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Tech Industry

Welcome to litigation land, 2006

CNET's Charles Cooper says there's no joy in tech-dom after the RIM-NTP settlement.

Investors will no doubt be relieved, but the outcome of the patent dispute between Research In Motion and NTP isn't a happy harbinger for technology entrepreneurs.

Sure, the agreement announced late Friday removes the cloud of uncertainty that has followed RIM since NTP first filed its lawsuit in 2001. All RIM management had to do to make this go away was pony up $612.5 million and agree to a licensing deal.

But let's call this charade for what it is.

The technology industry is predicated on the (perhaps naive) belief that the company building the best mousetrap should win. That's not what happened here.

In 2002, a jury originally found RIM culpable of patent infringement. With all due respect to the average intelligence of our citizenry, there's good reason to ask whether they knew what they were doing. Sure, I wouldn't trade the jury system for anything, but don't tell me a jury can't occasionally get snookered by a sharpie lawyer. And after serving on a couple of juries, I can attest there's no guarantee that "justice" will get done--especially if your fellow jurors are in over their heads with a supertechnical case.

But let's call this charade for what it is.

I put far more credence in the expertise of the folks at the U.S. Patent Office, whose profession is to know a thing or two about patents. So it was that the Patent Office issued not one but two rejections of NTP's claims.

Back to RIM. If management had refused to settle, there was always the risk that the presiding judge in the case would shut the service down in the United States. RIM says it had developed a work-around, but why flirt with potential disaster? Who knows how it would have performed? The company did the smart thing and cut its losses.

And real losses they were. This extends beyond the uncertainty surrounding RIM's share price or the money paid to NTP. RIM's growth trajectory has been extraordinary over the last several years. But as it announced terms of the deal, the company also warned that its quarterly earnings will come in as much as $60 million shy of expectations because subscriber growth will drop far below the 700,000 to 750,000 forecast earlier.

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Reporter roundtable--RIM settles with NTP: Join reporters and editors as they discuss the implications of the long-running case.
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No doubt RIM is feeling the pinch from stepped-up competition from the likes of Palm, Microsoft and big telecommunications device makers such as Nokia. But how many potential customers decided to steer clear of RIM because of the threat of a looming shutdown? We'll never know the final answer, but don't kid yourself. Had this lawsuit gone the other way, we'd be reading about a much smaller shortfall--if any.

RIM can turn the page now and get on with its business. But what's the larger message for technology developers? RIM does everything right and still winds up paying ransom. The clear subtext is to make sure you hire the best lawyers money can buy. Otherwise you may wind up paying through the nose--or even worse.

Welcome to litigation land, 2006. You have to shake your head in wonder.