Research in Motion (RIM), the company behind the Blackberry, was founded in 1984 and is based in Waterloo, Ontario. RIM operates offices in North America, Europe and Asia Pacific. RIM is listed on the Nasdaq Stock Market (Nasdaq: RIMM) and the Toronto Stock Exchange (TSX: RIM). RIM describes itself
| “as a leading designer, manufacturer and marketer of innovative wireless solutions for the worldwide mobile communications market. Through the development of integrated hardware, software and services that support multiple wireless network standards, RIM provides platforms and solutions for seamless access to email, phone, SMS (short message service), organizer, Internet and intranet-based corporate data applications. RIM also licenses its technology to industry leading handset and software vendors to enable these companies to offer wireless data services using the BlackBerry Enterprise Server and BlackBerry Internet Service. RIM technology also enables a broad array of third party developers and manufacturers to enhance their products and services with wireless connectivity. RIM's products, services and embedded technologies are commercially available through a variety of offerings including the BlackBerry wireless platform, the BlackBerry wireless device product line, technical support services and BlackBerry licensing relationships.” |
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RIM has recorded millions in liabilities for the estimated probable costs for the resolution and the Company's current and estimated future costs with respect to ongoing legal fees
The breakdown by product segment for the last two fiscal years which end in February is shown below.
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On a percentage basis handhelds accounted for 69% of revenue, Services 17%, Software 10% and Other 4%. Although the company and its servers are located in Canada a majority of its customer base lies in the US. In the quarter ending Feb 26, 2005 Canada accounted for 9.2% of revenue, the US 67.7% and ROW 23.1%. An injunction on U.S. BlackBerry sales and service would be devastating.
There are now over 2.5 million subscribers and 42,000 installations of Blackberry Enterprise Servers.
Research in Motion is of considerable interest these days because of a patent litigation matter brought by NTP alleging that the Company infringed on eight of NTP's patents. NTP is a patent holding company formed in 1992 by Thomas J. Campana and patent attorney Donald Stout with the intent of licensing patents. Mr. Campana was a retired electrical engineer and entrepreneur from the Chicago area who held about 50 patents, some of which cover a national paging system. He started ESA Telecom which helped develop paging system for Telefind in 1990. He built a product line that allowed data to be received wirelessly for AT&T's Safari notebooks. He died in June 2004.
In 2000 NTP sent RIM a letter asking for licensing fees. They sued RIM in November 2001. Several minority investors were brought on board to finance the legal battle.
The case is described in RIM's annual report portions of which appear below.
The matter went to trial in 2002 in the United States District Court for the Eastern District of Virginia and the jury issued a verdict in favor of NTP on November 21, 2002, finding that certain of the products and services that the Company sells in the United States infringe on five of NTP's patents. As a result, the jury awarded damages based upon its assessment of the estimated income derived from certain of the Company's revenues that were considered “infringing revenues”.
On August 5, 2003, the District Court ruled on NTP's request for an injunction with respect to RIM continuing to sell BlackBerry handhelds, software and service in the United States and entered judgment with respect to several previously announced monetary awards issued in favour of NTP. The District Court granted NTP the injunction requested; however, the District Court then immediately granted RIM's request to stay the injunction sought by NTP pending the completion of RIM's appeal. On June 7, 2004, the Company and NTP each made oral submissions before the Court of Appeals for the Federal Circuit.
On December 14, 2004, the Appeals Court ruled on the appeal by the Company of the District Court's judgment. The Appeals Court concluded that the District Court erred in construing the claim term “originating processor”, which appears in five of sixteen claims within NTP's patents, but did not err in construing any of other claim terms on appeal and affirmed the remainder of the District Court's claim constructions. The Appeals Court further concluded that the District Court correctly found infringement under 35 U.S.C. section 271(a), correctly denied the Company's motion for judgment as a matter of law and did not abuse its discretion in three of its evidentiary rulings.
The Appeals Court decision would affirm-in-part, vacate-in-part and remand certain matters for further proceedings. RIM has filed a petition for rehearing that is still pending in the Appeals Court.
