Sweet Ruling for BlackBerry

A judge declines to shut the service down, for now.
Author:
Publish date:

Updated from 12:55 p.m. EST

Research In Motion

(RIMM)

surged 11% after a federal judge declined a request to halt the company's BlackBerry wireless email service amid an ongoing patent dispute.

Virginia holding company

NTP

asked Judge James Spencer to issue an injunction against RIM. "The world, we suggest, will not come to an end," NTP's lawyer told the judge, according to

The Wall Street Journal

. But televised reports shortly after midday indicated that the judge had declined to immediately implement the injunction, saying he would rule "as soon as reasonably possible." RIM shares jumped $7.51 to $77.

The court hearing Friday morning in Virginia covered whether the judge should put in place an injunction against the BlackBerry service and what kind of penalty RIM should have to pay NTP.

A jury has already held that RIM's service violated NTP's patents, a decision that was largely upheld on appeal.

Although the judge has shown impatience with the continuing proceedings in the ongoing trial, it's not certain that he will impose a ban on the BlackBerry service. Such a move would be at the judge's discretion.

RIM, of course, is arguing that a ban isn't necessary. But in light of recent developments in the dispute, legal experts believe that U.S. District Judge James Spencer may think long and hard about imposing a ban.

Even if he does grant an injunction, the effect of that ban could be limited. RIM has already said it has

developed a "workaround" that doesn't violate NTP's patents.

And on Thursday, RIM co-CEO Jim Balsillie said that his company is already testing out the workaround with dozens of customers, and it's proceeding without a hitch, say published reports.

Additionally, there's the possibility of a settlement. The two sides have appeared far from such a deal since a preliminary settlement agreement fell apart in June.

But most patent disputes end with an out-of-court agreement rather than a judicial decision. And both sides have insisted in recent weeks that they are still open to a deal.

"It's insane that it hasn't

already settled," says Frederick Whitmer, a patent attorney in the New York office of Brown Raysman Millstein Felder & Steiner. "I'm not sure anybody's got a sense of what going to happen."

That uncertainty could mean continued grief for RIM investors. The company's stock crashed after the appeals court largely upheld NTP's infringement claims more than a year ago.

Since then, shares have been stuck in a rut, down 1% from the same period a year earlier.

Meanwhile, RIM has posted

slower-than-expected subscription growth over the last two quarters, something the company has blamed on the looming injunction threat.

Judge Spencer could decide on an injunction as early as Friday's hearing. Though unusual, such a decision wouldn't be unprecedented, legal experts say.

"Given that the judge has expressed a lot of impatience with where the case is and a desire to get it moving,

a decision at the hearing would not be a world-class shock," Whitmer says.

Spencer could also add a little clarity to the case by indicating which way he might lean. That's what happened at a hearing last fall on RIM's call for a delay in the case. At the hearing, Spencer was openly skeptical of RIM's arguments, foreshadowing his later written decision to deny RIM's request.

Still, not much is certain until Spencer issues a ruling. And given his previous practice, a ruling isn't likely until several days or weeks after the hearing.

An examination of the case -- and Spencer's apparent impatience with RIM in recent rulings -- would support the view that an injunction is inevitable: RIM has been found to have infringed NTP's patents, and the standard remedy is an injunction.

Moreover, Spencer already granted an injunction after the initial trial that was overturned by an appeals court.

But RIM argues that things have changed since the first ruling. The appeals court has narrowed the list of infringed-patent claims down to seven from the 15 the jury originally found.

More recently, the Patent and Trademark Office, in an effort to re-examine NTP's patents, has

issued two so-called final office actions rejecting all of the claims of two of the three patents at issue in the court case.

Although NTP is able to appeal that decision, RIM has argued that the patent office's actions are an indication that the court case is much ado about nothing. How can the company be violating patents that shouldn't have been granted in the first place?

"I would say, personally,

that those are pretty good arguments," said Whitmer.

To what degree any of those factors should affect NTP's demand for an injunction is up to Spencer, who has said he won't delay a ruling on an injunction to await a decision from the patent office.

But that was before the patent office made its recent set of decisions.

If the judge believes the PTO proceedings may eventually lead to NTP's patents being declared invalid, "he may exercise his discretion not to issue an injunction now," Whitmer says.

On the other hand, RIM's stated confidence in its workaround may, ironically, make it more likely that he will issue an injunction, says Neil Smith, a patent litigator in the San Francisco office of Sheppard Mullin Richter & Hampton.

Assuming that the workaround is viable, the judge's injunction would be less likely to cause RIM -- or its customers -- permanent harm, Smith says.

But there's a lot of uncertainty surrounding the workaround, too, Smith says. Analysts have

predicted that RIM likely will have a difficult time putting the workaround in place for all of its customers. And they doubt that the solution will be bug-free.

Setting aside the technical questions of whether the workaround is viable, there are legal questions about whether the workaround violates NTP's patents and how the court would go about determining that, Smith says.

Assuming the judge grants the injunction, "then the battle shifts to a contempt issue on the workaround," he says.

RIM has released few technical details about the workaround, so it's impossible to know whether NTP will have a legitimate infringement claim against it. But RIM would be walking a dangerous line, says Whitmer.

Should NTP prove that the workaround violates its patents, RIM could be charged with willful infringement -- and liable to pay trebled damages, he says.

"It really raises the stakes substantially," he says. "They better be pretty certain that the design-around is a good one."

All of the legal and engineering gamesmanship may end up being just an effort to get back to the bargaining table. An injunction ruling -- or possibly even the hearing itself -- may be what finally forces RIM and NTP to come to terms, legal experts say.

"You're going to get a settlement at some point," Smith says. "There's been a lot of jawboning and argument, but the reality is that there's a lot of money in play."