A good agreement could be prove to be a raw deal for
Research In Motion
on Friday announced that it has licensed a series of patents owned by holding company
related to wireless email systems. NTP is the same company that has sued RIM, charging that RIM has violated its patents.
That dispute, in which both a district and an appeals court have upheld the validity of NTP's patents, apparently was on the mind of Good executives when they made their deal with NTP. Sue Forbes, Good's vice president of marketing, noted that among the company's customers are some of the biggest corporations in the U.S.
"Our key focus is on our customers," Forbes said. "We want to make sure they feel very comfortable about the business that we're in and don't have any risk around that."
Good wanted to "put the focus on our products, not on legal litigation or anything like that," she added.
The litigation has been a
thorn in RIM's side for years. In 2003, after finding that RIM had violated NTP's patents, a federal court issued -- then stayed, pending appeal -- an injunction against RIM that would have prevented the company from selling its popular BlackBerry pagers and service in the U.S. In December, an appeals court
overturned the $54 million judgment the lower court issued, but affirmed the lower court's ruling on 11 of 16 claims that RIM had infringed on NTP's patents.
The decision sent RIM's stock into a tailspin from which it hasn't recovered, as investors began to refocus on the legal and competitive threats to the company. After peaking on initial word of the ruling, the company's stock has fallen 41%. In the year to date, it's down 26%, and even bulls
are uncertain about when the stock will recover.
The case has been costly for RIM's bottom line as well. In the company's third quarter, it took a $24.6 million, or 12 cents a share, charge related to the case. The charge depressed the company's earnings by about 21%.
But the deal between Good and NTP could be even worse news for RIM, because it will likely step up the pressure on the company to settle the case. By making a deal with Good -- RIM's chief rival in the U.S. -- NTP may be trying to signal to RIM that it can make money from its technology without licensing it to RIM. Indeed, the deal could make NTP more reluctant to settle the case -- or more inclined to charge a higher rate to do so.
"The co-investment may make people nervous. One of the arguments against NTP shutting RIMM down with an injunction is they have no business interest to protect and therefore no way to monetize the patents quickly outside of RIMM." Rob Sanderson, an analyst with American Technology Research, said in a note Friday. "This may no longer be the case, at least in perception," he said. (AmTech does not do investment banking, and Sanderson does not hold shares in companies he covers.)
Investors seemed to see the deal as a negative for RIM, selling off the company's shares on Friday. The company's stock closed down $1.48, or 2.4%, to $60.63.
NTP representatives did not return calls seeking comment on the Good agreement. RIM representatives declined to comment on the deal.
Forbes declined to give any financial details of the deal or whether Good acquired any kind of exclusive license on the patents. As part of the deal, NTP agreed to take an equity stake in Good, the companies said.
After acknowledging that RIM investors might be worried about the deal, Sanderson, a longtime bull on the company, took the contrarian view on the agreement. Instead of strengthening NTP's hand, he saw the deal as an indication of weakness at both Good and RIM.
Because RIM has relationships with many of the major cell phone carriers, Good has had trouble getting the carriers to offer its services and products, Sanderson wrote. Meanwhile, NTP's patents are under review by the U.S. Patent and Trademark Office, which could invalidate most or all NTP's patents. That would be a sore loss after all the money and time the company has sunk into its patent suit against RIM.
"Both parties are desperate," wrote Sanderson.