Virginia company scrapping with BlackBerry maker in patent fight

by Joan Hennessy
For Virginia Business
September 2005

In tech-savvy Northern Virginia, twenty-somethings populate Roslyn’s sidewalks, chattering away on cell phones and sending e-mail on small handheld devices while waiting to cross the street. They don’t detach themselves from their microchip universe, even for a stroll to the sushi place on the corner.

Atop a glass tower a block away sits a man who has watched the phenomenal growth of these mobile gadgets with rapt attention. Donald E. Stout, a partner in the intellectual property law firm Antonelli, Terry, Stout & Kraus, also is co-founder of NTP, an Arlington-based patent-holding company that’s scaring the wits out of the technology community.

In a contentious court case, NTP has taken on Canadian-based Research In Motion Ltd. (RIM), the manufacturer of the BlackBerry — a product that enables its 3 million subscribers to send and receive e-mail from virtually anywhere. NTP alleges RIM built BlackBerry’s success with technology covered by NTP’s patents.

The case has drawn national notice, pitting the Virginia firm against a communications powerhouse. The battle shines a spotlight on the murky field of patent law and underscores the financial liability technology firms may face if they don’t toe the line.

RIM agreed this spring to pay $450 million to settle NTP’s suit. But the agreement hasn’t been finalized. Then last month, a federal appeals court ruled that the BlackBerry had infringed on some patent claims held by NTP but not on others. In reference to the use of a patented method or process, the court wrote, “…We agree with RIM that a finding of direct infringement by RIM’s customers … of the method claims reciting an ‘interface switch’ or an ‘interface’ is precluded by the location of RIM’s Relay in Canada.”

RIM, based in Waterloo, Ontario, has challenged NTP’s claims all along. In an e-mail to Virginia Business for this story, a lawyer for RIM described the BlackBerry as “a complex state-of-the-art two-way communication system that is very different from the clunky, one-way pager system described in the NTP patents.”

But to Stout, the real story is about the rights of an inventor. “We won the trial,” he asserts. “We felt we were right. We were going to continue until they [RIM] shut down.”

He refers to the cloud that hung over RIM’s head — an injunction — that made the case a nail biter for industry analysts. An injunction would stop some BlackBerry sales unless RIM pays NTP. As a result of the August appeals court ruling, however, the district court must reconsider the scope of an earlier injunction, as well as financial damages awarded to NTP. After the trial in 2002, RIM introduced products not covered under the injunction, says Stout. If there is no settlement, he says he will ask the court for another injunction covering new products as well.

RIM’s revenue for the first quarter was $453.9 million — up 68 percent from $269.6 million reported in the same quarter last year. According to RIM’s annual report, the U.S. accounts for most of its revenue.

“When it comes to the smart phones, [the U.S.] is one of the leading markets,” says David Linsalata, a research analyst with IDC, an information technology analysis firm. “Every vendor wants to play here.” If RIM was suddenly locked out of the U.S. market, “that’s a problem,” he says.
The repercussions could reach beyond RIM’s predicament, however. “If NTP were to prevail, there is a long list of companies that they could extract licensing agreements from,” says Gene Signorini, analyst with another research firm, the Yankee Group.

Indeed, NTP has signed other licensing agreements, including one with cell phone maker Nokia, based in Finland, and RIM competitor Good Technology of Santa Clara, Calif. Some in the technology industry take issue with patent holders that are not in the manufacturing business but collect fat royalty checks. On Web sites and in newspapers, the term “patent trolls” has emerged to describe these firms. “The companies that are trying to go to market could have resources drained by licensing,” says Signorini.

The inventor
At the center of this storm are patents that cover the work of the late inventor Thomas Campana Jr. In the early 1990s, Campana was involved in designing wireless data transmission for AT&T’s Safari notebook computer. “Tom was a network architect,” Stout remembers. “He knew how you do it.”

By 1992, Campana formed NTP. The inventor came up with the name. Stout does not even remember what it stands for, but thinks it was originally New Technology Products. “He had learned that it would be good to have someone like me involved,” says Stout. He helped Campana get 50 patents. According to Stout, NTP has 24 shareholders.

The 1990s were important for RIM as well. The firm won awards as business grew. It began trading on Nasdaq in 1999 (as RIMM) according to the firm’s Web site. And in January 2000, the BlackBerry Wireless Email Solution won InfoWorld magazine’s Product of the Year Award in the Mobile Computing category.

In a world of hip, hot gizmos, the BlackBerry stood apart. It revolutionized the way America does business.

The lawsuit
In 2001, NTP filed suit against RIM for patent infringement. The case was tried a year later and NTP won $23 million in damages. The jury found “direct, induced and contributory infringement by RIM … The jury also found that the infringement was willful,” an appellate court decision recounted.
RIM stayed on the defense. But in August 2003, a U.S. District Court entered final judgment, awarding NTP about $54 million. “By the time the year had rolled by, RIM had done a lot more business,” says Stout, explaining the higher award.

An appeal followed, but on March 16 this year, RIM announced the $450 million settlement with NTP. With the future of its best-selling product seemingly safe, RIM’s stock soared 17.7 percent, from closing at $67.09 the day before the settlement announcement to $78.96 immediately afterward.
However, settlement efforts foundered. RIM said it accrued an incremental litigation expense of $6.5 million during the first quarter of this year and estimated it would incur additional legal fees.

Asked about the status of the settlement, David Long, an attorney with the Howrey firm in Washington, D.C., and part of the legal team representing RIM, responded in an e-mail. “The mediation privilege and protective order entered in this case precludes us from going into detail about the settlement agreement. RIM currently is pursuing court action to enforce the settlement agreement with NTP. … Despite reaching settlement terms that included one of the biggest settlement amounts in history, NTP now is attempting to renege on its obligations.”

For his part, Stout says: “We didn’t reach a definitive agreement. That’s all I have to say.”

Meanwhile, the U.S. Patent Office is re-examining the patents and has rejected some of NTP’s claims. Stout says NTP will fight that, and the patents are presumed valid. RIM also contends it has found evidence in Norwegian texts indicating “prior art” — documents prepared before Campana’s patent that describe a wireless e-mail messaging system. “They [RIM] are trying to invalidate our patents,” Stout says. “But it’s too little too late.”

RIM also has announced technology aimed at skirting the patents. But Stout says, “From what I know, I don’t believe they have designed around the patents.”

Campana died last year while the appeal was pending. The case, Stout says, has been an endurance test. As one of his law partners put it: “You’re dancing with a bear.”

It might not be the last dance. On a vacation in Florida earlier this year, Stout’s cell phone died. After buying a new one, he looked over the whiz-bang gizmos and made a discovery: His new phone sends and receives e-mail.

The firm that manufactured this phone may have used technology covered by one of Campana’s patents. And, as Stout points out, “It’s not licensed.”