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BlackBerry Survives Another Day,
But Judge Admonishes RIM, NTP

February 24, 2006 6:04 p.m.

RICHMOND, Va. -- A federal judge didn't rule Friday on whether to shut down the popular BlackBerry email service, but criticized BlackBerry maker Research in Motion Ltd. and NTP Inc. for failing to settle their long-running patent dispute.

Judge James R. Spencer of the U.S. District Court for the Eastern District of Virginia also admonished RIM for providing an "inconsistent" argument against a court-ordered shutdown.He rebuked both RIM and NTP for continuing to keep their fight over wireless email patents in court. "The case should have been settled but it hasn't,'' said Judge Spencer. Instead, the battling companies have left an "incredibly important decision to the court.'' And the battle has put "a cloud over RIM's business,'' the judge noted.

Judge Spencer in the coming days or weeks is expected to rule on what financial penalties RIM should pay NTP for infringing patents, a verdict reached by a Virginia jury in 2002. He will also determine whether NTP should be granted an injunction, or shutdown, of RIM's business in the U.S. He did not say whether he is likely to grant such a shutdown, saying that decision "requires a little more thought.''

Shares of RIM surged after the hearing, gaining 6.5%, or $4.52, to $74.05 at 4 p.m. Friday on the Nasdaq Stock Market.

Brian E. Ferguson, a patent attorney with McDermott Will & Emery LLP in Washington, D.C., said the judge's questions and statements signaled that he is likely to issue some sort of injunction within the next few weeks. "The handwriting was very clearly on the wall that an injunction is imminent," said Mr. Ferguson, who has argued intellectual property cases in the eastern district of Virginia but not before Judge Spencer. "RIM was lucky he didn't issue an injunction right then and there."

The only open questions, Mr. Ferguson said, are the scope of the injunction and the amount of damages owed to NTP for RIM's past infringement. Government lawyers told the judge they want to submit the names of government users who would be exempt from any injunction, rather than leaving it to RIM.

But some lawyers questioned whether the judge would really carry out an injunction, and speculated that the threat of an imminent BlackBerry shutdown is intended to drive the parties to settle quickly. "The message out of this hearing is that the judge wants this resolved by a settlement rather than litigation," said Peter Brown, chairman of the New York State Bar Association's Intellectual Property committee and a founding partner at the law firm Brown Raysman Millstein Felder & Steiner LLP.

Mr. Brown said the judge would be criticized in legal circles if he fails to take into account the PTO's rulings in his decision making. "It would be highly aggressive for the judge to issue an injunction in light of what the PTO is doing at a very rapid pace," he said.

Judge Spencer appeared to cast doubt on a lengthy argument by RIM lawyer Henry Bunsow that an injunction isn't appropriate because BlackBerry is widely used in U.S. business and industry and a shutdown would cause major interruption. The judge said RIM, of Waterloo, Ontario, was effectively arguing that a shutdown "will have a catastrophic effect on western civilization,'' but at the same time that "it's a minor inconvenience,'' since RIM says its workaround is ready to go.

During his presentation Mr. Bunsow, sporting a stars-and-stripes necktie, cited a number of BlackBerry users in important areas such as healthcare, transportation and defense who have said their work would be harmed by a BlackBerry shutdown. He noted the BlackBerry was one of the few ways many people could communicate in areas affected by the Sept. 11 terrorist attacks.

While RIM can implement a workaround to keep BlackBerry running, Mr. Bunsow said, the company would rather not. It would take some two million man hours for all the required software to be set up on all the BlackBerry handhelds and servers in the U.S., he said.

Later, Mr. Bunsow told reporters that the workaround would take about two hours to install on each of the thousands of BlackBerry corporate servers and as long as an hour for every handheld device. U.S. government users would be exempt from any injunction on BlackBerry service.

Judge Spencer said "all the appeals, petitions, politics and lobbying'' the litigants have done does not change the fact that a jury has already ruled that RIM infringed on NTP's patents. He said he will rule first on what financial damages to award NTP in light of the jury verdict, before ruling on any injunction.

NTP asked the judge to award $126 million in legal damages plus royalties for what it says is RIM's infringement on its patents related to the transmission of wireless emails.

A Virginia jury in 2002 found BlackBerry violates NTP's patents. Judge Spencer later ruled that RIM should pay NTP $53 million in damages and an 8.55% royalty rate. RIM has refused to pay, pending appeals, but it has set aside $244 million to cover the potential payments.

The judge did not say whether he will put weight on another of RIM's main arguments, that the U.S. Patent and Trademark Office has rejected the relevant patents in the case held by NTP. The latest such rejection was released Friday. The rejections, however, are open to a potentially lengthy appeal process at the patent office and in the courts. NTP has long signaled it would appeal.

RIM and NTP nearly settled their dispute last March, when RIM agreed to pay $450 million to NTP. But the deal later fell apart. RIM has sought a mechanism to recoup funds from NTP should the patent office in the end rule in RIM's favor. NTP has resisted such a provision.

In a statement after the hearing, NTP said, "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."

Mr. Bunsow, the RIM lawyer, said outside the court that the two sides have traded proposals and will continue to seek a breakthrough on their impasse.

But RIM Chairman and Co-Chief Executive Jim Balsillie, who watched the proceedings intently inside the courtroom, told reporters later that the terms of NTP's offers so far have been unacceptable. He said he is "delighted all the (NTP) patents have been rejected,'' and insisted there is no risk of BlackBerry service actually being interrupted since the company is prepared to implement its workaround.

Write to Mark Heinzl at mark.heinzl@wsj.com5 and Amol Sharma at amol.sharma@wsj.com6

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