During the fourth quarter of fiscal 2005, the Company and NTP entered into negotiations, which concluded with both parties signing a binding term sheet on March 16, 2005, that resolves all current litigation between them. As part of the resolution, NTP will grant RIM and its customers an unfettered right to continue its BlackBerry-related wireless business without further interference from NTP or its patents. This resolution relates to all NTP patents involved in the current litigation as well as all current and future NTP patents. The resolution covers all of RIM's past and future products, services and technologies and also covers all customers and providers of RIM products and services, including wireless carriers, distributors, suppliers and ISV partners. Under the terms of the resolution, RIM would have the right to grant sublicenses under the NTP patents to anyone for products or services that interface, interact or combine with RIM's products, services or infrastructure. The resolution permits RIM and its partners to sell its products, services and infrastructure completely free and clear of any claim by NTP, including any claims that NTP may have against wireless carriers, ISV partners or against third-party products that use RIM's BlackBerry Connect/BlackBerry Built-In technology.
RIM will pay to NTP $450 million in final and full resolution of all claims to date against RIM, as well as for the NTP license going forward. The agreement fell apart.
RIM has been aggressively challenging five of NTP's eight patents covering the patented technology. The director of the Patent Office has ordered reexamination of these five NTP patents, which were also the subject of anonymous challenges.
The U.S. Patent and Trademark Office has spent month re-evaluating several of the disputed patents. The USPTO has indicated that it intends to reject all of NTP's claims eventually, in which the case would be null and void, and RIM officials have remained publicly positive that this will happen.
However, industry experts said the USPTO process could take several months if not years, though, as NTP has voiced plans to appeal every decision it can. Judge Spencer has said he does not intend to wait for the Patent Office before he issues a final ruling.
On Jan. 23, the Supreme Court refused to hear RIM's appeal to stay the case pending the Patent Office's decisions. On Jan. 25, Judge Spencer set a Feb. 24 hearing date in the Eastern District Court of Virginia to consider a possible injunction that could shutter BlackBerry service.
NTP has secured patent licensing deals with several of RIM's competitors in the remote access software industry, including Nokia in June 2004, Good Technology in March 2005 and Visto in Dec. 2005.
Last year, RIM tried to enlist the help of Congress to stave off NTP's infringement claims, contending that keeping BlackBerries in operation was in the interest of national security. After the terrorist attacks of September 11, 2001, Congress ordered BlackBerries for all members and many staff members to facilitate communication during a national emergency. While cellphone lines were jammed during 9/11, BlackBerry owners found it easy to send and receive messages during the crisis.
On December 19, 2005 Jim Balsille, RIM Chairman and co_CEO, wrote an editorial which appeared in the Wall Street Journal which said in part
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“It's not about industry standard negotiating practices. RIM has licensed thousands of patents and fully respects intellectual property rights. RIM has paid tens of millions of dollars to many American patent licensors, including both small and large patent holders. In stark contrast to NTP's patents and demands, however, these royalties are typically 0.5% or less for patent portfolios containing hundreds of internationally recognized and uncontested patents.
It's not about legitimacy. Based on recently revised and significantly more rigorous re-examination procedures, the USPTO has now soundly rejected all of NTP's patents on at least three distinct grounds in its rulings. The USPTO has also issued several follow-on rulings that describe NTP responses to its re-examinations as "unpersuasive," and is expected to finalize its rejections very soon. It's not about entitlement. NTP continues to focus on an unusually high royalty rate (5.7%) granted by a jury during the original trial despite the fact that the Court of Appeals vacated that damages award and strong legal arguments remain in support of a significantly lower royalty rate. NTP also chooses to ignore the Supreme Court's recent decision to review the MercExchange v. eBay case and the circumstances in which injunctions are granted.” |
| “No, it's not about legitimacy, fairness, entitlement or anything described above. It's about greed. It's about a willingness to abuse the overburdened patent system for personal gain. The NTP lawyers have been blinded by their ambitions to the point where they turned down one of the largest settlement offers in history and a royalty rate that is 10 to 20 times higher than industry norms for uncontested patent portfolios.” |
On February 1, 2006 RIM issued a statement characterizing a recent ruling by the USPTO as “maintaining the outright and complete rejection of all claims in the '592 Patent, which includes five of the seven claims that RIM was ruled to have infringed by the Court of Appeals for the Federal Circuit in August, 2005. In addition the ruling confirmed that no grounds for patentability of the '592 Patent were found by the Patent Office in the course of its reexamination.” And “In all of the Patent Office rulings to date relating to the reexamination of all eight of the NTP patents, NTP's arguments on the merits of patentability have been rejected by the Patent Office.”
