Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Somewhere along the way, in the six years since Research in Motion Ltd. introduced the BlackBerry, the e-mail message device became the company’s destiny. Just when that happened is hard to pin down. Maybe it was on Dec. 20, 2000, when RIM issued a press release noting that the BlackBerry had proved itself as “the clear leader in wireless e-mail.” It could have been Sept. 11, 2001, when the BlackBerry served as Congress’s de facto emergency communications system. Then there was Feb. 3, 2004, when RIM announced that the BlackBerry had 1 million subscribers — and counting. Whatever the moment of truth, the BlackBerry was clearly a big hit by Aug. 5, 2003, when a federal court injunction in a patent infringement suit threw RIM’s future in disarray. The injunction, which U.S. district court judge James Spencer issued in Richmond, Va., threatened to knock the BlackBerry out of the U.S. market. Worse, RIM’s tormenter was not IBM Corp., Motorola Inc., or some other tech behemoth but NTP Inc., an obscure patent-holding company in northern Virginia. When a company’s flagship product is imperiled by an injunction, the pressure to settle quickly is intense. By early 2002, the BlackBerry accounted for 54 percent of RIM’s sales, a proportion that was rapidly increasing. And RIM’s business in the United States was then generating four-fifths of the company’s revenue, according to securities filings. Yet almost 3 1/2 years elapsed between Nov. 13, 2001, when NTP filed suit, and March 16 of this year, when RIM announced that it would pay NTP “up to” $450 million — one of the largest patent infringement settlements ever. The settlement came on the heels of a series of stunning blows to RIM. Judge Spencer had ruled against the company on crucial pretrial issues, and a jury had found that RIM had willfully infringed all five of the NTP patents in question, awarding NTP $51.6 million. Spencer issued the injunction in 2003 (it was stayed pending RIM’s appeal). In 2004 the U.S. Court of Appeals for the Federal Circuit upheld the heart of the verdict, although it did reverse one of Spencer’s jury instructions relating to a minority of NTP’s patent claims. Then this summer, after taking the unusual step of rehearing the case, the appellate court issued a 74-page opinion, covering all 16 of the patent claims at stake in the suit. The court reaffirmed its finding that six claims were infringed, ruled that seven others were not, and remanded the case to Spencer for further deliberations on the remaining three. The upshot: RIM was once again at risk of an injunction. Under the settlement agreement, NTP relinquished its patent rights in the BlackBerry technology. Some of the settlement terms were incomplete, however, and a RIM press release at the time said that the parties were still “finalizing” a definitive agreement. That proved difficult. By June the accord had come unglued, and RIM and NTP were back in court. RIM accused NTP of demanding more favorable terms than the March settlement provided, and sought court enforcement of what the company called a “binding” agreement. NTP said there was no final agreement to enforce and brandished, once again, the threat of an injunction. That the case did not settle long ago baffled Spencer. At a hearing on Feb. 25, 2003, three months after the jury’s verdict, Spencer expressed surprise that the case was still before him “because, frankly, I never thought the case would make it to trial,” he said. The judge proffered a theory: “It seems to me that some of the folk took it personally, and that’s how it got this far.” NTP, which has no employees and an address in a law firm’s office in McLean, Va., had been willing to talk settlement all along, according to Donald Stout, the company’s former president and a partner in Antonelli, Terry Stout & Kraus, a ten-lawyer intellectual property boutique in Arlington, Va. But, according to Stout, RIM turned a cold shoulder to talks from the start, he says: “We were always surprised that RIM didn’t want to explore settlement. We had a very preliminary discussion after the suit started. They offered us nothing, so we said, ‘Here we go.’” Perhaps RIM wasn’t interested in settling the case until after the trial and appeal. The company may have doubted the validity of NTP’s patents, a belief that the Patent and Trademark Office has reinforced by ordering a re-examination of the patents. In preliminary findings the PTO has ruled that four of the five patents at issue in the suit are invalid. Still, RIM’s brinksmanship seems a high-stakes gamble. Because RIM has remained silent about its strategy, the reasons for its apparent disinterest in an early settlement are a matter of conjecture. RIM and the two powerhouse firms that represented it, Jones Day and Howrey Simon Arnold & White, declined comment “due to confidentiality restrictions,” a spokesperson said. (Howrey Simon, which deployed star partner Henry Bunsow as lead counsel, joined the defense team after the trial.) Pride of authorship could explain why RIM balked at settlement talks early on. No one has accused the company of copying NTP’s technology, but the very suggestion that another inventor might have beaten RIM to the punch in pioneering wireless e-mail technology could have gotten RIM’s dander up. Two Canadians, Mike Lazaridis and Douglas Fregin, founded RIM in Waterloo, Ontario, a small city located an hour’s drive west of Toronto, in 1984. Buddies in high school, they were so engrossed in a project to invent an advanced teleprompter that they worked late into Christmas Eve one year in Fregin’s