Dan Lonkevich

BlackBerry Ltd. (BlackBerry Stock Quote, Chart, News TSX:BB), the former smartphone and software technology developer run by CEO John Chen, may have a brighter future as patent troll than as a software developer with a portfolio of some 44,000 patents worldwide, many of which have been described by Envision IP as high quality based on reverse citations. The Waterloo, Ontario-based company has been increasingly aggressive in monetizing its portfolio of patents as its revenue has declined and losses widened. In the quarter ended Nov. 30, BlackBerry’s net loss widened to $117 million, or 22 cents, from $89 million or 17 cents a year ago. For the nine months, the company’s posted a net loss of $1.16 billion, or $2.21 cents, versus profit of $30 million, or 6 cents a year ago. Revenue fell to $289 million in the quarter from $548 million, a year ago. For the nine months, revenue slid to $1.02 billion from $1.7 billion. “This has been a long time coming,” said David Cohen, the chief legal and IP officer of Form Holdings Corp. (FH), formerly known as Vringo. “Just like Nokia, they deluded themselves for a long time that they could compete in the handset market. They have a lot of patents. Whether they’re litigation grade, I don’t know. It’ll be interesting to watch.” BlackBerry. Patent troll? Not historically... To be sure, Cohen said “historically BlackBerry has not been on the trollish side unlike Nokia and Ericsson,” which have sold off patents to various non-practicing entities and collected a significant piece of the action in return. Most recently, BlackBerry filed an enforcement action against Nokia Oyj in U.S. District Court in Wilmington, Delaware, alleging infringement of 11 standard essential patents. The complaint alleges that Nokia has directly infringed, induced others to infringe, and/or contributed to the infringement of the 11 patents in suit. BlackBerry is seeking damages adequate to compensate for Nokia’s infringement, an ongoing royalty for Nokia’s ongoing infringement of the patents. The complaint also is seeking a declaration that the infringement is willful and deliberate, which could triple the amount awarded. The company also is seeking pre-judgment and post-judgment interest, costs and disbursements as well as a declaration that the case is exceptional, which would saddle Nokia with BlackBerry’s legal costs. Blackberry is represented by John Day and Andrew Mayo, partners with Ashby & Geddes PA in Wilmington, Delaware. Day and Mayo couldn’t be reached for comment. Officials from BlackBerry didn’t return several emails for comment. “We’re aware of the complaint, will study the claims made and take whatever steps are necessary to defend our rights,” said Mark Durrant, a spokesman for Espoo, Finland-based Nokia. Cohen said the interesting thing about BlackBerry’s complaint against Nokia is that it involves standard essential patents and dispenses with the usual FRAND dance, referring to rules requiring fair reasonable and non-discriminatory licensing practices. “Either they’re unsophisticated or they’re not interested in justifying their position vis-a-vis antitrust issues.” Standard essential patents “are a long game. All the prior art is part of the record. Everything is documented, every meeting, every proposal, every draft. Nokia will have all of that at its beck and call.” The action against Nokia follows a year in which BlackBerry filed enforcement actions against Avaya and BLU Products. In July, BlackBerry also filed an enforcement action against Avaya Inc. in U.S. District Court in Dallas. Last month, Avaya filed voluntary petitions for relief under Chapter 11 of title 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of New York. In August, the company in filed an enforcement action pending against BLU Products in U.S. District Court in Miami, alleging infringement of 7 BlackBerry patents. BlackBerry also has been involved in some privateering, or selling its patents to non-practicing entities. In October, the company quietly created a unit that has been negotiating to sell a portfolio of handset patents to a group led by RPX Corp. (RPXC), two people familiar said. In December 2015, BlackBerry sold a portfolio of USB power patents to a company backed by Centerbridge Partners for $30 million. BlackBerry stands to share in any recoverables from Centerbridge’s efforts. The moves reflects Chen’s decision to move BlackBerry out of the handset manufacturing business, where its sales have been dwindling. Under this strategy, BlackBerry is focusing on software development, including security and applications. The company plans to end all internal hardware development and will outsource that function to partners. This will allows it to reduce capital requirements and enhance return on invested capital. In the actions against Nokia, Avaya and BLU, BlackBerry says that “throughout its history, it has demonstrated a commitment to innovation, including through its investments in research and development, which have totaled more than $5.5 billion over the past five years. BlackBerry has protected the technical innovations resulting from these investments, including through seeking patent protection.” BlackBerry alleges Avaya directly and indirectly infringes its patents in suit and also alleges willfulness, which could triple any eventual award. The company seeks an order and judgment preliminarily and permanently enjoining Avaya and its officers, agents, affiliates, employees, and attorneys, and all those persons acting or attempting to act in concert or participation with them, from further acts of infringement of BlackBerry asserted patents. The company also seeks damages adequate to compensate for Avaya’s infringement of the BlackBerry patents, including all prejudgment and post-judgment interest at the maximum rate permitted by law, plus a judgment awarding reasonable attorneys’ fees. It also seeks actual damages as a result of Avaya’s unlawful conduct, in an amount to be proven at trial, as well as prejudgment interest as authorized by law. BlackBerry is represented by E. Leon Carter, a partner with Carter Scholer Arnett Hamada & Mockler PLLC in Dallas. In the action against BLU, BlackBerry is seeking compensatory damages caused by BLU’s infringement, including all lost profits resulting from BLU’s acts of infringement, and reasonable royalties, together with interest and costs. The company also is seeking an ongoing royalty for BLU’s post-verdict infringement, and on all future products and services that are not colorably different