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RIM Reaps Short Reprieve

BlackBerry service stays online, but a judge warns an eventual ruling won't please either side.

Updated from 3:04 p.m. EST

The sword of Damocles didn't fall on

Research In Motion


on Friday.

But that doesn't mean the company is out of danger.

As expected, a federal judge overhearing the company's patent dispute with holding company


declined on Friday to rule from the bench on whether to issue an injunction against RIM's popular BlackBerry email service, according to published and televised reports.

Instead, after hearing oral arguments from both sides, U.S. District Court Judge James Spencer encouraged the two companies to work out a settlement on their own -- or he would make a final decision on the injunction himself, "as soon as reasonably possible," according to a report by


. Spencer forecast that he would issue a decision on monetary damages and then, later, a decision on the injunction, according to a report from



But the judge made clear that RIM was still under the sword.

"One unfortunate reality for RIM that they want to forget is that there was a trial, a jury was selected, evidence was received and when all was said and done, they found RIM had infringed the patents and the infringement was willful," Spencer said in the hearing, according to Bloomberg. "This reality has not changed in any material or substantial way."

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And as any patent expert will tell you, the standard remedy for patent infringement is an injunction.

Despite Spencer's warning, investors reacted as if RIM had been given a reprieve. Immediately after the news broke that the judge wouldn't issue a decision today the stock shot up as much as $8.85, or 13%, to $78.38. The stock closed regular trading on Friday up 6.5% to $74.05.

Spencer said that any decision he reaches would "imperfect," and he encouraged the two to reach their own accord, according to published reports.

" I am surprised, absolutely surprised, that you have left this incredibly important decision to the court," Spencer said, according to Bloomberg. "I have always felt this was a business decision."

Legal experts uninvolved in the case also have been surprised that it hasn't been settled yet, given what's at stake for RIM and RIM's customers -- and the amount of money on the table for NTP. But several said they still expect the two sides to eventually reach some kind of out-of-court agreement -- the only question is when.

Indeed, Spencer's move to delay a ruling on damages and the injunction could prod both sides back to the bargaining table, says Scott Marrs, a Houston-based patent attorney with Beirne, Maynard & Parsons.

"This give the parties more of a cooling-off period to settle the case," Marrs said.

RIM and NTP reached an initial settlement agreement in March that would have required RIM to pay NTP $450 million. But the agreement fell apart in June, and the two sides have remained far apart ever since.

And despite Spencer's threat and the still-looming possibility of an injunction, a settlement seemed to be the last thing on RIM co-CEO Jim Balsillie's mind after the court hearing on Friday.

In an interview with


, Balsillie declined to answer directly whether RIM would attempt to settle the case. Instead, he decried NTP's settlement offers as "illusory" and indicated that RIM would proceed with the assumption that the case wouldn't settle.

For its part, NTP blamed RIM for the lack of a settlement.

"We want all BlackBerry users to know that we have repeatedly attempted to settle this issue with RIM, including trying to meet with them this week," NTP said in a statement. "Contrary to RIM's public stance, we always have and continue to offer RIM a license that fully protects everyone -- its customers, carriers and partners."

Assuming that the two sides don't work out their differences, NTP expressed its own confidence in how the case will turn out.

"We are grateful to the Court for its time and look forward to a final outcome," NTP said in the statement. "We presented a very strong case and believe, based on the closing remarks of Judge Spencer, that the Court was receptive to the merits of our arguments."

Balsillie did his best to portray the court's eventual decision as irrelevant.

On Friday, RIM received confirmation that the U.S. Patent & Trademark Office, in a separate proceeding, has rejected the last of NTP's patents in a so-called final office action. The PTO proceeding was part of a re-examination ordered by the agency's director, Balsillie noted. Although NTP can appeal the decision, no patents rejected under a director-ordered re-examination have ever been reinstated, he said.

"These patents are absolutely, categorically going away," Balsillie told



In deciding whether or not to issue an injunction, Spencer has the discretion to decide whether or not to consider the developments at the PTO. Thus far he has indicated that he won't, noting that the appeals process can take months or years, which would prolong the uncertainty of the court case and further delay justice for NTP.

Legal experts differ on the implications of the PTO's actions. The rejections will strengthen RIM's hand in settlement negotiations, argues Marrs. And they could help persuade the judge to not issue an injunction or to issue only a partial one that would only cover a small portion of RIM's user base, he said.

"This seriously undermines NTP's settlement posture," Marrs said. "Despite the court saying it's not beholden to the patent office's actions, common sense dictates that it would be hard to enforce a judgment on a patent that the patent office says should never have been issued in the first place."

But Neil Smith, a patent litigator in the San Francisco office of Sheppard Mullin Richter & Hampton, disagreed that the patent rejection has helped RIM's negotiating position. The fact that the re-examination of NTP's patents was director-ordered doesn't mean as much as RIM suggest, he says.

At least some of the previous director-ordered patent re-examinations involved fairly obvious cases outside of the high-tech realm, Smith says. And the director's role in ordering the re-examination should mean little if anything on appeal, he says.

Meanwhile, because the patent office had already rejected two of NTP's other patents, it was likely that the office would reject the third at issue in the case. "I don't think the third examination decision adds" to RIM's position, he says.

Balsillie also noted that RIM has put in place a so-called workaround. In the case of an injunction, RIM has redesigned its BlackBerry service so that it won't infringe on NTP's patents.

The cost of deploying the workaround is "far less than any settlement cost," Balsillie told



But analysts have raised questions about how well a new format will work if RIM is forced to deploy it en masse to all of its customers. Since RIM has not released the technical details of the workaround, the legal question of whether it infringes on NTP's patents is still undetermined, legal experts have said.

And RIM itself has given conflicting indications as to how difficult the workaround would be to implement, according to published reports. On the one hand, the company's lawyers claimed in the hearing that the workaround would take "2 million man-hours to complete," according to a report in the

Wall Street Journal

. On the other hand, Balsillie and other RIM officials have said the workaround is ready to go, has been tested and will be easy for customers to put in place.

At the hearing, Spencer himself labeled RIM's position on the effects of a potential injunction as "inconsistent," according to the



"You say there will be a catastrophic effect and the Western civilization will be shaken. And then from other stuff I've read, it's a minor inconvenience," Spencer said, according to Bloomberg.

Despite his professed confidence in RIM's positions and options, Balsillie declined to say that the company had abandoned the pursuit of a settlement.

"I'm not going to say anything categorically," he told


. "There's no question there is a lot of noise

in the market. That's something we'd like to deal with."