Research in Motion Ltd has announced that it will pay $612.5m to settle all patent-infringement litigation with patent house NTP Inc, which threatened to shutter RIM’s BlackBerry service in the US.
The deal means final settlement of all claims against RIM and a US court has dismissed all claims against the company. The settlement also is a one-off payment for a perpetual NTP license going forward.
It’s very important that we got the scope we wanted, said RIM co-CEO James Balsillie, on a conference call. This scope relates to all NTP patents and it covers all of RIM’s products and services and technologies.
The deal also means that if US Patent and Trademark Office eventually rules invalid the contested NTP patents, RIM will not be refunded its money. There is no provision for the PTO re-examinations, Balsillie said. We have no contingency for that simply because this is a full and final settlement.
Just last month, the PTO issued its final rejections of two of five NTP patents, having already issued preliminary rejections of all the patents, which relate to technology for sending emails wirelessly to a mobile device.
Balsillie has reiterated several times that the court handling the case had made it clear that it would not delay its proceedings to wait for the agency’s final decision.
There’s no question it was surprising and disappointing that the court apparently wasn’t going to put much weight on the final action of the PTO, he said.
While RIM previously said the PTO’s rejection of the patent would withstand all future appeals by NTP, Balsillie said that RIM settled with NTP in the best interests of its customers and partners.
We fundamentally did this for the industry, he said. There’s no question we took one for the team here. At the core, [the settlement] is just over $3 a share and from that respect it sounds like a prudent thing for the company.
News of the deal sent RIM shares up more than 18% to $82.50 in after-hours trading on the Nasdaq. Previously, some industry watchers had pegged a settlement amount of as much as $1bn.
While RIM’s chief repeatedly said that not one single customer, not one single carrier decommissioned or strayed from the company during the litigation, it was clear he was fundamentally soured by the process. After all, if the PTO rules, in one or two years’ time, that NTP’s patents are invalid, RIM has no recourse.
No, it’s not a good feeling to write this kind of check, because it’s a lot money, Balsillie said. There’s no question you don’t feel good about it.
While he said the US would undoubtedly overhaul its patent laws in the near future, RIM has been caught in an ambiguous time before such time.
Waterloo, Ontario-based RIM also updated its earnings guidance for its fourth quarter ending March 4. The company had already accrued $450m for a previous settlement, which was dismissed as invalid in late November by a court. NTP had maintained the $450m settlement with RIM, which was brokered in mid-March, was never finalized.
Of course, had RIM’s attempts to uphold the settlement been successful, the company would be $162.5m richer. Instead, that amount will be recorded in the company’s fourth quarter earnings.
And enterprise customers held off on ordering BlackBerrys to a greater degree than RIM had expected. As a result, revenue growth in the current quarter would be flat and in the range of $550m, which is lower than the $590m to $620m estimate given in December. A year ago, during the same quarter, the company posted $404.8m revenues.
Customer concerns about a potential service shutdown mostly affected software and hardware revenue. BlackBerry subscriber rates were down more than RIM had expected, said CFO Dennis Kavelman.
Enterprise accounts in North America held off on BlackBerry rollouts due to the threat of an injunction, he said on the call. There were numerous reports of companies testing alternative solutions but we found they weren’t switching, they were just holding off on expanding or rolling out until this uncertainty was lifted.
New subscriber accounts are expected to be from 620,000 to 630,000, which is below the 700,000 to 750,000 range RIM guided in December.
This spells lower-than-expected earnings in the current quarter, of between 64 cents and 66 cents. RIM had forecast earnings per share of 76 cents to 81 cents.
While RIM doesn’t have any ongoing royalty payments to make to NTP, its legal worries may not be over.
The company’s shareholders may retaliate with potential lawsuits. Stockholders could argue that if RIM had settled with NTP years earlier it would have saved a significant amount of time and money that it spent fighting NTP’s claims.
Balsillie said he had spent probably a good 25% of my time on the litigation, so that’ll free up a day and a bit a week to really work on our stuff.
He told analysts on the call to expect a raft of new product launches and partnerships during the next 30 days to 60 days, which had been pent up pending resolution of the litigation.
RIM also is tangled up with intellectual property rights issues with Eatoni Ergonomics Inc, a New York-based text-entry software maker for handheld devices.
The legal spat between the RIM and Arlington, Virginia-based NTP NTP dates back to November 2001, when NTP first sued RIM. On year later, a jury decided that RIM had indeed infringed NTP patents. The Federal Circuit US Court of Appeals upheld part of the jury’s finding.
The case has since ploughed through various courts without resolution. US District Court hearings for NTP’s request to shutter RIM’s BlackBerry service and sales in the US began on February 24.