BlackBerry Extortion

by on December 12, 2005 · 6 comments

I linked to this classic article on the problems of software patents on Saturday. I think this passage is worth highlighting:

Even the giants cannot protect themselves with cross-licensing from companies whose only business is to obtain exclusive rights to patents and then threaten to sue. For example, consider the New York-based Refac Technology Development Corporation, representing the owner of the “natural order recalc” patent. Contrary to its name, Refac does not develop anything except lawsuits–it has no business reason to join a cross-licensing compact. Cadtrak, the owner of the exclusive-or patent, is also a litigation company.

Refac is demanding five percent of sales of all major spread-sheet programs. If a future program infringes on twenty such patents–and this is not unlikely, given the complexity of computer programs and the broad applicability of many patents–the combined royalties could exceed 100% of the sales price. (In practice, just a few patents can make a program unprofitable.)

Sound familiar? When this was written, in 1991, Research in Motion was an obscure developer of wireless networking components, and the first BlackBerries were a decade away. NTP hadn’t even been founded yet. Yet this passage perfectly describes the RIM-NTP controversy. NTP doesn’t do anything useful, it’s strictly a lawsuit shop, or “patent trolling” firm. As Fortune describes it:

NTP has this remarkable power because it is nearing victory in its four-year-old patent litigation with Research in Motion (Research), the maker of the BlackBerry. RIM faces the real likelihood of a court-ordered BlackBerry blackout (government devices would be exempted) unless it agrees to pay essentially whatever sum NTP names, which some analysts think will approach ten figures.

However the endgame plays out, it vividly illustrates a recurring lightning-rod issue in patent debates–one that pits the information technology industry, which favors reform, against many others, such as the pharmaceutical industry, which don’t. Should plaintiffs like NTP–which does not market a competing product, never has, and never will–be entitled to an automatic injunction shutting down a productive infringer such as RIM?

NTP was founded in 1991 by the late inventor Thomas Campana and his patent attorney, Donald Stout, of Arlington, Va. It has no employees and makes no products. Its main assets, Campana’s patents, have spent most of the past decade in Stout’s file drawer. But in 2002 a federal jury found that RIM had infringed five NTP patents that relate to integrating e-mail systems with wireless networks. An appellate court largely agreed in August 2005, and in late October the U.S. Supreme Court declined to issue a stay while it ponders whether to hear the case.

I think it’s impossible to over-emphasize the importance of this point: NTP is not a BlackBerry competitor marketing a competing product. Its only “product” is lawsuits against companies that have the misfortune of developing products that happen to resemble those described in NTP’s patents. How exactly does this kind of extortion “promote the progress of science and the useful arts?”

The Fortune article, by the way, is worth reading in full.

  • John

    I find it bizarre that a company with no relevant valid patents was able to extort over $600 million from RIM.

    It sounds to me like corruption. Why would a judge sweeten the pot for a company like NTP? Is he getting a cut?

    In any event, I have some imaginary patents. Perhaps my lawyer can get some corporation to cut me a big cheque for my fictitious patents.

  • John

    I find it bizarre that a company with no relevant valid patents was able to extort over $600 million from RIM.

    It sounds to me like corruption. Why would a judge sweeten the pot for a company like NTP? Is he getting a cut?

    In any event, I have some imaginary patents. Perhaps my lawyer can get some corporation to cut me a big cheque for my fictitious patents.

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