BlackBerry case: No shutoff, for now

Judge James Spencer scolds patent holder NTP and device maker Research In Motion for not coming to a settlement.

Anne Broache Staff Writer, CNET News.com
Anne Broache
covers Capitol Hill goings-on and technology policy from Washington, D.C.
Anne Broache
6 min read
RICHMOND, Va.--More than 3 million U.S. BlackBerry users won't lose their service--at least for now.

In a hearing on Friday, U.S. District Judge James Spencer decided against issuing an immediate ruling on whether to impose an injunction that would shut down sales and service of the popular mobile e-mail devices in the U.S. But what remains clear, he said, is that the jury verdict in NTP's case against Research In Motion for patent infringement, nearly four years ago, "has not changed in any substantial or substantive way."

During the hearing, lawyers for NTP asked Spencer to issue an updated $126 million judgment against the BlackBerry manufacturer, calculating that figure based on methodology used by the jury, which initially awarded it $23 million in damages. NTP also called for an injunction against RIM's U.S. service for violating patents.

Lawyers for RIM argued fervently against any injunction, basing their defense largely on the idea that doing so would undermine the public interest. They noted that the company was willing to hand over damages if the validity of NTP's patents was upheld but argued for a new trial to calculate the appropriate amount.

After nearly four hours of arguments from each company and the U.S. Justice Department, Spencer said he would take the matter under advisement and reveal his decision "as soon as reasonably possible."

Spencer said he expects to release an order related to the damages before releasing one related to the injunction. He wants "to make sure the government and its needs are met" before making the latter decision, he said.

The judge, who has been vocal about his desire to conclude the proceedings, scolded the companies for not coming to a settlement on their own.

"In plain words, the case should have been settled, but it hasn't, so I have to deal with that reality," Spencer said, adding that he thought the matter was a "business decision" and was surprised the companies opted to leave the decision with the courts.

"Settlement has never been an option for us," RIM's co-chief executive officer, Jim Balsillie, said in an interview with CNET News.com after Friday's hearing. On Thursday, Balsillie told attendees at the RBC Capital Markets conference that NTP's licensing terms were far too prohibitive to accept, which NTP has denied.

Friday's hearing came as RIM has been fighting to limit the damage from a 2002 jury verdict that found that it infringed on several of NTP's patents related to mobile e-mail communications.

In 2003, Spencer imposed an injunction on the sale and support of BlackBerry devices in the United States, but he stayed that injunction, pending the appeals process. Spencer also increased the damages awarded by a jury as a result of misconduct by RIM's lawyers during the trial and ordered the company to put 8.55 percent of its quarterly revenue into an escrow account, pending the appeals process.

A federal appeals court lifted the injunction and sent the case back to a lower court in 2004, though it agreed that most of NTP's patent claims are infringed by the BlackBerry system. With that basic question of infringement appearing to be settled, the debate has turned to two other areas: the patent re-examination process and RIM's "work-around."

RIM has been playing a waiting game, hoping to convince Spencer to avoid entering an injunction until the patent review process is complete. Spencer denied a similar request to stay the trial, pending the review process in November, but RIM believes the uncertainty around the patents should prevent a new injunction.

During their arguments on Friday, RIM attorneys repeatedly said that the U.S. Patent and Trademark Office has declared NTP's patents invalid. The Patent Office as of Friday had issued a "final office action" for two of the five patents at issue in the trial. The other three have only received nonfinal decisions, but they are expected to get the final rejection sometime soon.

A "final" decision isn't completely final, as NTP has the right to appeal those actions to a three-judge panel at the Patent Office, as well as to a federal appeals court, before the patents are struck down.

But NTP will still be entitled to any damages awarded as part of Friday's hearing. Damages awarded for patent infringement through a trial are still valid, even if the patents are later struck down. NTP would lose the right to seek future damages, but it could collect the almost $250 million currently sitting in escrow without having to pay it back later.

The morning opened with arguments from two NTP lawyers, who split their time arguing in favor of an extended damage award and an injunction on BlackBerry service.

"The world, we suggest, will not come to an end," should the service be shut down, NTP attorney James Wallace argued.

If nothing else, RIM's own publicly divulged work-around would undo any harm RIM claimed an injunction would cause it. RIM had said its work-around will allow it to bypass the claims in NTP's patents by changing the way the BlackBerry system delivers e-mail messages and queues messages that can't be delivered because the recipient is out of their coverage area.

Far from powerless, RIM would have at least three options if the injunction were issued, NTP attorney John Wyss argued: They could leave their users "high and dry," implement the work-around for all of their customers, or allow only "exempt" government users to keep using the service.

Wallace attempted to cast doubt on the company's seriousness about its work-around solution. "Even though they proudly trumpet what they term is 'alternative noninfringing technology,' they still prefer to use the NTP technology to this day," he said.

RIM's attorneys downplayed the work-around as a solution; lawyer Henry Bunsow did not even address the concept until about the last fourth of his presentation.

"It's not something that can be done overnight," he said, estimating that implementation would require about 2 million hours of labor and would also include "extensive public costs."

Justice Department attorney John Fargo told the judge that any work-around "is going to require at least validation." He said the government also has lingering doubts about the technical feasibility of exemptions for government users, which the Bush Administration has urged.

Attorneys from both companies focused a good deal of their arguments on that issue.

NTP attorney Wyss emphasized that NTP "agreed there should be express exclusion that would fully protect the U.S. government." Any injunction order, they said, should include an "exemption paragraph," derived from the Justice Department's suggestions, that would allow government users to continue using BlackBerry service. They said government contractors could also qualify for the exemption if the government sent a letter to RIM certifying those workers as such.

Wyss also outlined a number of methods, such as pulling information invoices for BlackBerry services ordered by government users, which he claimed RIM could use to determine which users would fall into the exemption category--what both parties have deemed the "white list."

RIM attorneys, for their part, argued that separating out government users would be "wholly impractical" and that it was unclear who would fit into which categories.

And besides, the government exemption endorsed by NTP wouldn't prevent cutting off such people and other critical private-sector workers, Bunsow said, citing excerpts from more than a dozen testimonies from those primarily involved in homeland security, energy and health care sectors.

Hoping to ratchet up RIM's "public interest" defense, he painted the BlackBerry at length as a "lifeline" for users from a wide variety of industries, from doctors dealing with organ transplants to volunteers helping in hurricane crises.

There was also talk from both sides of a licensing proposal that NTP has offered to RIM, as it has done with other mobile e-mail device makers. But it was clear that they were far from reaching an accord on that front.

Bunrow blasted the proposal, calling it "illusory" and accusing it of opening doors to new litigation by NTP against service providers such as Cingular and T-Mobile, with which RIM partners--an allegation that NTP forcefully denied.

"We want to keep you in business; it's just time to pay up," Wallace said, comparing RIM to "squatters in your nice house" who would turn down an offer to rent the place.

The debate, as has been customary during the ongoing spat, didn't stop when Spencer adjourned the hearing shortly before 10 a.m. PST.

"Contrary to RIM's public stance, we always have and continue to offer RIM a license that fully protects everyone--its customers, carriers and partners," NTP said in a statement released soon after the hearing. "RIM has rejected our efforts, stalled the proceedings and attempted to undermine the process every step of the way."

Balsillie said he was "very, very happy" with the hearing but was not sure when a ruling would emerge from Spencer's chambers. "We look forward to getting this decided. We're comfortable with the contingency plans."