A judge's damages ruling in a patent case involving Research In Motion's ( RIMM) BlackBerry product has ominous implications for the company's profitability and licensing strategy, an analyst argued Tuesday.

J.P. Morgan downgraded the shares to underweight from neutral, four days after a federal judge in Virginia increased the amount of damages Research In Motion owes to privately held NTP in a 2001 patent-infringement suit.

"We believe the NTP judgment reduces gross margins by about 125 basis points and pushes out RIM's target for achieving operating profitability," J.P. Morgan said. The shares, which didn't trade in U.S. markets Monday due to the holiday, were recently off $2.56, or 13%, to $17.46 on the Instinet premarket session. They fell a similar percentage in Toronto trading on Monday.

The case began when a group of Illinois-based inventors said RIM's BlackBerry infringed on eight wireless patents controlled by NTP. In November, the company was ordered to pay $23.1 million to NTP. On Friday, the U.S. District Court in Richmond, Va., ordered the company to pay $8.87 million in enhanced damages and 80% of the plaintiffs' attorneys' fees.

"We are now concerned that the NTP judgment undermines RIM's ability to license its technology to Nokia and others," J.P. Morgan said.

J.P. Morgan lowered its first-quarter estimate for Research In Motion to a loss of 11 cents, from a previous loss of 9 cents a share. For full-year 2004, the brokerage now expects a loss of 28 cents a share, from a prior estimate of a loss of 22 cents a share. The analyst consensus is for a loss of 9 cents a share in the first quarter and a loss of 19 cents a share for 2004. The Waterloo, Ont.-based company will report first-quarter earnings on a June 25 conference call.

The court has yet to rule on NTP's request for an injunction to stop Research In Motion from selling its wireless BlackBerry e-mail product.

On a positive note, J.P. Morgan said it believes Research In Motion's end-market and channel strategy are progressing. "We believe RIM is best-in-class in its technology category, and presents investors with the best available 'option' on mobile data, but we believe investors should await more favorable circumstances (lower entry-price, resolution of litigation, improving macro economic circumstances.)"

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