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1/26/2005
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Canada Steps In On BlackBerry Patent Row

Determined to protect its greatest high-tech success story, the Canadian government has stepped in to aid the Canadian creators of the BlackBerry in its patent-infringement case against a Virginia-based company.

TORONTO (AP) -- The Canadian creators of the BlackBerry, the wildly successful wireless E-mail device embraced by so many Americans, say they will take their patent dispute with a Virginia company all the way to the U.S. Supreme Court, if necessary.

And they just got a powerful ally.

The Canadian government has stepped into the patent infringement case, determined to protect the nation's greatest high-tech success story.

Canada claims a recent U.S. federal court ruling against Research In Motion Ltd., the Ontario-based makers of the BlackBerry, threatens to have a "troubling effect of chilling innovation by Canadian companies."

Henry S. Bunsow, an attorney representing RIM, said the company would not settle out of court and is prepared to argue before the U.S. high court.

RIM claims its BlackBerry relay server--through which all E-mails pass--is based in Waterloo, Ontario, so U.S. patent laws have no jurisdiction, even though most of its 2 million subscribers are below the 49th parallel.

"If the United States is going to be asserting their patent laws to cover activities in Canada, then what's to stop Canada from asserting its laws in the United States?" Bunsow said in a telephone interview from his San Francisco office. "It really creates chaos, and it obliterates what has been pretty sacrosanct territorial limitations previously."

The dispute began in 2002 when NTP Inc. of Arlington, Va., claimed that RIM infringed on 16 of its patents, including its radio communications technology.

In August 2003, a U.S. court in Virginia agreed that 11 of those 16 patents were violated and awarded NTP $54 million in damages, as well as an 8.6% royalty on all the revenue from U.S. Blackberry sales. The court also ordered an injunction to prevent RIM from making or selling its devices in the United States.

The injunction was stayed, however, while RIM appealed. On Dec. 14, a three-judge U.S. appeals court panel struck down the verdict and injunction yet upheld most of the patent infringement claims, sending the case back to the lower court for reconsideration.

Meanwhile, RIM insists U.S. patent laws have no territorial rights in Canada. The Internet service provider EarthLink, which is among sellers of the BlackBerry service in the United States, has also filed a "friend of the court" brief supporting RIM.

So far, the U.S. courts have favored the home team, although the U.S. Patent and Trademark Office is reviewing the original patents by NTP.

The Arlington company argues that RIM is using its technology to make millions south of the border, and that since the beneficial use of the system is in America, U.S. patent laws rule.

Donald E. Stout, a co-founder of NTP and the company's attorney, said RIM's "Canadian defense" is flawed because while E-mails routed by BlackBerries may pass through RIM's Waterloo headquarters, they originate and terminate in the United States, use an American wireless carrier, an American server and typically a device purchased in the United States.

"It all has to work in concert," he said.

The BlackBerry handheld device, which debuted in 1999, uses a full QWERTY keypad for thumb typing and can automatically send and receive E-mails. That simple formula became a huge hit with on-the-go information addicts, especially on Wall Street, in courthouses and the halls of government, including the U.S. Congress.

RIM's products now include devices that combine wireless E-mail with cellular phone technology and its handhelds work on wireless networks in 30 countries in North America, Europe, Asia, and South America.

Research In Motion reported last month its third-quarter earnings of $369.5 million, up 138% from $153.9 million in the same quarter the previous year and the number of subscribers has soared to more than 2 million.

RIM denies the alleged patent violations and says its key technology is homegrown.

"There are issues that really go beyond the fundamental costs. We do not want to create a precedent that opens up other companies to this type of strong-arm tactics," said Bunsow.

In a brief filed by the Canadian Department of Justice on Jan. 13, Ottawa urged the U.S. Federal Court of Appeals in Washington, D.C., to grant a request by RIM to rehear the case before all 12 judges, saying it was concerned that the lower court decision could be "applied in an inappropriately extraterritorial or discriminatory fashion."

The full court is expected to hear arguments from both sides in February.

Josh Lerner, a Harvard Business School professor and co-author of the new book, "Innovation and Its Discontents: How Our Broken Patent System is Endangering Innovation and What to Do About It," said the outcome of the case could be far-reaching and must help to set the boundaries for territorial patent claims.

"Uncertainty is the enemy of investment," Lerner said. "One of the major concerns of people in the patent system in the last 100 years has been trying to get a system where we didn't run into situations where you had countries falling all over each other in terms of policies."

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