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Sending a message to RIM

Co-founder Donald Stout says NTP expects Research In Motion to pay up--one way or another--to settle their long-running patent dispute.

After months of negotiation, Research In Motion and NTP seem miles apart in figuring out a suitable deal for the BlackBerry maker to license NTP's wireless e-mail technology.

The two have been locked in one of the largest patent infringement cases in history. But the sudden collapse of the talks still took investors and users of RIM's e-mail service by surprise. RIM lost more than $1 billion in value in two days, as many investors abandoned the stock amid the uncertainty.

Negotiations in the patent case came to an impasse earlier this month, after RIM said it had been unable to finalize the terms of a mediated agreement with Virginia-based NTP. The two companies had made a tentative deal back in March, in which RIM agreed to pay out $450 million to settle the suit. Details of the negotiations haven't been made public, but some people believe the deal fell apart over which company will be able to license the disputed patents to other parties.

We're serious about it. The bigger question is, if we get an injunction, what happens after that?

The patents in question were developed by Thomas Campana in the late 1980s and early 1990s. Campana created the wireless e-mail technology while he was doing contract engineering for Telefind, which was working for AT&T on the Safari notebook, a product that allowed data to be received wirelessly. The ideas behind the Safari applications eventually became the patents that are now in dispute.

When Telefind started to run out of money, Campana poured his own money into the venture, according to Donald Stout, the co-founder of NTP. Eventually he applied for patents on the technology.

Recognizing that there was money to be made from licensing, he formed NTP with patent attorney Stout, who had helped Campana get the patents on the wireless e-mail technology and several other patents. Campana died after a long battle with cancer last year, a day after NTP's appeal got under way. caught up with Stout, a partner at the law firm of Antonelli Terri Stout & Kraus, to talk about the history of NTP and the significance of the case with RIM.

How did NTP get the wireless e-mail patents?
Stout: The technology was developed by Tom Campana, who was running a contract engineering business called ESA Telecom. Out of his own pocket, Tom financed the development of the technology that he eventually patented.

Then he approached me and said, "Why don't we form our own company?" I had worked with Tom for a number of years, getting him patents. Over his life, I had gotten him about 50 patents. So we formed NTP, and its business is to license the technology that Tom created in his engineering work.

There are probably some people out there who think you are just trying to take advantage of RIM. What do you say to that?
Stout: Tom didn't go out and buy some patent out of bankruptcy and run off and sue someone. The technology in question here was developed in 1990. This isn't something that fell out of the sky and popped into my lap a year ago. I didn't wake up one day and say, "I've just made $450 million." I have personally spent thousands of hours working on this. Bill White, our president, has spent thousands of hours. We put hundreds of thousands of dollars into the company. We've gone through a couple of different lawsuits, where people were trying to take the technology away from us. This was not easy. It has taken a lot of effort.

If you want to enforce a patent portfolio, such as ours, and you get no positive responses from the vendors, sooner or later you are forced with the choice of either doing nothing or asserting your legal rights. We are asserting our rights successfully, and I ask you what is wrong about that? The answer is there shouldn't be anything wrong about it.

So the company doesn't actually build any products?
Stout: Currently not. The patent system gives us the ability to commercialize technology in a slightly different way. Licensing is a product. They call it intellectual property, because you're licensing a property right. You're selling a property right. I could sell you my house; that's a real property right. I can sell you my car; that's a personal property right. Or I can sell you the right to use technology. That's how we decided to commercialize Tom's inventions.

I don't know the exact figures, but I'm sure IBM makes over a billion dollars a year licensing technology. Does anyone say they're doing anything bad? Why in the world are we bad? I don't know this for a fact, but I bet most of the patents that IBM licenses are not in commercial products that they make.

I guess you see this as a viable business model then?
Stout: Yes, this technology is very valuable. You can see the amount of money that RIM itself had indicated it was willing to pay. We couldn't agree on all the terms and conditions, but RIM was willing to pay $450 million. That's a lot of money.

Speaking of the $450 million licensing deal that was on table, what happened? Why did it fall apart?
Stout: The offer was part of the mediation process. I can't go into details, but you can conclude that we just couldn't agree to the actual terms of the agreement.

Why has the case dragged on so long?
Stout: RIM has had opportunities to settle this case, and they decided not to settle it.

You've got to understand something: Most patent disputes don't go to trial. They don't go through an appeal. And they don't involve defendants who, to this day, are claiming that everything we have said is wrong, after they have not won one patent at all in this litigation. Not one court has ever said they're right about anything they've said so far.

