February 9, 2006

RIM Unveils Plan to Keep BlackBerrys Alive

OTTAWA -- Research In Motion on Thursday unveiled a plan that it says will let its addictive BlackBerry e-mail device work even if it loses a patent fight, and said the workaround will prevent a shutdown of service in the United States.

In an announcement made as the clock ticked to a February 24 court hearing on patent holding company NTP Inc.'s request for an injunction to halt U.S. BlackBerry service, RIM also said it was still willing to negotiate a deal.

NTP questioned why RIM wasn't just introducing the changes and said RIM was trying to bully it. One analyst described the announcement as part of a "high stakes poker game."

The Canadian technology company, whose device is dubbed "CrackBerry" by many users, said it has taken a "pragmatic and reasonable" stance in mediation. But it called NTP's offer to license disputed technology "untenable."

The legal battle is heating up ahead of a hearing that could be the final step before U.S. District Judge James Spencer decides whether to impose an injunction granting NTP's request -- potentially shutting off more than 3 million BlackBerry subscribers.

The U.S. Justice Department has argued against a shut-down, saying NTP has not submitted enough evidence to show government users could be exempted "without substantial hardship."

NTP sued RIM for patent infringement in 2002 and won an injunction in 2003 to shut down the U.S. service.

That injunction was stayed pending appeals, and the court has issued several rulings since. RIM shares moved like a yo-yo, depending on whether the rulings looked good or bad.

The stock added 4.5 percent on Thursday, up $3.05 at $71.70 on Nasdaq and C$3.58 at C$82.23 on the Toronto Stock Exchange.

"It's a very high stakes poker match," Canaccord Adams analyst Peter Misek said. "I think what's going on here is that NTP was daring RIM to unveil the workaround to let them know whether or not they actually had one."

RIM said it has developed and tested software workarounds for all BlackBerry handsets operating in the United States and will activate the changes if there is an injunction.

RIM said the workaround alters the way e-mail messages are delivered and queued, but "users will not see any changes in the way they use the BlackBerry device."

"RIM's workaround provides a contingency for our customers and partners and a counterbalance to NTP's threats," said RIM co-chief executive Jim Balsillie. "This will hopefully lead to more reasonable negotiations, since NTP risks losing all future royalties if the workaround is implemented."

NTP co-founder Don Stout said the onus is on RIM to reveal its workaround more fully and then convince the court it does not infringe any NTP patents.

"To tell the world they have a workaround without sharing what it is, to me suggests they're not comfortable with it," Stout said. "If they've got a workaround, go do it. I mean, quit screwing around with tantalizing the world."

He added: "They're just using the bully pulpit again."

RIM, based in Waterloo, Ontario, said it has filed patent applications for its workaround and will soon begin shipping handsets with the software update in a dormant mode.

It will make the free update available at www.blackberry.com/workaround at a later date for customers to download and install.

RIM said a patent law and workaround expert believed its designs do not infringe on any of the NTP patent claims remaining in the lawsuit.

"The legal merits of the workaround will be challenged by NTP," American Technology Research analyst Rob Sanderson said in a note. "This could mean the legal battle continues for an extended period, perhaps years."

(Additional reporting by Robert MacMillan)