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Settlement rejection could squish BlackBerry

A judge rejected a settlement offer in NTP Inc.'s patent infringement case against BlackBerry maker Research In Motion. The decision, and a possible injunction, could force RIM to shut down service in the U.S.

If BlackBerry maker Research In Motion Ltd. was forced to shut down service in the United States, the ramifications for users could be catastrophic, some experts said.

Waterloo, Ontario-based RIM teetered on the brink of a service ban yesterday when it was dealt a massive blow in a four-year-old patent infringement case with Arlington, Va.-based NTP Inc. Presiding U.S. District Court Judge James Spencer refused to delay the case until the U.S. Patent and Trademark Office (USPTO) makes a decision of its own. Spencer also rejected a $450 million settlement RIM had offered NTP in March, saying the two companies never reached a valid agreement.

The settlement would have ended four years of litigation that started when NTP accused RIM of infringing on NTP's patents in late 2001.

Though RIM would not comment on the judge's decisions, the company said in a statement it plans to appeal.

Judge Spencer is still considering a request by NTP to proceed with an injunction that would stop U.S. BlackBerry sales and shut down its service. The judge said he would request briefs and set a hearing date to weigh outstanding issues.

An injunction that would shut down BlackBerry service would leave countless U.S. companies that have come to rely on BlackBerry's mobile e-mail in the lurch. They would be forced to go without service or seek other options.

A BlackBerry service shutdown "would paralyze [users]," said Daniel Taylor, managing director of the Mobile Enterprise Alliance, commenting on the impact a U.S. shutdown would have on large organizations and small companies that rely on BlackBerrys for business. "An IT manager can deal with a breakdown of the system, but what if you can't use the system you set up?"

Kathryn Weldon, principal analyst of enterprise mobility with Sterling, Va.-based research firm Current Analysis, agreed with Taylor that a shutdown would be calamitous.

"Clearly, if their NOC [Network Operations Center] shuts down and 3 million end users are without service, that would be a disaster," she said.

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 Weldon, however, doesn't foresee a scenario in which RIM would cut off service to existing users without warning.

But a suspension or ban of service could ultimately signal RIM's doomsday. RIM shares were halted for nearly two hours on the Nasdaq yesterday in anticipation of an announcement, and when trading resumed, the shares had tumbled.

"They're a goner," Taylor said. "It's going to take a lot of wind out of RIM's sales."

Still, over the years many RIM users have grown accustomed to the uncertainty created by the back and forth litigation process that one day favors RIM, but favors NTP the next.

"I knew this was going to happen, I just didn't expect it to happen so soon," Taylor said. "From everything I've seen about this case, it looks like NTP has RIM dead to rights."

In a statement yesterday, RIM said it has been preparing software "workaround" designs, which it would implement if a shutdown was enforced. Details of the workaround will not be released unless such an implementation becomes necessary. A workaround would keep RIM services up and running if a judge forced a shutdown.

But a suitable workaround would require "every single company with a BlackBerry Enterprise Server to basically reinstall their software," Taylor said.

The threat of a RIM shutdown could also force BlackBerry users to seek alternatives from companies like Visto, Good Technology and Intellisync, which offer similar features to BlackBerry's mobile e-mail.

"Every single company could be looking for another solution," Taylor said. "This sort of thing is going to make companies think. The next time you purchase, you're not going to go with BlackBerry."

An IT manager can deal with a breakdown of the system, but what if you can't use the system you set up?
Daniel Taylor
Managing DirectorMobile Enterprise Alliance

 Bob Egan, research director of the emerging technologies research service at consulting firm TowerGroup, said in a statement that "the court's ruling could have a significant impact on the financial services industry -- given its heavy use of mobile e-mail and sales force automation to support time-sensitive business transactions and day-to-day management."

Needham, Mass.-based TowerGroup estimates the financial services industry represents 8% of BlackBerry users.

While Egan said a ruling in NTP's favor could mean an immediate shutdown of BlackBerry service, TowerGroup predicts RIM and NTP will reach a revised settlement by year's end that is worth between $750 million and $1 billion.

"This settlement could ultimately translate into a higher cost of ownership for financial services institutions and other enterprise IT companies dependent on the BlackBerry channel," he said.

Conversely, Todd Kort, principal analyst with Stamford, Conn.-based Gartner Inc., referred to yesterday's U.S. District Court action as a "minor ruling," which is creating unnecessary alarm.

"I don't know that the ruling was particularly monumental," he said. "I'm also one of the few that believes RIM is going to win this case."

Kort said Gartner is telling clients not to panic, but to look into possible BlackBerry alternatives in case a shutdown is ordered. He added, however, that many BlackBerry alternatives would not be "palatable" to existing users.

Kort said Judge Spencer's decision to not wait for the USPTO to make a ruling was shortsighted, and the USPTO will find that RIM did not infringe upon NTP's patents.

"If there ever were an injunction issued, I don't think overnight the switch is going to be turned off," he said. "BlackBerry users are going to get better warning; the judge is going to give a buffer. The dire circumstances that some people have painted, I don't think it'll get to that point."

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