BlackBerry maker Research In Motion Ltd. (RIM) has coughed up more than a half-billion dollars to NTP Inc. to protect itself and its partners from any future patent infringement claims.
The settlement, announced late Friday, comes nearly five years into a vexing court battle in which Virginia-based NTP claimed RIM stole NTP's patents to create its widely popular and often addictive BlackBerry mobile push e-mail platform.
But on Friday, Waterloo, Ont.-based RIM gave NTP $612.5 million cash "in full and final settlement of all claims against RIM, as well as for a perpetual, fully-paid up license going forward," RIM said in a statement on the company's Web site.
"The settlement is a win-win deal, though it is very painful for RIM, and it proves that our patent system is completely broken," said Avi Greengart, principal analyst of mobile devices for Sterling, Va.-based Current Analysis. "NTP gets $612 million for coming up with a fairly obvious idea, patenting it and suing a company too arrogant to settle early on."
Daniel Taylor, managing director for the Mobile Enterprise Alliance, agreed, half-joking, "I think the cost of arrogance today is about $612.5 million."
As part of the settlement agreement, NTP gave RIM an "unfettered right to continue its business," RIM's statement said. It also allows RIM and its partners to continue selling BlackBerry products and services completely free from any future claims by NTP. According to Taylor, one of the reasons RIM did not settle sooner was to ensure that its partners were protected from legal action.
NTP originally filed suit against RIM in late 2001, and in 2002 a jury found in NTP's favor. A lengthy appeals process followed, leading to a proposed $450 million settlement between the two companies, which later fell apart. Friday's settlement is $162.5 million more than the initial agreement, but shy of the $1 billion settlement many experts anticipated.
The settlement came exactly one week after U.S. District Court Judge James Spencer declined to immediately enforce an injunction that would have shut down BlackBerry sales and service in the U.S. NTP asked for the injunction until the battle could play out to completion in the courtroom.
The threat of a shutdown sent the country's roughly 3 million BlackBerry users into a panic, prompting some to seek out alternative services. RIM also announced last month it had created BlackBerry workaround software that users could install to avoid a service disruption. Friday's settlement makes the workaround unnecessary.
The decision to settle
Many experts are questioning why RIM would settle, especially since the U.S. Patent and Trademark Office (USPTO) has issued final rulings rejecting most of NTP's patents, which were the heart of its claims against RIM. RIM was also vocal about not planning on settling.
Less than 24 hours before RIM was due in court to hear the decision on a possible injunction -- which was ultimately delayed -- co-CEO Jim Balsillie called NTP's claims "ridiculous" and "crazy" during a speech at the RBC Capital Markets Communications, Media and Technology Conference in British Columbia.
"All [NTP] is trying to do is jig a timing game, because these patents will go in the garbage," he told the crowd; later adding, "These patents are going to die."
Taylor pointed out, however, that the patents must not have been garbage, since "in the end [RIM was] willing to pay $612.5 million to settle those patents."
Greengart said regardless of how the USPTO dealt with the patents, RIM had to make a decision. The air of uncertainty was making customers nervous and investors and shareholders anxious.
"By not accepting last year's $450 million settlement offer, [NTP] basically doubled down its bet, gambling that RIM would cave before the USPTO threw out its patents for good," he said. "NTP won that bet, to the tune of $162 million extra. The settlement also states that NTP gets to keep the money even when the challenges to the USTPO's rejections run out. If I was running a casino, I'd bar these guys from entering."
The potential for overturned patents and even lengthier court processes could be what led to some of the terms of the settlement that are in RIM's favor, experts said. Those terms include NTP's agreeing to not go after RIM partners, carriers and vendors implementing BlackBerry or BlackBerry Connect services. Also, NTP settled for cash, with no future royalties.
"As a one-shot deal; this frees RIM to go back to its business without any further complications," Greengart said.
Jack Gold, principal and founder of J.Gold Associates, a Northborough, Mass.-based analyst firm, agreed, saying both RIM and NTP can see themselves as victorious. Now, Gold said, RIM can continue on without fear of future retribution and without having to pay royalties, while NTP gains a "fat war chest" of cash. "Everyone gets something out of the deal," he said.
Taylor said he looks at it differently. The settlement is neither a victory for RIM nor NTP. Instead, he said, the real winner is the mobility industry.
"Everybody who works with mobility, everybody who uses a mobile tool is the victor here," he said, adding that the settlement is a way "for this industry to really move forward and move beyond mobile e-mail."
Opening the door for competition
Despite calling the deal a "win-win" situation, experts say RIM focusing so much attention on a court case opened the door for other mobile e-mail vendors to challenge BlackBerry for the top slot.
Kathryn Weldon, also with Current Analysis, said RIM's settlement was a way for the company to return to business as usual without the distraction of a looming court battle and possible blackout.
"RIM badly needed to put all this behind them and get on with business or ultimately lose a whole lot of momentum and customers which was already beginning to happen," she said. "With Microsoft and enterprise handset vendors stepping up with less expensive and, in many ways, more functional solutions to the BlackBerry, they could not afford to wait any more."
Weldon said the lengthy court battle gave other vendors time to adapt their technologies to become better competitors.
"RIM wins, but I believe competitors have made good headway during this battle," she said. "Of course I think those competitors would have made progress regardless – the BlackBerry itself is somewhat of an outdated handset and Microsoft, Visto, Seven, Good [and other vendors] can provide push e-mail less expensively and their management capabilities are getting much stronger."
Gold said the settlement now creates a new set of hurdles for RIM, which needs to revamp its business in order to survive the intense competition that got even stronger by capitalizing on the court case.
Taylor, of the Mobile Enterprise Alliance, said he expects RIM to flood the market with new products in the coming months. But that could be too late to patch the wounds opened by the widely public courtroom drama.
"By fighting this case so publicly, RIM has given their competition six to 12 months of a head start," he said. "By loosening RIM's stranglehold of the market, it's ultimately going to move the market forward."