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November 30, 2005

Judge nixes RIM BlackBerry settlement

A US judge yesterday ruled invalid a $450m settlement between BlackBerry maker Research in Motion Ltd and patent house NTP Inc.

By CBR Staff Writer

Instead, he ordered a hearing to decide whether US service of the wildly popular device should be blocked and how much RIM should pay NTP for alleged patent infringement.

At stake is 70% of RIM’s business, worth about $1.35bn in sales.

Industry watchers were buzzing yesterday that RIM might now be forced into settling with NTP for a much steeper sum. A settlement worth between $750,000 and $1.5bn may potentially be reached within the next 30 days, according to punters.

RIM issued a statement shortly after the ruling saying it would continue to seek a review of its case by the US Supreme Court.

Either way, the news is not good for RIM. Yesterday morning, the Nasdaq halted trading of RIM shares pending the announcement. By close of day, RIM shares fell 5.8% to $61.13.

The negative ruling also may translate into higher costs for finance houses and enterprise IT companies dependent on the BlackBerry channel, said TowerGroup, a Massachusetts-based financial services firm. After all, these companies heavily use mobile email and sales force automation to support time-sensitive business transactions and day-to-day management, TowerGroup said.

But the ruling was a positive for shares of RIM rival Palm Inc, which closed more than 6% higher yesterday at $28.38. In the somewhat unlikely event of BlackBerry service shutdown in the US, Palm stands to sell more of its Treo 650 smartphones.

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And for Arlington, Virginia-based NTP the ruling was a victory. NTP had maintained the $450m settlement with RIM was never finalized, even though RIM sought to uphold it, claiming an agreement was reached in March.

RIM co-CEO James Balsillie also recently said the company had a BlackBerry service workaround that would not infringe NTP’s contested patents. The fix has not yet been seen and there are concerns it will be expensive and unwieldy. RIM said yesterday that details of the workaround will be made available if such implementation becomes necessary.

Even if Ontario, Canada-based RIM does settle, it may face more legal worries.

The company’s shareholders may retaliate with potential lawsuits. Stockholders could argue that if RIM had settled with NTP years earlier it would have saved a significant amount of time and money that it spent fighting NTP’s claims.

RIM also is tangled up with intellectual property rights issues with Eatoni Ergonomics Inc, a New York-based text-entry software maker for handheld devices.

Regardless of whether RIM succeeds for a time in circumventing the implications of [yesterday’s] ruling, as they have publicly indicated in the past, I believe that RIM will — at the end of the day — be forced by our legal system to stop trampling on the rights of small technology developers, said Eatoni chief executive Howard Gutowitz.

The legal spat between the RIM and NTP has been long and winding. NTP sued RIM in November 2001 and a jury decided, one year later, that RIM had indeed infringed NTP patents. The Federal Circuit US Court of Appeals upheld part of the jury’s finding.

The case has since ploughed through various courts without resolution.

The contested NTP patents expire in 2012.

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