Patent Abuse Article By Jim Balsillie

The following article is written by RIM’s co-CEO Jim Balsillie and was originally published in The Wall Street Journal:

The patent system is a complex and integral part of the U.S. economy. At the same time virtually all experts, including the Commissioner of the U.S. Patent Office (USPTO), agree that the system needs reform. As the co-CEO of Research In Motion (RIM) — the company behind BlackBerry — I have directly witnessed one of the most flagrant abuses of the patent system and have developed a unique appreciation for some of the problems that need to be addressed.

Few contest that the U.S. patent system is overburdened. Only a few weeks ago, Patent and Trademark Commissioner John Doll was reported saying: “When you’ve got 1.3 million cases in the backlog, and it’s taking [four to six] years to take a first office action, you’ve got to ask the question: Is the patent system still actually working, or are we just stamping numbers on the applications as they come through?”

Commissioner Doll is not alone. In a survey by the Intellectual Property Owners Association of the nation’s top patent lawyers, over half rated the quality of patents issued in the U.S. today as less than satisfactory or poor. The future doesn’t look much better. According to the survey, over two-thirds of respondents said they thought the patent process would get longer, not shorter, over the next three years. And nearly three-quarters said they would be spending more, not less, on patent litigation over the coming years.

Fortunately, both the USPTO and the Congress are making efforts to address these issues, but RIM and millions of American BlackBerry users have meanwhile been the target of a small holding company named NTP that has been aggressively working to exploit the burdens of the U.S. patent system. They are trumpeting threats and pushing frantically for an injunction that would, if allowed, impact millions of people in government and business. All of this, based on patents that the USPTO now says should never have been issued in the first place.

Our position is simple. Let the system work. Let the USPTO do its job and determine whether NTP’s claims are sound or not. In the meantime, we’re even willing to provide reasonable and substantial compensation. Sounds simple, right? But not when one side is trying to exploit the system by leveraging the relative speed of the judicial system while obstructing the deliberateness of the USPTO.

Many people believe that a reasonable settlement is in the best interests of both parties. And as wrongful as we think the current situation is, we’ve been making serious attempts in good faith to do just that. We will always do what is right for our customers, business partners and stakeholders. So why has it has been so difficult to resolve this matter? What’s it really all about? The answer, camouflaged by much bravado from NTP, is simple and rather dishonorable.

It’s not about industry standard negotiating practices. RIM has licensed thousands of patents and fully respects intellectual property rights. RIM has paid tens of millions of dollars to many American patent licensors, including both small and large patent holders. In stark contrast to NTP’s patents and demands, however, these royalties are typically 0.5% or less for patent portfolios containing hundreds of internationally recognized and uncontested patents.

It’s not about legitimacy. Based on recently revised and significantly more rigorous re-examination procedures, the USPTO has now soundly rejected all of NTP’s patents on at least three distinct grounds in its rulings. The USPTO has also issued several follow-on rulings that describe NTP responses to its re-examinations as “unpersuasive,” and is expected to finalize its rejections very soon.

It’s not about entitlement. NTP continues to focus on an unusually high royalty rate (5.7%) granted by a jury during the original trial despite the fact that the Court of Appeals vacated that damages award and strong legal arguments remain in support of a significantly lower royalty rate. NTP also chooses to ignore the Supreme Court’s recent decision to review the MercExchange v. eBay case and the circumstances in which injunctions are granted.

It’s not about embracing and respecting the process within the USPTO. NTP has repeatedly and purposefully delayed the re-examination process. It’s latest attempt at delay was thankfully denied by the USPTO last week. NTP also failed to comply with its duty to provide the USPTO with highly material evidence (called the “TeleNor art”) until it was effectively forced to comply months later. It even recently tried to overwhelm the USPTO’s re-examination process by filing over 30,000 new patent claims on top of its existing 1,921 claims (which was already considered to be an unusually high number of claims for these patents).

It’s not about RIM being stubborn. Despite the USPTO’s findings that NTP’s patents should never have been issued, RIM is willing to reach a reasonable settlement, either through a license conforming to industry norms or with an opportunity to let the Patent Office complete its job (that is in the home stretch of a three year effort). RIM is even willing to pay a royalty rate retroactively and ongoing for as long as the patents remain valid (including ample time for NTP to exhaust all appeals). But, buoyed by its hope to exploit the asynchronous timing of the legal and regulatory processes, NTP has asked for a lump-sum payment upfront for projected royalties through 2012 for patents that have already been meticulously reviewed and rejected.

It’s not about good faith. RIM has tried to play by the rules and respect the admonitions of courts and mediators. Meanwhile NTP repeatedly makes public, inaccurate, misleading and inflammatory comments and violates the confidentiality restrictions imposed on the mediation process. NTP’s motive: create fear and uncertainty in the public’s mind (and thereby attempt to create leverage against RIM).

It’s not about integrity. RIM negotiated a settlement prior to the Patent Office’s rulings. It was a handsome proposal that we agreed to abide by even after the Patent Office subsequently rejected NTP’s patents and the Court of Appeals reduced NTP’s claims.

It’s not about the government’s interests. NTP has openly jeered and trivialized the concerns expressed by the U.S. Department of Justice, despite the potential consequences on federal, state and local departments that use BlackBerry for daily operations as well as emergency communications.

It’s not about the public interest. Hundreds of millions of BlackBerry messages pump through the U.S. economy daily in (and between) virtually every business and government sector, including financial institutions, law firms, utilities, telecommunications, transportation, health care, defense and emergency services. Patent rights are granted with public interests in mind. Yet NTP ignores the equities and suggests that one of the highest settlement amounts in history — $450 million for patents that have been rejected — is insufficient and it would rather threaten the public interest as leverage to boost its windfall even further.

It’s not about pride of innovation or entrepreneurship. No one (including NTP) disputes that RIM invented BlackBerry independent of NTP’s patents. Moreover, unlike NTP, RIM actually created something — a company and a new market segment through over 20 years of innovation, risk-taking, partnering, customer service, growth and re-investment.

* * *

No, it’s not about legitimacy, fairness, entitlement or anything described above. It’s about greed. It’s about a willingness to abuse the overburdened patent system for personal gain. The NTP lawyers have been blinded by their ambitions to the point where they turned down one of the largest settlement offers in history and a royalty rate that is 10 to 20 times higher than industry norms for uncontested patent portfolios.

Ultimately, it may be that same lust for money that brings NTP down to earth.

Even though we have been vindicated by the USPTO’s analysis and we may find the idea of paying for invalid patents to be philosophically offensive, RIM will continue to be reasonable and practical. We have always fought this situation in the best interests of our customers and industry and we don’t like spending money on bogus patents, but we recognize the practicality of a settlement here. It just has to be practical.

Settlement or not, RIM will continue to innovate, re-invest and service its customers. While it is not our preference, we’re prepared to implement a software workaround solution to make sure our customers are well served.

It is up to NTP whether they want any future royalties. In the meantime, leaders in the private and public sector should re-examine how we reconcile an overburdened system with the emergence of litigious and avaricious groups like NTP that are in reality a debilitating drain on the economy and at odds with the constitutional purpose of the patent system.

Mr. Balsillie is chairman and co-CEO at Research In Motion, the makers of BlackBerry.

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