BlackBerry maker Research In Motion Ltd. suffered another serious legal blow in its battle against patent holding company NTP Inc., a move that increases RIM’s total litigation bill to almost $60 million.
Following a jury decision late last year that found RIM guilty of infringing on NTP’s patents, the Richmond, Va., federal court added millions to the damages RIM must pay NTP as a punishment. The court cited numerous reasons for its decision, including RIM’s “questionable litigation tactics” and the company’s apparent decision to continue infringing on NTP’s patents.
The ruling comes after the court ordered RIM and NTP to attempt to reach a settlement, negotiations that seem to have failed in light of the court’s ruling. Lawyers for both companies declined to discuss the court-ordered mediation, however.
In its ruling, the court highlighted several key points in the case. It said RIM likely developed its technology independently of NTP’s patents, but it said RIM’s later research into NTP’s patent claims was “inadequate.” The court said RIM’s numerous trial motions only served to slow the case, and that a particular demonstration of its technology was designed to “confuse and mislead the jury.” The court also pointed out that although RIM has stated its intent to modify its technology so as not to infringe on NTP’s patents, such efforts apparently have led nowhere. And perhaps worst of all, the court wrote that “RIM’s infringement was clear. Indeed, it offered no real defense to NTP’s infringement case at trial.”
As in other rulings, RIM declined to comment on the subject.
Investors bemoaned RIM’s further legal losses, sending the company’s stock down about 11 percent to $17.80 per share following the news. Investment analysts also seemed disheartened at the news, with JP Morgan and BMO Nesbitt Burns downgrading the company.
“We expect the risk of legal issues to linger,” wrote BMO Nesbitt Burns in a research note.
Although the court sought to punish RIM by increasing the company’s litigation costs, it did not order the maximum penalties. The court ruled that compensatory damages be increased by 50 percent (instead of tripling the number, as NTP asked). The court also ruled that RIM pay for 80 percent-or about $5 million-of NTP’s legal expenses (instead of the full 100 percent). RIM said it would record an incremental accounting provision of between $13.75 million and $14.25 million to account for the increased damage charges.
The court also upped the royalty rate RIM must pay NTP from 5.7 percent to 8.55 percent, a move that surprised some industry watchers. RIM said it will increase its total accounting provision in the first quarter of next year to between $8 million and $9 million as a result.
A RIM lawyer confirmed the company would appeal the court’s decision.
Several key legal issues remain in the case-the most notable of which is a possible injunction. NTP is asking the court to order RIM to stop selling its products and services in the United States, which would represent a major blow to RIM’s business. The court is expected to rule on the issue in the next two to four weeks, and either could rule for an immediate injunction or one that would take effect if RIM is unsuccessful in its appeal. An appeal would likely last a year or more.
Another major issue in the case involves a re-examination of some of NTP’s patents. The U.S. Patent and Trademark Office said it will re-examine five of NTP’s patents that were under consideration in last year’s court case. However, the re-examination comes after the court case, which means that it may have little bearing on the eventual outcome of the legal battle between the two companies. A patent office re-examination can take as long as a year and a half.
“That may alter the stages, and the way the whole case is approached,” said Erik Belt, a partner with the law firm Bromberg & Sunstein L.L.P., who deals with patent issues.
For its part, NTP in a press release expressed confidence it would win an appeal and that the patent re-examination wouldn’t affect the case. The company, which does not operate a manufacturing business, is looking toward the eventual end of the legal proceedings and a possible licensing deal with RIM and other companies.
“In the event that NTP prevails on appeal, NTP has made no decisions at this time concerning whether and on what terms and at what royalty rate NTP might be willing to discuss a license agreement with RIM,” NTP said in a statement. “Should a license with RIM be considered, it will necessarily be constrained by any applicable terms of intervening licensing arrangements entered with other parties.”
