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RIM pays up, taking 'one for the team'

The makers of the popular BlackBerry wireless messaging service left little doubt that they felt fleeced after paying $612.5 million to license patents they long denounced as illegitimate.
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Millions of corporate soldiers with hyperactive thumbs can relax — their BlackBerries will keep working.

Officials of BlackBerry's maker Research In Motion Ltd. can relax as well and begin rebuilding their business, which suffered in recent months as corporate users fretted about a potential interruption of the company's wireless messaging service.

Nevertheless RIM executives left little doubt Friday that they felt fleeced after paying $612.5 million to NTP Inc. for licensing patents they long denounced as illegitimate.

"It's not something that anyone feels good about," RIM Chairman Jim Balsillie said in a conference call. "It's not a good feeling to write this kind of check, because it's a lot of money for patents that will not survive for sure."

Despite those righteous feelings, the uncertainty created by the possibility of a court injunction against the company was taking a toll on the business. Concurrently with the settlement news, RIM announced it added about 625,000 net new subscribers in the latest quarter, bringing its total user base to about 5 million. But that was far short of the 700,000 to 750,000 new subscribers that were expected in the period.

Revenues were about 8 percent below expectations, based on preliminary accounting, and the company earned about 65 cents a share before the legal costs, compared with a projected range of 76 to 81 cents a share.

Wall Street normally would punish an shortfall of that magnitude, but early indications are that investors are more relieved that RIM has put the threat of a service interruption behind it. The company's stock price was up 18 percent to about $84 in extended-hours trading after the news of the settlement was announced.

"It's generally good news," said Tavis McCourt, an analyst with Morgan, Keegan & Co. "I would imagine that the reason for the earnings miss was there was a lot of hesitation for businesses to expand their BlackBerry deployment because of the concern of an injunction. With the danger of that out of the way, I would think their business will rebound."

Indeed company executives said they hoped to tap "pent-up demand" for new BlackBerry hardware and services and said they were not aware of any corporate users decommissioning their service because of the litigation. Some corporate users, however, have been working on contingency plans including switching to rival operators like Palm Inc.

While RIM executives said the U.S. Patent Office agreed with their position that the NTP patents should never have been granted, they acknowledged that those rulings were not being recognized by lower courts, and the Supreme Court had refused to hear the case.

As the company continued to fight the legal battle, it was forced to develop a costly technical workaround that would have allowed it to continue offering service without infringing on any patents but might have caused a bumpy transition for a service that is sold on the basis of its seamless reliability.

"It's clear there is going to be patent reform, but the court made it clear they weren't going to wait," said Balsillie. "At that point we had to do what was best for all stakeholders. There is no question we took one for the team here."

NTP co-founder Donald Stout issued a statement saying, "We are pleased to have reached an amicable settlement with RIM. We believe that the settlement is in the best interests of all parties, including the U.S. Government and all other BlackBerry users in the United States."

RIM executives said their payment entitles the company and BlackBerry software developers a full and unfettered license in perpetuity with no ongoing royalty payments.

RIM already had set aside $450 million for a potential settlement, so the $612.5 million was within the range of what analysts generally expected.

"Clearly a settlement a year ago would have been much better than a settlement today, but who knows if NTP was offering anything real a year ago?" said McCourt, the analyst.