The maker of the popular BlackBerry e-mail device is facing a critical decision: Pony up a lot of money to settle a long-term patent dispute or inform most of its 3.65 million U.S. subscribers that it may have to shut off service.
The company, Research in Motion Ltd., was dealt legal blows yesterday when a judge invalidated an earlier settlement with Arlington-based NTP Inc., which holds the patents to the wireless technology. The judge also declined to stay a permanent injunction, which means BlackBerry service could face a shutdown of its operations in coming months.
"This is the end of the line," said Rebecca Arbogast, an analyst with research firm Stifel, Nicolaus & Co. "RIM kept betting that it would get lucky, but they kept losing every time a decision came up. This is about the worst possible outcome for them."
RIM says it is working on a technology work-around that would maintain service, but it has not provided details.
As the company finds itself on the losing side of a four-year court battle that seems to be coming to an end, fear of going dark spread among BlackBerry loyalists who rely heavily on their devices. In a statement, the company pledged to wage arguments against an injunction but said "there can never be an assurance of a favorable outcome in any litigation."
In coming weeks, RIM's fate lies in the hands of Judge James R. Spencer of the U.S. District Court for the Eastern District of Virginia, who will hear the parties' arguments and decide whether to grant NTP an injunction, which could give RIM as little as 30 days to settle the case before service would shut down for U.S. customers. About 70 percent of the company's subscribers are in the United States. Service to subscribers in other countries would not be affected by the ruling.
NTP, which first filed its patent-infringement suit in 2001, has said it will not cut off service for government and emergency workers, who make up about 10 percent of RIM's user base. The Department of Justice has asked for a 90-day grace period to ensure continued service to government users.
Because Spencer's language in yesterday's decision suggests that he will issue the injunction, RIM may have to pay about $2 billion in cash and stock to NTP to settle the case and keep the service turned on, said Pablo Perez-Fernandez, senior analyst with ThinkEquity Partners LLC, a research and investment firm. "They don't have much of an option at this point."
In June, RIM and NTP's talks proposing a $450 million settlement broke down. RIM declined to discuss its willingness to enter new talks, but NTP attorney James Wallace said, "We would hope [yesterday's] development would bring them back to the table."
As of August, NTP is also due $210 million in damages from RIM for patent infringement, a penalty that increases by about $9 million every month, Wallace said.
Since it was introduced in 1998, the BlackBerry has become a mainstay for executives, Capitol Hill staffers and other businesspeople whose jobs require them to stay connected to their e-mail while away from their office computers. The handheld devices, which are equipped with tiny keyboards that allow users to send and reply to e-mails by typing with their thumbs, are priced at about $250 and also require service plans that cost about $50 per month.
News of the potential injunction forced Peter O'Keefe, a Washington-based financial and political consultant, to discuss BlackBerry alternatives with his co-workers yesterday.
"[RIM] better settle ASAP and take this issue off the table," said O'Keefe, a frequent traveler who said he's constantly checking his BlackBerry for updates and information from clients. "I'm not going to go back to sitting at my desk 24 hours a day," he said, adding that he also won't wait much longer before buying another device if the case isn't settled.
Likewise, Tricia Lilly was forced to imagine life without her BlackBerry, which keeps her connected to clients, distributors, subcontractors and friends.
"It's a frightening prospect," said Lilly, director of product development for McLean real estate development firm Lilly Homes Inc. Without it, she'd have to shuttle into the office and into Kinko's to check her e-mail periodically -- which seems like a laughable inconvenience, she said.
RIM's software and its BlackBerry hardware still dominate the wireless e-mail market, but that success has spawned rapidly growing competition from companies such as Good Technology Inc., Microsoft Corp., Intellisync Corp., and device makers Palm Inc. and Nokia Corp.
"We've seen a heightened level of concern from customers," Terry Austin, president of worldwide sales and marketing for Good Technology, which licenses NTP's technology, said in an e-mailed statement. "Many want a back-up plan, and all want to minimize their risk with a wireless messaging system that is future proof."
RIM, which is based in Ontario, has asked the U.S. Patent and Trademark Office to review the validity of NTP's patents and also has asked the Supreme Court to hear its case. In a statement yesterday, the company said it would argue against the injunction, citing "public interest concerns relating to any potential suspension or interruption of BlackBerry service" as part of its argument.
"As a contingency, RIM has also been preparing software workaround designs which it intends to implement if necessary to maintain the operation of BlackBerry service," the company said.
A company spokeswoman would not discuss the work-around, and analysts said it is unclear whether such a technical fix will sufficiently prevent disruption in service.
"Maybe they have a work-around, but I don't have time to think about that," said Jeffrey J. Kimbell, a health care lobbyist and president of an entertainment company.
Kimbell says the RIM patent case has been as important to him as the Supreme Court's Bush v. Gore presidential vote recount case in 2000.
"Everybody in the business community has followed this case," he said. "Everybody in business has a BlackBerry. It is simply part of the new economy."