Why was the proposed licensing fee so high?
Stout: If you look at the court record, the judge determined the price. Because of RIM's willful infringement, he said that they'd have to put away 8.55 percent of their U.S. business for the use of the patents. And if you look at that over the life of the patents, and you make some assumptions about RIM's growth, do you know what that adds up to?

No. What is it?
Stout: It's over $1 billion dollars. And we have asked for less than half of that. So, does that make us greedy? I don't think so. This is what the court said was reasonable. If they had settled this case a lot sooner, they would never have had to pay that kind of rate. But if you litigate and litigate and you lose, you've lost your leverage.

RIM is currently challenging some of your patents. Can you explain what's going on with that?
Stout: RIM had a trade association lobby the patent office to have five patents that were litigated re-examined. One of the patents that was successfully litigated was thrown out. So four patents are being re-examined.

Do you expect a decision any time soon on this?
Stout: The process can take years, but we think it's going to be much shorter than that. We've had discussions with the patent examiners involved in reviewing the patents, and we believe that they will find the patents to be valid. That's my honest belief.

So you feel pretty secure with where you stand on the validity of the patents?
Stout: You bet I do.

We view re-examinations as the best thing that ever happened to us. After the patents have been through a full-blown litigation in which RIM spent $25 million or more and they've been through the wringer at the U.S. Patent and Trademark Office, there isn't much left to say about those patents. Most people will agree, "Yeah, they're good."

Do you think the threat of an injunction is an important tool in dealing with patent infringement?
Stout: I can tell you, in my 30 years of doing this, if there was no threat of an injunction, you would have much more litigation. You would also have settlements being much harder to obtain, and that's bad for the court system.

RIM has had opportunities to settle this case, and they decided not to settle it.

Think about this: RIM has spent probably $25 (million) to $50 million in litigation against us, which is much more than we have spent. They could have settled this case for that amount of money initially. But they chose to fight and fight to try to drive us into the dirt. Now they're protesting, "Oh, this is terrible." But they asked for it.

Some articles suggest RIM thinks you're bluffing when it comes to the injunction. What do you say?
Stout: We're serious about it. The bigger question is, if we get an injunction, what happens after that? That's the question RIM will have to answer.

If RIM chooses to thumb its nose at us, and acts as if they don't have to pay any attention to us, we would have the right to shut them off in the United States. I suggest that would be devastating to their business.

Jim Balsillie said that they have another technology, supposedly. But I'm skeptical of that. I have a pretty good idea what it is, but I won't say anything about it. They have a right to design around anyone's technology, but you just have to ask yourself the question: What happens if they're wrong? And the new technology they come up with still infringes on our patents?

I'm not suggesting they can't or shouldn't do it. All I'm saying is that the consequences of going the next step become higher and higher. The ball is in their court, so to speak.

Have you found other companies that have violated your patents?
Stout: Well, let's put it this way: We've licensed to Nokia. We're in discussions with about five more companies, and none of them have involved anything like this. I've got two more licenses right now that I could sign, and we're working up the details of them.

Have you sued any other companies for infringing on your patents?
Stout: We've only sued one company, and that's RIM. Most cases do not go this far, and they don't have this much notoriety. You never would have heard of us if RIM had settled the case when we first went to them.

Do you think it's harder for smaller companies to defend their patents?
Stout: Yes, I think bigger companies' attitude is that if they use technology, they should be able to license it at a very small fee. At one point RIM offered a licensing fee of zero. In other words, they didn't want to pay anything for it.

Well, that's not acceptable. It's like telling someone, "I'll buy your house, but I won't pay you for it."

Do you feel that companies such as yours that hold patents but haven't developed products around that technology are not taken seriously by larger companies?
Stout: Yes, there is this perception that you can't pay people license fees if the company isn't involved with manufacturing products based on that technology. It's just the nature of the beast that people will force you to litigate. We sent letters to 46 different companies. No one offered to take a license.

Do you feel that large companies just assume smaller companies won't shoulder the cost to fight back?
Stout: That's a factor. I'm not saying all big companies will not license technology. I'm just saying that in general, it's much more difficult for a small company to license technology than a big one.

I think part of RIM's thinking was "We'll spend these guys into the dirt, and we're going to show everyone that no one is going to shake us down." Well, they picked the wrong one. They tried to do that. They spent a lot of money, and now they've got an issue that they've got to deal with.