basement, Lazaridis testified at the NTP-RIM trial. Lazaridis studied electrical engineering and computer science at the University of Waterloo, but dropped out in his senior year during a recession to start RIM because he said he wanted to create jobs. Work on the BlackBerry began serendipitously in 1989, when RIM rigged up some Hewlett-Packard palmtop computers as wireless e-mail devices for the Canadian company’s employees. During the past 16 years Lazaridis and his design team have achieved many technical coups in developing and perfecting the BlackBerry — notably, devising a low-power technology that combined the features of a radio-frequency receiver and electronic processor, and could run on one AA battery. With 3.1 million subscribers, the BlackBerry has attained an iconic, jet-setter status. RIM’s sales last year totaled $1.35 billion. Next to RIM, NTP is a mere wisp of an operating enterprise. The key inventor behind NTP’s patents, Thomas Campana Jr., lived in the Chicago area and owned a small electrical engineering company, ESA Telecommunications. Campana, who died of liver cancer in June 2004, was a “very talented communications engineer,” says James Wallace Jr., NTP’s lead lawyer in the BlackBerry case and a partner at 250-lawyer Wiley Rein & Fielding, which has offices in Washington, D.C., and McLean. In the 1980s Campana developed multifrequency pagers, but like all other handheld devices at the time, Campana’s pager could not handle e-mail. The inventor set to work creating a system to deliver e-mail through paging networks. In 1991 Campana applied for three patents, which described the first so-called push delivery of wireless e-mail, according to Wallace. That is, Campana’s system could push e-mail to a recipient’s wireless handheld device, avoiding the necessity, say, of a laptop hookup to the Internet that would “pull” them. Campana’s device could not send e-mail, only receive it. NTP, a privately held company that Campana and Stout founded in 1992, holds eight patents related to wireless e-mail, including the initial three and five others derived from them. “It’s a virtual company,” Stout says of NTP. “Its sole business is the licensing of intellectual property.” Before the verdict upholding NTP’s patents, however, NTP had secured no licensing deals. (Nokia Corp. and Good Technology Inc. have obtained licenses this year.) In contrast, RIM had the bulk of the $109 million raised from its initial public offering in 1997 still on hand when NTP brought suit four years later, and RIM was virtually debt-free. A classic tactic in a patent infringement case where a deep-pocketed defendant is sued by a poorer plaintiff dictates that the former drag out the proceeding as long as possible. The idea is to spend the plaintiff into the ground and force a settlement on favorable terms for the defendant. As long as the defendant can hold the threat of an injunction at bay, the biggest downside is the possible payment of a reasonable royalty for use of the plaintiff’s patents. “From a defendant’s standpoint,” Wallace explains, “if you can get into a district where the docket is very slow, go years and years, well, [the defendant] can basically stretch it out and avoid the threat.” If that was RIM’s strategy, however, it appears to have backfired. True, the litigation exacted a high cost from the plaintiff — $5.2 million in attorney fees by early this year, plus $1.2 million in out-of-pocket expenses, according to court records. But NTP found a way to spread the burden. A syndicate of investors, including many of NTP’s 24 stockholders, financed the out-of-pocket expenses, and NTP’s lawyers worked on a contingency basis, according to Stout. RIM, meanwhile, was shelling out far more. By May of this year, the tab for its litigation-related fees, aside from the $137 million escrowed as a contingency for damages, had swollen to more than $20 million, RIM disclosed in public statements. RIM might have fared better in a slow-docket district, but NTP brought suit in the so-called rocket docket of Northern Virginia, which encompasses the federal courts in Alexandria, Norfolk, and Richmond. By the district’s lottery assignment, NTP Inc. v. Research in Motion Ltd. wound up in Richmond before Judge Spencer, a blunt former prosecutor. Lawyers from Jones Day, spearheaded by the firm’s intellectual property chief, Robert Kahrl, asked Spencer for a year to prepare for the crucial claim construction hearing. In its original complaint NTP had identified eight patents involving 2,600 technical, interwoven claims that RIM allegedly had infringed — an extraordinarily large number of claims to sort through in one lawsuit. Preparing for the claim construction hearing posed a daunting challenge, RIM’s lawyers told Spencer. But the judge gave Jones Day just five months to prepare for the hearing, and a trial was set for November 2002. Though Jones Day filed a flurry of pretrial motions, Spencer did not budge on the schedule. The judge later ruled that “premature” motions for summary judgment were only one of RIM’s “questionable” litigation tactics, along with its “trickling” output of discovery documents and “failure to work with NTP to streamline document production.” If RIM’s desultory pace reflected its confidence that time was working in its favor, the emergence of powerful allies likely stiffened its backbone. The Canadian government filed an amicus brief arguing that, because all e-mails handled by RIM pass through a relay station in Canada, the company’s business was beyond the reach of U.S. patent law. James Eagen III, the chief administrative officer of the U.S. House of Representatives, fired