Tuesday, June 14, 2005

Forbes on breakdown of Blackberry settlement

from Forbes via International Herald Tribune:

Research in Motion's BlackBerry device long ago became a crucial communication tool for employees of Turner Broadcasting System.

So the possibility that the wireless e-mail service could be shut down in the United States a prospect that again emerged last week after the collapse of a settlement between Research in Motion and a small patent holding company was not welcomed by Turner employees or other users of the popular device.

Turner Broadcasting has a contingency plan to switch employees to another wireless e-mail service, but the process will leave many of them without service for about two to three months.

For three and a half years, patent claims by NTP, which is based in Arlington, Virginia, have been a cloud over Research in Motion, based in Waterloo, Ontario. But the announcement last week that a $450 million agreement reached in March was unraveling came at a particularly delicate time.

In a court filing that followed, the privately held NTP indicated that if the settlement cannot be revived, it plans to invoke an injunction banning sales of BlackBerries and their e-mail service throughout the United States.

That injunction, which was put on hold during an appeal by RIM, has grown more powerful with time. After years of having the wireless e-mail market more or less to itself, RIM now faces competition from hardware makers like Palm Computing and software vendors including Seven Networks, Good Technology and Visto.

For now, a shutdown of Research in Motion in the United States, where the company gets about three-quarters of its revenue, is far from certain. But the renewed legal uncertainty is almost toxic for some members of the investment community.

Pablo Perez-Fernandez, a senior analyst at ThinkEquity Partners in San Francisco, suggested on Friday that RIM investors "liquidate" their holdings. He slashed his target price on its stock, to $60 from just over $120. The shares closed on Friday at $72.02

"Until the legal issues get resolved, investors probably have better places to park their money," Perez-Fernandez said.

The focus of the current fight between the companies is a document about half a page long that they signed on March 12 after three days of mediation.

As James Balsillie, the chairman and co-chief executive of Research in Motion, describes it, his company believed that in exchange for $450 million, it would be granted a perpetual and unrestricted license to NTP's patents. "It allows us to write a check and get along with our regular business," he said.

James Wallace Jr., a lawyer for NTP, said that Balsillie's reading of the terms of the agreement was not correct. Wallace blamed RIM's impatience for the current impasse. "When you have a half-page term sheet, it's not unexpected that you would have a dispute later on about what it means," Wallace said.

Interviews with people close to the talks who, citing confidentiality agreements, requested that their names not be used and a court filing made by NTP last week indicate that the dispute focuses on the scope of settlement.

According to some of the people close to the talks, NTP, a company that was created to enforce and license a series of wireless patents granted to one of its co-founders, began asking for additional payments. Among other things, one person said, it wanted partial compensation for the increase in value of RIM's stock after the March settlement announcement.

Last Tuesday, the final sticking point for Research in Motion emerged. NTP indicated at a meeting that the deal did not cover any wireless e-mail technologies that RIM had developed and introduced after the start of its lawsuit. That, according to one person, would mean payments from RIM of $100 million to $200 million a year

Donald Stout, an intellectual property lawyer and a co-founder of NTP, rejected suggestions last week that the company was bluffing about invoking the injunction. Still, NTP is a long way in the legal process from being able to do that. Research in Motion has asked a court to stay the appeal so that it can ask another federal court to impose the March settlement under what it understands to be its terms.

But even if the injunction is enforced, users have little to fear, according to Balsillie. For several years, he said, RIM has been developing separate software and systems that its lawyers believe cannot be challenged by NTP. "Can RIM be turned off?" Balsillie asked. "I can't see that happening."


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