Timing is everything

27 Apr 2006

Having handed over €612.5m to NTP Inc to head off the much-anticipated BlackBerry injunction, Jim Balsillie, chairman and co-chief executive of Research In Motion (RIM), the makers of the BlackBerry device, observed with Twainian understatement that it was ‘not a good feeling to write this kind of cheque’.

The fact that the matter might have been settled with NTP for less than US$10m before the case went to trial in 2002 was no doubt a source of additional discomfort for RIM.

In patent disputes, timing and commercial context can be just as important as the strength of the substantive legal case. No doubt there were factors bearing on RIM that limited its room for manoeuvre in this regard. Nevertheless, the case stands as an illustration of the importance of factors relating to timing and the market, particularly for ICT companies breaking into the US market.

A number of features affect the ICT market in the US and need to be factored in when considering patenting technology in America:
* as is the case everywhere, ICT inventions tend to become obsolete quickly — the field is characterised by exponential technological progress and no one technology can bank on having more than a limited time in the sun
* in the US software-related inventions are eminently patentable, in contrast to the legally complicated situation in the EU
* accordingly, the ICT patent field is crowded and patent filing programmes tend to be defensive in nature, often conducted less to carve out an area of complete monopoly but rather to have a defensive family of rights with which to ward off attack or negotiate co-existence with competitors
* the ICT field perhaps lends itself more than others to the phenomenon of ‘patent trolls’ — those who make no product but who innovate and patent the results of innovation with a view to seeking royalties if and when a third party stumbles on to the protected area — NTP is a so-called patent troll
* American lawyers can and do work on a ‘no foal no fee’ basis and there is no general rule in US litigation that the losing party in litigation pays the legal fees of the winner, with the result that two powerful litigation risk factors for plaintiffs this side of the Atlantic do not act as a brake on litigation in the US.

These features mean that in the US there are a lot of people in the ICT sector with patents and when the stakes are right, they are not afraid to use them.

In the BlackBerry case, NTP sued RIM on five patents. RIM had strong legal arguments on its side — at the time of the settlement, the US Patent Office had held two of NTP’s patents to be invalid and signalled that it was about to invalidate the remaining three. RIM nevertheless paid NTP more than US$600m to secure an ongoing licence. Why?

The answer is time, or rather the lack of it. RIM needed to hold out for an invalidity finding. However, even if the Patent Office had finalised its decision in relation to all five of NTP’s patents, an appeal process undoubtedly would have been invoked by NTP, which would take further years to come to completion. Meanwhile, RIM had come to the end of a judicial process that had been ongoing for approximately five years.

The choice open to RIM was either to potentially sustain an injunction that would take the BlackBerry device off the market for upwards of two years with a view to re-launching if and when NTP’s patents were definitively revoked, or, alternatively, do a deal to keep BlackBerry on the market. At a time when competitors such as Microsoft and Nokia were massing at the technological gates, RIM chose to pay NTP a sum that amounted to 60 times NTP’s original price in order to secure the continuation of the BlackBerry business.

The lessons from this case for those with valuable innovative technology in the ICT field are:
* the more valuable the technology, the more others will want a piece of the action — factor in as a business cost the expense of patenting your own technology, dealing with potentially blocking third-party patents and dealing with claims of patent infringement
* take a realistic stance on patent litigation and not a morally outraged one — if your adversary is a patent troll, you can argue that your adversary does not need an injunction to protect its business and is simply wielding the prospect of an injunction to extract an extortionate licence fee. However, do not assume that the courts will feel a bona fide innovator to be unworthy of the full benefit of the patent monopoly just because he does not himself make a product
* weigh up your bargaining position — the strength of your case; possible attacks on the validity of the patent in question; the time it will take you to get a final decision pending attack; the danger of an injunction in the meantime and the time frame relating to that; your ability to survive adverse publicity or an injunction pending the invalidity attack; and, having weighed up all the factors, consider whether a deal would be preferable to litigating
* keep an eye on whether the balance of the factors listed above shifts in the course of the litigation process.

By Yvonne McNamara, a partner in the intellectual property practice of McCann FitzGerald