off a letter to Spencer in early 2003 extolling the BlackBerry’s service to Congress on Sept. 11, 2001, and strongly urging him to resolve the NTP-RIM dispute “without the proposed injunctive relief.” In pushing on to trial, RIM might simply have miscalculated how strong a defense it could muster. RIM’s initial response to NTP’s patent claims was dismissive. A letter sent by NTP’s first set of lawyers at Hunton & Williams in November 2000 had invited RIM to license NTP’s patents, alluding pointedly to the possibility of infringement. Enclosed with the letter were some pages printed out from RIM’s Web site, which “did not readily demonstrate any support for potential patent infringement,” the Canadian company explained in a news release after NTP filed suit. If RIM had looked into NTP’s patents, as Lazaridis and other RIM officials testified, the company nonetheless could produce no memos or e-mails to document its inquiry. That left open the question of whether the company “actually conducted any investigation at all,” Spencer tartly observed in a memo. A letter from Jones Day to NTP’s lawyers in February 2002 seemed to capture the disdain with which RIM’s lawyers viewed the patent-holding company’s arguments, at least at first. The letter warned that Jones Day was contemplating a motion under rule 11 of the Federal Rules of Civil Procedure, contending that NTP had such a weak case that it had brought suit without a good-faith basis to do so. Jones Day never filed the motion, according to NTP lawyer James Wallace. As it turned out, Spencer denied all eight of RIM’s pretrial motions demanding summary judgment on the grounds that NTP’s case was legally deficient. Speaking of the Jones Day letter, Wallace says, “I’m going to frame that.” A major thrust of RIM’s defense during the 13-day trial was an attempt to show that there was prior art that invalidated NTP’s patents. Some of the most dramatic testimony dealt with a wireless device developed in the late 1980s by TekNow, a paging and computer engineering company based in Phoenix. David Kenney, TekNow’s founder, was asked by RIM lawyer Mark Nelson, an associate at Jones Day, if the company’s device was capable of sending e-mail in 1989. “Yes, that’s what we were doing, delivering e-mail to a pager,” Kenney replied. To demonstrate the TekNow system to the jury, Kenney typed into a computer this message: “Tommy, the deal is closed.” A moment later, with a beep and few squawks, a TekNow pager printed out the message. Then, with a final flourish, Nelson presented the message to the jury. On cross-examination, however, Kenney acknowledged that the size of two of the software programs employed in the demonstration matched ones the company had produced in 1994 and 1997. Software from the 1980s, which TekNow had sent to RIM’s legal department to set up the demonstration, did not work, Kenney said he was told by a RIM official. Kenney had then provided RIM’s legal department with the later software to RIM, he said. Once Kenney had left the witness stand and, with the jury out of the room, Judge Spencer told Nelson, “You know, when you make a demonstration, you have to take it back to the time that’s relevant. Please. I’ll count to ten. I don’t want to yell at you.” The judge summoned the jurors and instructed them to disregard the demonstration. (Nelson would not comment.) On Nov. 21, 2002, the jury took less than five hours, including a lunch break, to reach its verdict. Spencer wrote in a memo about damages that RIM had “offered no real defense to NTP’s infringement case at trial.” Based on the jury’s finding of willful infringement, Spencer awarded NTP $18.2 million on top of the verdict of $33.4 million. Despite NTP’s blockbuster trial win and lucrative settlement, its patents no longer look quite as impregnable as they did a few months ago. All eight of the patents covering Campana’s wireless e-mail technology are being re-examined by the PTO. A review of seven of the patents was ordered in 2003 at the patent office director’s initiative, a rare move. Re-examination of the eighth patent was undertaken at RIM’s request. At press time the patent office had denoted seven of the patents as invalid on the basis of prior art — a ruling that NTP contests. The re-examination and subsequent appeals are likely to continue for years. (The patents expire in 2012.) “If we come out with the claims intact, which we feel very strongly that we ultimately will do,” NTP’s Stout says, “that will only strengthen the claims.” There is nonetheless a chance that the re-examination eventually will invalidate all five patents at issue in the RIM-NTP suit. So predicts RIM chairman and co-chief executive Jim Balsillie in a recent conference call with securities analysts. Balsillie’s comment is revealing, even though he says the re-examination was “not a factor” in the snag that developed in the talks between NTP and RIM as the companies sought to finalize the terms of their March settlement. The impasse resulted from NTP’s attempt to “extract more money and concessions” than the settlement terms provided, RIM says in a court filing — a claim that NTP denies. But the longer the companies are at odds over a final settlement, the more the outcome of the re-examination will come into focus. To strengthen its position in the haggling over final settlement terms, RIM’s best strategy may be to duke it out for several more rounds while pressing forward with the re-exam proceedings. Of course, that strategy would implode if the threat of an injunction were once again breathing down RIM’s neck.

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.