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U.S. Supreme Court rejects RIM's appeal

U.S. shutdown of BlackBerry service appears imminent as appeal in a patent infringement case from RIM is rejected.

The prospect of a wide-scale shutdown of the BlackBerry mobile e-mail service is closer to becoming reality, as the U.S. Supreme Court on Monday turned down a request to review a major patent infringement ruling against BlackBerry-maker Research In Motion.

The court rejected a petition by Research In Motion to review a federal appeals court ruling that could lead to a shutdown of most U.S. BlackBerry sales and service.

In 2004, the Court of Appeals for the Federal Circuit, the only federal appeals court in the country for patent cases, rejected RIM's argument that it was not infringing on NTP's patents because a critical piece of the BlackBerry service was located in Canada and not in the United States.

RIM then petitioned the U.S. Supreme Court to hear the case and filed an emergency request asking to stay the lower court's decision until the high court decided whether to hear the case. But RIM lost that fight in October when its request was rejected by the court.

"Anything that increases the risk of a shutdown increases the chance of a settlement."
--Richard Williams, senior analyst, ICAP

RIM recognized that its appeal to the Supreme Court was a long shot, but it reiterated that it still has a chance at the district court level to avoid a massive shutdown of its service.

"RIM has consistently acknowledged that Supreme Court review is granted in only a small percentage of cases," Mark Guibert, vice president of corporate marketing for Research In Motion, said in a statement. "And we were not banking on Supreme Court review. The Patent Office continues its re-examinations with special dispatch. RIM's legal arguments for the district court remain strong, and our software workaround designs remain a solid contingency."

NTP filed a patent infringement lawsuit against RIM in 2001. The company won the case, and in 2003, U.S. District Judge James Spencer granted an injunction against RIM to halt U.S. sales of the BlackBerry device and its service. Spencer stayed the injunction, pending RIM's appeals.

Last August, an appeals court upheld the patent infringement claims, but scaled back the ruling against RIM.

Now that the U.S. Supreme Court has denied RIM's request to hear a case and clarify the extraterritorial reach of U.S. patent law, the company will turn its efforts to the U.S. district court in Virginia, which seems ready to move forward with the injunction. The judge in the case has ordered both sides to file response briefs by Feb. 1, and a hearing is expected within the next few weeks to determine the scope of any eventual injunction that may be issued.

To help clarify the language of the injunction, NTP last week proposed that BlackBerry customers get a 30-day "grace period" before any cutoff. The company also proposed that the injunction should exempt federal, state and local government BlackBerry users, as well as emergency first-responders, from any service cutoff.

RIM said in its filing that it would be "difficult, if not impossible" to cut service to some customers while maintaining it for the government.

The company has been claiming for several months that it has a software "workaround" to skirt the patents at the center of the legal battle. But it also has argued that an injunction would be disruptive to customers even with the workaround because implementing it requires reloading software on servers and handhelds.

"The situation looks bad for RIM right now," said Stephen Maebius, a partner with Foley & Lardner in Washington, D.C. "But on the other hand, RIM says it has a workaround ready to go. The question then becomes how easy it will be for them to flip the switch and convert customers to the workaround."

Separately, RIM is also challenging the validity of the NTP patents before the U.S. Patent and Trademark Office. Some experts say this process could take years to complete. But there are indications that the Patent Office may be moving faster than it has in the past. In December, the office issued "non-final actions" rejecting claims for two NTP patents involved in the dispute with RIM. If the Patent Office ends up saying that RIM is not infringing on any of the NTP patents in question, the case could take yet another serious twist that could lead to more legal wranglings.

But some Wall Street analysts say they don't expect an outage to occur. They are hopeful that the two companies will reach an agreement to settle the case. Last year, RIM offered to pay NTP $450 million. But NTP rejected the offer. More recently, the two sides have been in negotiations.

"In a very small increment, (the Supreme Court's rejection of the case) increases the risk of a shutdown, and anything that increases the risk of a shutdown increases the chance of a settlement," said Richard Williams, a senior analyst at ICAP. "A settlement, in our perspective, is a net positive for the stock, at least in the short run."

CNET News.com's Anne Broache contributed to this report.