Patent clash over BlackBerry grows political

TORONTO — The Canadian creators of the BlackBerry, the wildly successful wireless e-mail device embraced by so many Americans, say they will take their patent dispute with a Virginia company all the way to the U.S. Supreme Court, if necessary.

And they just got a powerful ally.

The Canadian government has entered the patent-infringement case, determined to protect its nation's greatest high-tech success story.

Canada claims a recent U.S. federal court ruling against Research In Motion (RIM), the Ontario-based makers of the BlackBerry, threatens to have a "troubling effect of chilling innovation by Canadian companies."

Henry Bunsow, an attorney for RIM, said the company would not settle out of court and is prepared to argue before the U.S. high court.

Most of RIM's 2 million subscribers are in the United States.

Handheld-device market share


Worldwide market share of shipments of 2.9 million devices in the third quarter of 2004

Company Percentage

PalmOne 26.2

Hewlett-Packard 24.2

Research in Motion

(BlackBerry) 19.8

Dell 6.5

Symbol Technologies 2.2

Others 21.1

Source: Gartner Dataquest

"If the United States is going to be asserting their patent laws to cover activities in Canada, then what's to stop Canada from asserting its laws in the United States?" Bunsow said from San Francisco. "It really creates chaos and it obliterates what has been pretty sacrosanct territorial limitations previously."

The dispute began in 2002 when NTP of Arlington, Va., claimed RIM infringed on 16 of its patents, including its radio communications technology.

In 2003, a federal court in Virginia agreed that 11 of those 16 patents had been violated. It awarded NTP $54 million in damages, as well as an 8.6 percent royalty on all revenue from U.S. BlackBerry sales.

The court also ordered an injunction to prevent RIM from making or selling its devices in the United States.

The injunction was postponed, however, while RIM appealed. On Dec. 14, a three-judge U.S. appeals-court panel struck down the verdict and injunction. Yet it upheld most of the patent-infringement claims, sending the case back to the lower court for reconsideration.

Meanwhile, RIM insists U.S. patent laws have no territorial rights in Canada. The Internet service provider EarthLink, which is among sellers of the BlackBerry service in the United States, has filed a "friend of the court" brief supporting RIM.

So far, the U.S. courts have favored the home team, although the U.S. Patent and Trademark Office is reviewing NTP's original patents.

The Arlington, Va., company argues that RIM is using its technology to make millions of dollars in the United States, and that U.S. patent laws should rule because the beneficial use of the system is there.

Donald Stout, a co-founder of NTP and the company's attorney, said RIM's "Canadian defense" is flawed. Although e-mails routed by BlackBerries may pass through RIM's Waterloo headquarters, they begin and end in the United States, use a U.S. wireless carrier, a U.S. server and typically a device purchased in the United States, Stout said.

"It all has to work in concert," he said.

The BlackBerry handheld device, which debuted in 1999, uses a full keypad for thumb typing and can automatically send and receive e-mails. That simple formula became a huge hit with on-the-go information addicts, especially on Wall Street, in courthouses and in the halls of government, including Congress.

RIM's products now include devices that combine wireless e-mail with cellular phone technology. Its handhelds work on wireless networks in 30 countries in North America, Europe, Asia and South America.

Research In Motion reported last month a third-quarter profit of $369.5 million, up 138 percent from $153.9 million a year earlier. The number of subscribers has soared to more than 2 million.

RIM denies the alleged patent violations and says its key technology is homegrown.

"There are issues that really go beyond the fundamental costs. We do not want to create a precedent that opens up other companies to this type of strong-arm tactics," said Bunsow.

In a brief filed by the Canadian Department of Justice on Jan. 13, Ottawa urged the U.S. Court of Appeals in Washington, D.C., to grant a request by RIM to rehear the case before all 12 judges, saying it was concerned the lower court's decision could be "applied in an inappropriately extraterritorial or discriminatory fashion."

The full court is expected to hear oral arguments in February.

Josh Lerner, a Harvard Business School professor and co-author of the new book, "Innovation and Its Discontents: How Our Broken Patent System is Endangering Innovation and What to Do About It," said the outcome of the case could be far-reaching and must help to set the boundaries for territorial patent claims.

"Uncertainty is the enemy of investment," Lerner said. "One of the major concerns of people in the patent system in the last 100 years has been trying to get a system where we didn't run into situations where you had countries falling all over each other in terms of policies."