Anxiety rises as BlackBerry deal unravels

Research In Motion is facing the possibility that its service could be shut down in the United States.

Research In Motion's BlackBerry long ago became a crucial communications tool for employees of the Turner Broadcasting System.

So the possibility that the wireless e-mail service could be shut down in the United States--a prospect that again emerged last week after the collapse of a settlement between RIM and a small patent holding company--was not welcomed by Turner employees or anyone else who uses the popular device.

Turner Broadcasting has a contingency plan to switch employees to another wireless e-mail service, but the process will leave many of them without service for about two to three months.

For three and a half years, patent claims by NTP, which is based in Arlington, Va., have been a cloud over Research In Motion, based in Waterloo, Ontario. But the announcement last week that a $450 million agreement reached in March was unraveling came at a particularly delicate time.

In a court filing that followed, the privately held NTP indicated that if the settlement cannot be revived, it plans to invoke an injunction banning sales of BlackBerry devices and their e-mail service throughout the United States.

That injunction, which was put on hold during RIM's appeal, has grown more powerful with time. After years of having the wireless e-mail market more or less to itself, RIM now faces competition from hardware makers like Palm Computing and software vendors including Seven Networks, Good Technology and Visto.

For now, a shutdown of RIM in the United States, where the company gets about three-quarters of its revenues, is far from certain. But the renewed legal uncertainty is almost toxic for some members of the investment community.

Pablo Perez-Fernandez, a senior analyst at ThinkEquity Partners in San Francisco, suggested on Friday that RIM investors "liquidate" their holdings. He cut its share target price to $60 from just over $120. Shares closed at $72.02 on Friday.

"Until the legal issues get resolved, investors probably have better places to park their money," Perez-Fernandez said.

The focus of the current fight between the companies is a document, about half a page long, that they signed late in the afternoon of Saturday, March 12, after three days of mediation.

As James Balsillie, the co-chief executive of Research In Motion, describes it, his company believed that in exchange for $450 million, it would be granted a perpetual and unrestricted license to NTP's patents.

"It allows us to write a check and get along with our regular business," Balsillie said.

James Wallace Jr., a lawyer for NTP, said that Balsillie's reading of the terms of the agreement is not correct. Wallace blames RIM's impatience for the current impasse.

"When you have a half-page term sheet, it's not unexpected that you would have a dispute later on about what it means," Wallace said.

Interviews with people close to the talks since March--who, citing confidentiality agreements, requested that their names not be used--and a court filing made by NTP last week indicate that the dispute focuses on the scope of settlement.

According to some of the people close to the talks, NTP, a company that was created to enforce and license a series of wireless patents granted to one of its co-founders, began asking for additional payments. Among other things, one person said, it wanted partial compensation for the increase in value of RIM's stock after the March settlement announcement.

Last Tuesday, however, appeared to bring the final sticking point for Research In Motion. NTP indicated at the meeting that the deal did not cover any wireless e-mail technologies RIM had developed and introduced after the start of its lawsuit. That, according to one person, would mean payments from RIM of $100 million to $200 million a year.

Donald Stout, an intellectual property lawyer and a co-founder of NTP, rejected suggestions last week that the company was bluffing about invoking the injunction. Still, NTP is a long way away in the legal process from being able to do that. Research In Motion has asked a court to stay the appeal so that it can ask another federal court to impose the March settlement under what it understands to be its terms.

But even if the injunction is enforced, users have little to fear, according to Balsillie. For several years, he said, RIM has been developing separate software and systems that its lawyers believe cannot be challenged by NTP.

"Can RIM be turned off?" Balsillie said. "I can't see that happening."

Surprisingly, some competitors are sympathetic to RIM's legal problems. Bill Nguyen, the chairman of Seven Networks, agreed with Balsillie, who has said that if NTP settles the dispute on its terms, NTP will move against the rest of the wireless industry.

"RIM absolutely did a favor for the entire industry by taking up this cause and it's unfortunate that more people aren't supporting them," said Nguyen. "I honestly think that RIM will settle the case. But I don't think that will settle the issue for the rest of the industry."

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