On February 9, 2001 RIM announced workaround contingency. RIM has incorporated the workaround designs into a software update called BlackBerry Multi-Mode Edition that has been developed and tested as a contingency. RIM has also filed new patent applications with the Patent Office to cover its workaround designs. BlackBerry Multi-Mode Edition is so named because the software is capable of operating in different modes that can be remotely activated by RIM through its Network Operations Center (NOC). In the absence of an injunction, the software and the underlying message delivery system can continue to run in “Standard Mode” (identical to the manner in which the current BlackBerry software and system operate) and the workaround will remain dormant. In the event of an injunction, RIM is able to remotely activate “US Mode” via its NOC and the workaround designs would automatically engage for each handset containing the Multi-Mode Edition software update.
According to RIM “Although the development of this modification required substantial R&D effort from RIM and would require software updates in the event of an injunction, RIM has ensured that the industry leading functionality, performance and user experience remains intact." The firm also said that it has received a confidential and privileged legal opinion confirming that RIM's software workaround designs do not infringe any of the NTP patent claims remaining in the litigation.
On February 24th RIM confirmed today that it has received a copy of a Final Office Action issued by Patent Office in the ex parte reexamination of NTP, Inc. Patent #5,436,960. This Final Office Action maintains the outright and complete rejection of all claims in the patent. All of the 3 patents remaining in dispute in the NTP vs. RIM litigation have now been rejected based in part on prior art not considered in the 2002 trial in the United States District Court for the Eastern District of Virginia.
A hearing was scheduled for February 24. The Judge had said he was unwilling to delay his proceedings while awaiting final word from the patent office. Speculation on the possible outcome is rampant. Observers of this four year long drama are expecting Judge Spencer to issue some sort of injunction although probably not on the data of the hearing. The question will be when, for how long and how broadly it's imposed. NTP, of course, wants a broad injunction. RIM is asking the court not to impose an injunction on devices that have already been sold. The company argues that because of the jury verdict, it already has an implied license with NTP on these devices, and so they shouldn't be covered by an injunction.
At the hearing NTP, Inc. asked the judge to award it $126 million in damages and issue an injunction against the maker of the popular BlackBerry wireless e-mail service for violating its patents.
RIM is clearly not an EDA firm. However, it is a significant user of EDA products. It employs 3,555 people. Of this number 1,000 are engineers in its R&D organization focused on areas such as antenna design, RF engineering, industrial design and software engineering. They also have a significant manufacturing operation.
Why then should we be interested. This well publicized legal drama is perhaps the classic example of what is wrong with the current operating philosophy of the USPTO. Knowing that the organization has insufficient personnel to properly investigate each patent application in true detail, it has opted for issuing patents and letting those impacted challenge their validity. Of course with the office's limited resources any challenge can itself be very lengthy and costly. Also many patents that are granted are seen as overly broad. Just as firms who are the target of nuisance lawsuits often settle to avoid the cost, distraction and bad public relations, targets of patent suits often pay licensing fees rather than challenge what they consider to be improperly granted patents. This acquiescence then gives credence to the patent claims that can be leveraged in subsequent lawsuits.
In this case at one point RIM was willing to pay $450 million, roughly one years revenue at the time, for licensing patented technologies from NTP whose patents RIM considered to invalid. The court was impatient and stated unwillingness to wait until the legitimacy of the patents could be determined even when the USPTO issued non-final positions that the patents would be likely found invalid. Many legal observers were critical of RIM for not settling sooner.
EDA and semiconductor firms are on both sides of this issue. They clearly want strong government protection of their intellectual property which is often their principal asset. They seek Washington influence to get similar protections around the globe notably in China. EDA firms aggressively defend their patent rights in the courts. For example, Magma and Synopsys are currently embroiled in a patent suit. On the other hand it is not in the industry's best interest to have patent firm running around seeking licensing fees for overly broad and likely invalid patents.
In a filing with the Supreme Court, Intel's lawyers said the company is torn. As an investor of billions of dollars into research and development, the company is among the nation's leaders in obtaining patents and wants to protect itself against infringement.
At the same time, Intel also is frequently accused of infringement and wants clearer rules that protect it from small patent-holding companies that have little infrastructure and produce no products.
Regardless of the outcome of the February 24th hearing, the RIM vs NTP will likely drag on in the courts for some time. The resulting legal precedent as well as the length and the cost of the legal battle will greatly influence how firms respond in the future to any similar situation.
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