Analysts: Fear, Uncertainty Could Hurt RIM

As mobile device maker Research in Motion rushed to put a positive spin on
Tuesday’s penalty phase of its patent infringement case with NTP, analysts are warning that
the ongoing brouhaha could chase enterprise customers away.

In a stunning decision, U.S. District Judge James Spencer ruled that
Research in Motion must stop selling its flagship
BlackBerry handheld devices in the U.S. — its largest market — because
technology within the two-way wireless devices infringed on patents owned by
Virginia-based NTP Inc.

The judge then delayed the impact of the ruling to allow RIM to file an
appeal and ordered the company to pay approximately $54 million in damages
and legal fees to NTP. But, even though RIM can continue marketing
Blackberry devices in the U.S., analysts believe the “fear and uncertainty”
could open the doors for RIM’s competitors.

“This is not good news for RIM as the U.S. is their largest market. Even
though the judge did not execute the injunction effective immediately, the
fear and uncertainty will likely have many corporate users look to
competitive solutions,” said Michael Gartenberg, a Jupiter Research
analyst.

Gartenberg said large enterprises, which make up the most valuable
customer base for RIM, would start looking at competing devices from the
likes of Microsoft, Good Technology, Palm and Visto if the legal proceedings
drag on.

Officials from RIM declined comment beyond a statement issued Wednesday
that made it clear the company plans to file an appeal. Additionally, RIM
plans to petition the Court of Appeals to stay the appeals process until the
U.S. Patent and Trademark Office can reexamine the patents claimed by
NTP.

“All five of the NTP Inc. patents litigated will be reexamined,” RIM
insisted.

RIM’s lead attorney Henry Bunsow said the court’s decision to stay the
injunction was “appropriate” given the frequency of successful appeals at
the appellate level.

While RIM’s future in the U.S. market hinges entirely on winning the
appeal, Bear Stearns analyst Andrew Neff warned that court ruling gives NTP
leverage to exact onerous licensing terms.

In a research report, Neff said the certainty surrounding RIM’s ability
to license its technology would hurt the company’s bottom line in the short
term. Like Jupiter’s Gartenberg, Neff said emerging competitors like Good
Technology, Dell and companies marketing VPN-based handhelds stand to grab
market share in the enterprise space.

In addition to the e-mail pager devices, RIM also sells wireless PC cards
for laptops and handheld computers. The Waterloo, Ontario-based company
generates the bulk of its revenue from sales to corporations, resellers and
wireless carriers and if the litigation drags on, the analysts warned that
RIM could lose its stranglehold in the U.S. market.

Meanwhile, a spokesman for NTP said the company was thrilled with the
ruling and planned to continue inking licensing deals for its patents. “We
open to negotiating with anyone, including RIM,” the spokesman said.

Legal issues aside, the latest ruling could also put a dent in RIM’s
valuation, especially with rumors floating of a possible merger with HP.
Last week, RIM’s stock price enjoyed a spike on the HP takeover speculation
but the legal headaches could put a crimp in any acquisition.

RIM declined to comment on the acquisition chatter.

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