BlackBerry is Back

NEW YORK CITY – Wall Street breathed easier after the creator of their favorite wireless device, the BlackBerry made by Research in Motion Ltd., was forced to settle a patent dispute for US$612.5 million.

Shareholders should also breathe easier and the stock bounced by nearly b20% immediately after the announced deal.
The deal followed three days of marathon talks at Citigroup Global Markets which is banker for NTP, the holding company that sued in 2001 and won a decision in 2002 by a jury which found that RIM had infringed five NTP patents.

The settlement was “eye popping” in size but less than the US$1-billion that some New York analysts estimated it would have to pay.

What is also “eye popping” is that there’s some question that NTP’s patents are invalid and they are being reviewed by the U.S. Patent and Trademark Office.

But the two sides were forced to the table last week by an impatient U.S. District Court Judge in Richmond, Virginia. He had been asked by NTP for an injunction against RIM’s operations in the U.S. which could have ruined the company.

All of RIM’s appeals had failed as did its request that the court hold off until the U.S. Supreme Court made its anticipated ruling whether such injunctions should be imposed before all remedies were exhausted in patent infringement disputes.
“The prudent thing for stakeholders was to put this thing behind us,” RIM’s Chairman Jim Balsillie said in a conference call to analysts and media.

He’s right.

But it has been a bitter and unjust battle, a high-profile corporate law equivalent of a lynching in the Deep South which underscores the dangers of doing business in the U.S.

The BlackBerry is Canada’s most successful technology creation and one of its most recognized brand names, ranking up there with the Royal Canadian Mounted Police, Celine Dion or Jim Carrey. They are visible everywhere in this city of financial services and the wireless device can be credited with inventing thumb-typing and lap-reading in meetings.

The BlackBerry is such an entrenched product that the U.S. government waded into the fray asking to intervene in this court case lest one million of its civil servants who rely on BlackBerry services were damaged by a shutdown.

The BlackBerry is simply the latest case which shows how American juries can make outlandish decisions and judges can impose unfair deadlines that threaten a business’s survival.

The worst case involved funeral chain company Loewen Group of Vancouver which was forced into bankruptcy after an ignorant Mississippi jury imposed a punitive US$600-million fine involving a lawsuit asking for only US$2 million in damages. The company was unable to appeal this unless it deposited US$600 million in trust. Shareholders lost everything.

American business organizations have been lobbying for years to change laws and cap jury awards. Thousands of companies are driven out of business by corporate ambulance chasers operating in background states with questionable courts in the south.

The Research in Motion case involves a second problem which is the tortuous and questionable patent process south of the border.

Research in Motion could have settled a year ago for US$200 million less but held off due to the possibility that NTP’s patents would not be validated by the U.S. Patent authorities.

But that wait ended last week when the Virginia Judge James R. Spencer warned that he might agree to stop BlackBerry sales and service in the U.S. and impose a settlement on them if the two sides didn’t settle out of court.

This deadline led to another injustice, say sources.

The settlement should have been conditional on the U.S. Patent and Trademark Office’s decision about the validity of NTP’s patents next year. That is, if NTP’s patents are rejected, Research in Motion should have been able to get the money back plus be able to countersue for damages.

There was no such contingency in the settlement.

Research’s Chairman Balsillie says that would have cost the company even more money.

In the end, the company has done the only sensible thing which was to cut its losses and move on. Duking it out in a monkey court in the Deep South can prove to be not only costly but ruinous, as Ray Loewen and many others have discovered.

RIM’s decision was vindicated immediately and its shares rose by nearly 20% after the announcements to US$86.05.

That’s because RIM still has about US$1.2 billion in the bank and a booming order book for its devices.