Settling lawsuit turns BlackBerry loose

After a court battle that dragged on for more than four years and consumed an untold amount of money, legal resources and emotional energy - not to mention taking its toll on the company's share price - Canada's handheld device maker Research In Motion has finally settled the patent infringement lawsuit launched by US-based NTP. The terms required the maker of the popular BlackBerry email device to pay NTP US$612 million ($952 million).

Although that is a substantial sum, the company's stock still jumped by more than 16 per cent on the news, since many analysts expected the final settlement could be twice or even three times thatamount. From that standpoint, the deal was a win for RIM, and it also removes the potential for any claims by the US company against either future RIM products or against any of the handheld maker's customers, including the major telecom carriers who distribute BlackBerrys.

For its part, RIM had to give up the chance to reopen the deal or seek repayment of the US$612 million if the patents that NTP holds are invalidated by the US Patent and Trademark Office. The PTO has thrown out all but one of the patents that related to the case against RIM and has indicated it will likely dismiss the remaining patent as well. But the US company can appeal those decisions to the Patent Appeal Board and can in turn appeal any ruling at that level to the US Court of Appeal, a process that could take years.

Although the settlement will eat into RIM's cash flow to a certain extent, the company had set aside a reserve for a settlement and had US$1.8 billion in cash on hand when the deal was signed. Putting the legal questions behind it will also definitely have an uplifting effect on RIM's business, most analysts said, since some customers and potential customers had likely avoided buying BlackBerrys as a result of the legal uncertainties.

The impact of that avoidance was obvious from RIM's quarterly financial results, which it released at the time the settlement was announced. The company said the number of new subscribers added in the period was substantially lower than most analysts were expecting, and RIM said this was in part because of the case. Revenue was also lower than the company had estimated it would be for the quarter, and profit came in below expectations as well.

Brokerage firm Paradigm Capital said in a research report that the deal was a "big win for RIM" and that now the company could "claw back lost business". It said the stock would likely continue to rise in value even if RIM's growth rate didn't increase at all, because investors would now be willing to pay more for existing profit and sales growth as a result of having that uncertainty removed. Paradigm's target price for the stock was set at C$134 ($180).

Other brokerage firms have also said the company should now be able to grow faster than it had been. Research Capital said it believed the "removal of the lawsuit overhang will boost demand and allow RIM to make up for the shortfall witnessed in the fourth quarter".

The brokerage firm boosted its stock target to C$117 and said RIM's BlackBerry remained the "most cost-effective to deploy, provides the utmost security, uses the least amount of bandwidth and provides extensive platform support".

That doesn't mean the company doesn't have a struggle on its hands. While RIM has been putting its resources into the battle with NTP, competitors such as Microsoft, Palm and Nokia have been beefing up their offerings and putting some pressure on the BlackBerry. Microsoft is rolling out an upgrade to its corporate Exchange server software that will allow companies to offer "push" email - one of the BlackBerry's most popular features - to any Windows mobile device. The added features will be free to any Exchange user.

Palm, meanwhile, sold almost as many of its popular Treo phone/PDA handsets in the last quarter as RIM did BlackBerrys, and the company has a new model coming out that runs on Microsoft's Windows Mobile operating system, which might appeal to certain customers. Nokia, the leader in cellphone handsets, is rolling out its own push email software this year, which it says will soon bring those BlackBerry-style features to any Java-enabled Nokia cellphone.

In other words, RIM isn't going to have the market all to itself just because it settled the case with NTP.

Whether RIM can make up the ground it has lost and maintain its lead remains to be seen, but at least it is no longer hobbled by the threat of a court-ordered injunction.