattractive acquisition. That said, with a market value of more than $13-billion and a trailing price-to-earnings multiple of about 40 times, the company is still far from cheap.

If nothing else, putting an end to the NTP case allows RIM to focus all its energies on remaining the market leader in the handheld e-mail market — and it needs all the energy it can get, as competition grows. Microsoft has released a new upgrade for its e-mail server software with BlackBerry-like functionality, Palm is offering similar services for its new Treo handheld devices — of which it sold almost as many in the most recent quarter as RIM sold BlackBerrys — and Finland’s Nokia is rolling out BlackBerry-style “push” e-mail features to its phones in the next year or so.

In other words, RIM still has a substantial fight on its hands, one that has been going on in the background while it waged its legal war with NTP. Now, at least, it can get both hands into the game instead of fighting with one of them tied behind its back.

RIM clock keeps on ticking

By now, everyone involved in the legal battle between Research In Motion and NTP – from the lowliest BlackBerry user to RIM co-CEO Jim Balsillie, and even Judge Spencer himself – probably wishes the whole affair would just go away. But while many observers, including many in the mainstream media, had convinced themselves that the case would finally come to a head today, it is far from being over. Not only has Judge Spencer reserved his decision for some future date, but RIM has said that it intends to proceed with its software “workaround,” which the company has said avoids the patent infringement issues that are at the centre of the lawsuit. And NTP, meanwhile, says it is still open to a settlement, but RIM won’t negotiate.

In other words, not much has changed.

What happens now is still a giant question mark, and there are as many opinions on the future outcome as there are patent lawyers (and that’s a lot). There are a few indicators that send a fairly strong signal, however — and the signal they send is that an injunction from Judge Spencer is almost a certainty. Whether it will be a complete injunction, which prevents BlackBerrys from being sold or operated in the U.S., or a partial injunction that merely stops the company from selling new ones, remains to be seen. But most patent-law experts say injunctions in such cases are commonplace, and that Judge Spencer has already indicated he isn’t sympathetic to the government’s arguments against such a decision, especially since NTP said it would allow a workaround for government users.

As for the decisions by the U.S. Patent Office, which has rejected almost all of NTP’s patents as invalid – meaning they should never have been issued – it’s important to remember that Justice Spencer has to base his decision on what the reality is right now, and the reality is that those patents are still in full force until NTP has exhausted its appeals to both the Patent Office Appeal Board and the U.S. Court of Appeal. Some patent lawyers also point out that the pressure that has been exerted on the patent office by the U.S. government will provide ammunition for those appeals. And it’s also important to keep in mind that the U.S. Court of Appeal has already heard many of the arguments about the validity of the patents, and has found in favour of NTP. As Judge Spencer put it:

“The hallmark of sanity is to remain firmly tethered to reality. One unfortunate reality for RIM that they want to forget is that there was a trial, a jury was selected, evidence was received and when all was said and done, they found RIM had infringed the patents and the infringement was willful.”

While the delay will give RIM more time to hammer out a deal – something the judge may be counting on – it’s unclear whether Mr. Balsillie wants to settle or not. While comments he made Thursday seemed to indicate that he was more open to the idea, statements he made after the Friday hearing suggested the opposite. And so the RIM saga continues.

Google for BlackBerry — no talking

Got a BlackBerry and eager to use Google Talk for voice-over-Internet calls? Keep dreaming, friend. Russell Shaw, who blogs for ZDNet on IP telephony — and also happens to have a blog devoted to the BlackBerry handheld from Canada’s own Research In Motion — clarified something I was wondering about as far as the recent announcement that Google Talk would soon be available for the CrackBerry.

If you read the press release, you’ll notice that there’s lots of mentions of Google Talk, but no real mention of… well, actually talking. Russell explains why in his recent post: Because RIM depends on carriers such as Verizon and Sprint/Nextel to subsidize and market its handhelds, and the carriers would hit the roof if they found out that RIM was providing a way for BlackBerry users to get around the calling plans of the company’s partners. Russell posted something to his BlackBerry blog too.

Makes sense for RIM. Too bad for BlackBerry users — although it’s nice to see the handheld maker branching out.

Better bite the bullet, RIM

Bringing up the subject of Research In Motion‘s legal battle with U.S.-based NTP can generate a pretty heated emotional response in some circles, and I’m not just talking about RIM’s Christmas party or one of co-CEO Jim Balsillie‘s poker night get-togethers. What began as little more than a nuisance lawsuit from an unknown company four years ago has become one of the biggest — and potentially most expensive — legal wars in recent memory.

Opinions on the case have quickly become polarized. Those who believe that NTP’s patents on wireless e-mail are invalid and should never have been issued in the first place see the lawsuit (and potential injunction against the sale of RIM’s products in the United States) as a form of legalized extortion. A great Canadian success story is being held to ransom, they argue, based on a mistake by the overworked and ill-informed U.S. Patent and Trademark Office. To this group, the battle between RIM and NTP is about fundamental issues of right and wrong, truth and justice.

Others, meanwhile, see RIM’s refusal to settle with NTP (or its foot-dragging on the terms of a settlement) as a symptom of the Canadian company’s hubris, an attitude that has arguably hurt not just the company but also its shareholders. Instead of agreeing to license the NTP patents early on in the process, they argue, RIM has left itself open to the threat of having to pay billions of dollars more than it otherwise would have, as well as losing customers and partners as a result of its intransigence. To this group, RIM’s battle might be right in principle, but wrong in practice.

To read the rest of this column, please go to globeandmail.com