Perspective: Welcome to litigation land, 2006

Investors will no doubt be relieved, but the outcome of the patent dispute between Research In Motion and NTP isn't a happy harbinger for technology entrepreneurs.

Sure, the agreement announced late Friday removes the cloud of uncertainty that has followed RIM since NTP first filed its lawsuit in 2001. All RIM management had to do to make this go away was pony up $612.5 million and agree to a licensing deal.

But let's call this charade for what it is.

The technology industry is predicated on the (perhaps naive) belief that the company building the best mousetrap should win. That's not what happened here.

In 2002, a jury originally found RIM culpable of patent infringement. With all due respect to the average intelligence of our citizenry, there's good reason to ask whether they knew what they were doing. Sure, I wouldn't trade the jury system for anything, but don't tell me a jury can't occasionally get snookered by a sharpie lawyer. And after serving on a couple of juries, I can attest there's no guarantee that "justice" will get done--especially if your fellow jurors are in over their heads with a supertechnical case.

But let's call this charade for what it is.

I put far more credence in the expertise of the folks at the U.S. Patent Office, whose profession is to know a thing or two about patents. So it was that the Patent Office issued not one but two rejections of NTP's claims.

Back to RIM. If management had refused to settle, there was always the risk that the presiding judge in the case would shut the service down in the United States. RIM says it had developed a work-around, but why flirt with potential disaster? Who knows how it would have performed? The company did the smart thing and cut its losses.

And real losses they were. This extends beyond the uncertainty surrounding RIM's share price or the money paid to NTP. RIM's growth trajectory has been extraordinary over the last several years. But as it announced terms of the deal, the company also warned that its quarterly earnings will come in as much as $60 million shy of expectations because subscriber growth will drop far below the 700,000 to 750,000 forecast earlier.

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No doubt RIM is feeling the pinch from stepped-up competition from the likes of Palm, Microsoft and big telecommunications device makers such as Nokia. But how many potential customers decided to steer clear of RIM because of the threat of a looming shutdown? We'll never know the final answer, but don't kid yourself. Had this lawsuit gone the other way, we'd be reading about a much smaller shortfall--if any.

RIM can turn the page now and get on with its business. But what's the larger message for technology developers? RIM does everything right and still winds up paying ransom. The clear subtext is to make sure you hire the best lawyers money can buy. Otherwise you may wind up paying through the nose--or even worse.

Welcome to litigation land, 2006. You have to shake your head in wonder.

Biography
Charles Cooper is CNET News.com's executive editor of commentary.

More Perspectives

[bigpicture]

Who to Blame

But as with all fiasco's there is the "Ultimate Responsibility" issue. If this had been a medical, error there would have been huge malpractice suits, and someone would be at fault.

This is a Governing System faux pas, so who should be at fault but the Government, for creating and not correcting flawed governing systems.

RIM should sue the US government for recovery of the $612M as wrongful losses, due to a flawed Patent System.

[battlefella]

Who to blame?

I wouldn't necessarily say the Patent system is to blame, but the legal system sure is. The Patent office is, slowly but surely, examining and correctly rejecting the NTP patents as invalid due to prior art. However, the legal system allows extortion and blackmail like that of NTP to not only succeed, but to do so with flying colours. The original 'failed' settlement between RIM and NTP involved a halt to payments if the NTP patents were deemed invalid; of course NTP didn't want this (since such a result was likely), and so they managed to extort their way through the courts to get more.

Funny part is all the 'analysts' that claimed that a settlement was the best thing RIM could do, and they should have done it long ago. Clearly the future of innovative technology never crossed their minds...

[micjohnson]

I still don't understand...

...Why RIM would settle if the patents got rejected. I haven't seen a good explanation of this anywhere yet! If the gov't says the patents are invalid, then what's the point of giving them six-hundred-plus million dollars?

[gggg sssss]

lawyers

What is it the say about lawyers and the bottom of the sea? This was just a bunch of ambulance chasing lawyers who worked the legal system to get an injunction that would have killed rim while waiting for the rest of the worthless patents to be invalidated. Will NTP give the money back when that happens? Technology innovation played no part in this.

[tophut]

Patents are valuable for Technology Entrepreneurs

As an entrepreneur running a small firm that has done technology development for 7 years, patents are an extremely valuable tool. In fact patents and their effective enforcement strongly favor technology entrepreneurs. Patents provide a primary protection that my company's limited investments in R&D doesn't get simply copied. The patent process thus encourages technology development.

Also, having worked directly with the USPTO on about 8 different applications, I think they overall do a good job. It is not easy to get broad patents. The countries where the majority of people live in the world effectively have zero patent protection available for technology entrepreneurs.

One of the best success stories of patents facilitating investment would be Qualcomm. It would have been much, much harder for them to take the risk and complete the initial development work for CDMA in the early '90s without lots of lawyers and patents. Their investment has really turned into the global standard for 3G.

This particular case was interesting enough that I looked through the RTP claims. Needless to say, the claims and case are extremely complex. It is very hard to say who was right, and without knowing the details of the case, I have to refrain from judgement. I can say that a strong patent system and methods of enforcing patents are critical for my business, and I would suspect for the wider US economy as well.

[tophut]

Patents are essential

As an entrepreneur running a small firm that has done technology development for 7 years, patents are an extremely valuable tool. In fact patents and their effective enforcement strongly favor technology entrepreneurs. Patents provide a primary protection that our limited investments in R&D doesn't get simply copied. The patent process thus encourages technology development. If you have a good patent that is valuable, you also really don't have to worry too much about lawyer bills.

Also, having worked directly with the USPTO on about 8 different applications, I think they overall do a good job. It is not easy to get broad patents. The countries where the majority of people live in the world effectively have zero patent protection available to technology entrepreneurs.

One of the best success stories of patents facilitating investment would be Qualcomm. It would have been much, much harder for them to take the risk and complete the initial development work for CDMA in the early '90s without lots of lawyers and patents. Their investment has really turned into the global standard for 3G.

This particular case was interesting enough that I looked through the RTP claims. Needless to say, the claims and case is extremely complex. It is very hard to say who was right, and without knowing the details of the case, I have to refrain from judgement. I can say that a strong patent system and methods of enforcing patents are critical for my business.