Wednesday, June 29, 2005

THE COST OF LITIGATION: Nobody likes litigation. Nobody (well, except maybe for some lawyers). It's expensive, it's messy, and it causes a lot of people ulcers, especially from a business perspective. A good example is the recent turmoil between RIM and NTP over the Blackberry e-mail patents. This blog covered the litigation and subsequent settlement of the patent lawsuit, as well as the dispute over the settlement that will ultimately take the case back to the courts.

While the legal world may follow the case as an intellectual curiosity, the business world is more brutal in its analysis since - after all - it is their money that's on the line. And according to current reports, investors are not liking what they see (never mind the NTP reexamination).

RIM is preparing to announce substantial earnings growth in their first-quarter report. However, a key question will be how much investors will care about this news:

"I'm not really interested in what they report," says Chyanne Fickes, a portfolio manager at Stone Asset Management, which used to be long RIM shares but recently sold off its stake. "I think they have bigger problems."

Fickes isn't the only fund manager who has soured on RIM in recent months. A number of long-time bulls on the stock have decided to throw in the towel because of uncertainties in the stock's direction and the company's prospects.

And that attitude seems to be playing out in RIM's stock price. In the year to date, shares in the wireless email device maker and service provider have been off roughly 7% despite the fact that analysts expect the company to continue to post strong results.

The biggest problem for Waterloo, Ontario-based RIM is its legal dispute with NTP Inc., which holds a portfolio of patents covering wireless email systems. Earlier this month, RIM announced the disintegration of a settlement agreement it reached in March with NTP.
Scenarios like this are undoubtedly a large part of intitutional companies desire to rid the patent system of injunctive relief. What's worse: facing a $450mil judgment, or losing $800mil in market valuation in the meantime? You can be sure that holding companies are counting on this effect during the course of the lawsuit, and will exploit it to no end to the detriment of the defendant.

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