RIM gets Supreme Court snub in patents saga

The prospect of a US shutdown of the BlackBerry mobile email service is closer to becoming reality, as the US Supreme Court on Monday turned down a request to review a major patent infringement ruling against BlackBerry-maker RIM.

The court rejected a petition by RIM to review a federal appeals court ruling that could lead to a shutdown of most US BlackBerry sales and service.

In 2004, the Court of Appeals for the Federal Circuit, the only federal appeals court in the country for patent cases, rejected RIM's argument that it was not infringing on NTP's patents because a critical piece of the BlackBerry service was located in Canada and not in the US.

RIM then petitioned the US Supreme Court to hear the case and filed an emergency request asking to stay the lower court's decision until the high court decided whether to hear the case. But RIM lost that fight in October when its request was rejected by the court.

RIM recognised that its appeal to the Supreme Court was a long shot but it reiterated that it still has a chance at the district court level to avoid a massive shutdown of its service.

Mark Guibert, vice president of corporate marketing for RIM, said in a statement: "RIM has consistently acknowledged that Supreme Court review is granted in only a small percentage of cases. And we were not banking on Supreme Court review. The Patent Office continues its re-examinations with special dispatch. RIM's legal arguments for the district court remain strong, and our software workaround designs remain a solid contingency."

NTP filed a patent infringement lawsuit against RIM in 2001. The company won the case, and in 2003, US District Judge James Spencer granted an injunction against RIM to halt US sales of the BlackBerry device and its service. Spencer stayed the injunction, pending RIM's appeals.

Last August, an appeals court upheld the patent infringement claims but scaled back the ruling against RIM.

Now that the US Supreme Court has denied RIM's request to hear a case and clarify the extraterritorial reach of US patent law, the company will turn its efforts to the US district court in Virginia, which seems ready to move forward with the injunction. The judge in the case has ordered both sides to file response briefs by 1 February and a hearing is expected within the next few weeks to determine the scope of any eventual injunction that may be issued.

To help clarify the language of the injunction, NTP last week proposed that BlackBerry customers get a 30-day "grace period" before any cut-off. The company also proposed that the injunction should exempt federal, state and local government BlackBerry users, as well as emergency first-responders, from any service cut-off.

RIM said in its filing that it would be "difficult, if not impossible" to cut service to some customers while maintaining it for the government.

The company has been claiming for several months that it has a software "workaround" to skirt the patents at the centre of the legal battle. But it has also argued that an injunction would be disruptive to customers even with the workaround because implementing it requires reloading software on servers and handhelds.

Stephen Maebius, a partner with Foley & Lardner in Washington, DC, said: "The situation looks bad for RIM right now. But on the other hand, RIM says it has a workaround ready to go. The question then becomes how easy it will be for them to flip the switch and convert customers to the workaround."

Separately, RIM is also challenging the validity of the NTP patents before the US Patent and Trademark Office. Some experts say this process could take years to complete. But there are indications that the Patent Office may be moving faster than it has in the past. In December, the office issued "non-final actions" rejecting claims for two NTP patents involved in the dispute with RIM. If the Patent Office ends up saying that RIM is not infringing on any of the NTP patents in question, the case could take yet another serious twist that could lead to more legal wranglings.

But some Wall Street analysts say they don't expect an outage to occur. They are hopeful the two companies will reach an agreement to settle the case. Last year, RIM offered to pay NTP $450m. But NTP rejected the offer. More recently, the two sides have been in negotiations.

Richard Williams, a senior analyst at ICAP, said: "In a very small increment, [the Supreme Court's rejection of the case] increases the risk of a shutdown, and anything that increases the risk of a shutdown increases the chance of a settlement. A settlement, in our perspective, is a net positive for the stock, at least in the short run."

CNET News.com's Anne Broache contributed to this report

Marguerite Reardon writes for CNET News.com