The BlackBerry battle: Could RIM lose all rights to mobile e-mail in the US?

Waterloo (Ontario) - After losing a petition last Friday in the US Court of Appeals for the Federal Circuit (CAFC) to have its case reheard, and potentially a decision against it overturned, Research in Motion, suspended trading of its shares on the NASDAQ exchange for three hours today. Traders, customers, and RIM itself found themselves faced with the very real ramifications of the company losing the rights to offer mobile e-mail service in the US.

It is a landmark patent case in a landscape that is now pock-marked with landmarks : What makes it both unusual and important are the following factors :

RIM is a Canadian company. Typically, US patent law has not extended towards companies headquartered outside US boundaries, or that conduct most of their business there. But last December, the CAFC ruled that a company that deploys a technology such that its "control and beneficial use" lie within US boundaries, is subject to US patent law. Should RIM eventually lose this battle, many overseas companies that develop technology primarily for US markets, may find themselves the subjects of US-based litigation.

NTP, the plaintiff, is not a manufacturer. It is simply a holder of patents, whose revenue is earned by the licensing of patented technology to other companies. NTP claims that RIM infringed upon not just a few, but perhaps as many as several hundred separate patents.

This case distinguishes between two aspects of technology : namely, systems and methods. In determining its opinion two months ago in favor of NTP’s arguments, the CAFC stated that a "method" can only be considered as falling under US protection if each of the steps involved in that method were performed under US boundaries. RIM argued that its technology constituted such a method ; but the CAFC determined that it was instead a "system," which can fall under US law if it is both controlled and operated in the US. Although RIM’s financial base is in Canada, both the control and operation of its American subsidiaries fall within American borders.

This case was supposedly settled on 16 March, with RIM agreeing to pay NTP $450 million, supposedly for a permanent license to BlackBerry technology, with NTP agreeing to stop pursuing RIM. Both sides issued press releases hailing the agreement. But later, NTP claimed that the term sheet on which the agreement was written - allegedly a handwritten list on one-half sheet of paper, which has not been made public - was insufficient to represent a complete agreement. So RIM took NTP back to court in June, in an attempt to win the CAFC’s backing of the term sheet as a legal agreement. The final decision on this matter could have some bearing on what protocols are necessary for crafting a legally binding settlement agreement using a mere paper and pencil.

NTP’s patent claims have already been initially rejected by the US Patent Office, for what is called a "first office action." But initial rejection, under current US patent law, is almost always the first course of action taken by the Patent Office once it finds significant evidence of prior art - evidence of the claimed work already in existence. NTP was given time to issue its response to the Patent Office’s rejection, which would enable the claim to undergo re-examination ; and NTP has done so. At the same time, almost in parallel, NTP’s case against RIM was under review by the CAFC, which could not legally interpret the initial rejection as a final rejection, and thus still considers NTP’s claims, for now, at least arguable. If NTP’s claims are, at last, given final rejection by the Patent Office, NTP would be given a chance to appeal the ruling to an administrative board, and perhaps from there, to the CAFC once again.

Possible changes to federal patent law could affect the outcome. Today, NTP is seeking an injunction against RIM, which would prevent it from operating its "system" in the US. Last Friday’s CAFC decision effectively remands the case to District Court, which already issued the injunction, although that injunction was stayed pending RIM’s appeal to the CAFC. The District Court could reaffirm the injunction. However, in the meantime, RIM has 90 days to appeal the CAFC’s decision to the US Supreme Court ; and then NTP would be given 30 days to respond in turn. During that time, proceedings in the US House of Representatives could very well change US patent law, rendering NTP’s injunction void. Under debate at the present time is the following suggested language, for amendment to what will probably be the Patent Reform Act of 2005 :

In determining equity, the court shall consider the fairness of the remedy in light of all the facts and the relevant interests of the parties associated with the invention. Unless the injunction is entered pursuant to a nonappealable judgment of infringement, a court shall stay the injunction pending an appeal upon an affirmative showing that the stay would not result in irreparable harm to the owner of the patent and that the balance of hardships from the stay does not favor the owner of the patent.

In other words, if RIM could show that an injunction against it would force it to cease doing business everywhere in the world, including Canada, then such an injunction could probably be declared invalid, and no grandfather clause could apply to say otherwise.

Dennis Crouch, a patent attorney with McDonnell Boehnen Hulbert & Berghoff LLP, who runs the popular patent law blog Patently-O, advised TG Daily for this report. We asked Crouch if the potential changes in US patent law could make it less possible for a non-manufacturer to file patents for technologies with the sole intent of defending those claims in court - what some call "malicious patenting." "A patent is a legal instrument that gives you the right to sue somebody for patent infringement," Crouch told TG Daily. "Although when people file a patent, they don’t necessarily intend to sue anyone else, that is the ultimate power of the patent. If you can’t sue someone for infringing, there’s no reason for people to pay a license fee. The courts don’t see it as something done in bad faith if you do it to enforce your patent."

If the Patent Reform Act passes before the Supreme Court decides whether it will hear the case - which Crouch believes it will decline to hear - he believes rather than an injunction, at worst, RIM may be forced to pay NTP a license fee...which it was willing to do earlier this year anyway. "Most likely, if the injunction is not yet issued and the law passed," Crouch said, "then RIM would be able to fall under the new law." But he also believes, in the wake of other pending business before Congress, such as judicial nominees and hurricane relief, "it’s unlikely at this point that that provision in particular will get passed this year."

Yet in the end, though, Crouch stated, "I believe there is very little chance that there will be an injunction. The reason is because it would simply kill RIM’s business. They’re going to do whatever they can to ensure an injunction will not issue." One option would be a higher price than the $450 million RIM was willing to pay.