from those found to infringe. In addition, the company is seeking a permanent injunction as well as exceptional case fees and other and further relief, including other monetary and equitable relief. BlackBerry is represented by Marcos Daniel Jiménez and Audrey M. Pumariega, partners with McDermott Will & Emery LLP in Miami. In the meantime, the company that acquired BlackBerry’s USB power patent portfolio is called Fundamental Innovation Systems International, which is run by Craig Thompson and Ozer Teitelbaum, two former Alcatel-Lucent executives who also run TnT IP LLC in Plano, Texas. Fundamental Innovation has already filed three enforcement actions involving 5 or 6 patents against Huawei Investment & Holding Co. Ltd., LG Electronics and ZTE Corp. All three actions are pending in U.S. District Court in Wilmington, Delaware. Thompson and Teitelbaum declined to comment. Fundamental Innovation’s complaints do not say how much it is seeking in damages from ZTE, Huawei and LG. In each case, the firm is asking for relief including fundamental damages, prejudgement and post-judgment interest, supplemental damages including interest. It also is seeking a declaration that the infringement is willful, which could triple any damages. In addition, it also is seeking to have the case declared exceptional, which could saddle the alleged infringers with Fundamental Innovation’s legal fees. In each of the cases, Fundamental Innovation is represented by S. Calvin Capshaw, of the law firm of Capshaw Derieux. To be sure, an analysis of BlackBerry’s patent portfolio by Envision IP LLC suggests BlackBerry is unlikely to become a full fledged non-practicing entity (NPE). BlackBerry has the portfolio to be a patent troll... Maulin Shah, the managing attorney for Envision IP said in an email that BlackBerry has 8,168, active, in-force U.S. patents in its portfolio, with an average remaining term of 9.5 years. BlackBerry had a general upward trend in year over year patent application filings from 2004-2012. Its patent filings peaked, however, in 2012 with 1,578 applications filed that year. The company’s filing rate has declined year over year ever since, with 968 in 2013, and only 438 in 2014. In 2015, BlackBerry published only 287 filings, though the number may increase as patent applications typically publish 18 months after their earliest effective filing date. “The steep decline in new filings indicates a lower importance placed on protecting innovation within the company, which may indicate a lowered focus on R&D and new product/service development and commercialization,” Shah said. Moreover, Shah noted that about 86% of the company’s U.S patents have a priority date between 2004 and 2012, which indicates that many of the more recent grants/filings may be mostly continuation patents/applications of earlier BBRY technology, or perhaps incremental improvements on already-patented technologies. “Again, this may indicate a lowered focus on new R&D,” he said. BlackBerry’s third party patent assignments represent only about 2% of its U.S. patents. The company assigned 53 patents to Centerbridge Partners-backed Fundamental Innovation Systems International LLC in Dec. 2015. It assigned 38 patents to Google Technology Holdings in November and December 2014. It also assigned 20 patents to Hilco Patent Acquisition 55 LLC, a unit of Hilco IP Merchant Bank, in November 2016 and 13 patents to Citrix in August 2015. Furthermore, transfers to NPEs — Fundamental and Hilco — represent only 0.8% of BlackBerry’s total U.S. portfolio. The Fundamental Innovation patents relate to USB power technologies and have been enforced against Huawei, ZTE and LG Electronics. The Hilco patents relate to LTE technologies as in signal transmission, uplink, handoffs, etc. and as of yet have not been enforced though litigation. “While I do not believe the BBRY is transforming itself into an NPE, the company certainly seems to be placing a higher emphasis on monetizing its patents via licensing and litigation than it has in the past,” Shah said. “This could be attributed to a strategic business decision to leverage its patent portfolio for itself, rather than attempt to sell the portfolio in a market where there may not be strong demand for large portfolios of telecommunication patents. This is not surprising, many legacy technology companies, such as, for example, HP, IBM, MSFT, all have robust patent licensing programs in addition to being operating companies. Shah is skeptical that BlackBerry is turning into a patent troll. “You have to consider the fact that BBRY may be looking to divest un-commercialized or underutilized patents, and there may not necessarily have been a buyer for the patents it assigned to Fundamental and Hilco.” “If these were straight paid-up patent purchases, without a tail or back-end for BBRY, then I would not be inclined to think BBRY is transforming into an NPE. “On the other hand, if this is the case where BBRY has a stake in the monetization of the patents it transferred/sold, then it could be possibly ‘testing the waters’ with a joint venture or other revenue sharing agreement with Fundamental and Hilco.” Given the portfolio’s average remaining term, Shah said it appears that BlackBerry may continue to rely more on monetizing its U.S. patent portfolio. “The company does not appear to be heavily investing in R&D….evidenced by slowed patent application filings and grants, and the significant reliance on pre-2012 priority dates for new filings/grants.” Even so, he also noted that last year BlackBerry announced a significant long term patent cross-licensing deal with Cisco, which may to indicate it is still interested in commercializing its products/services. “I do not believe BBRY is destined to be an NPE, and is simply monetizing its portfolio as the company continues to restructure and reinvent its product/service lines. “If BBRY’s licensing/litigation efforts are successful, I would certainly expect the company to expand its monetization efforts, but do not see this as being mutually exclusive to BBRY continuing to be an operating company.” Finally, BlackBerry also has its own NPE litigation to fend off. The company is facing an enforcement action from 3G Licensing S.A. and Koninklijke KPN N.V. filed last month in the U.S. District Court in Wilmington, Delaware. 3G Licensing’s parent is Sisvel International S.A. (Lux) which holds 100% of 3G Licensing’s stock. No other corporation owns more than 10% of 3G Licensing’s stock. Koninklijke KPN has no corporate parent, though América Móvil, S.A.B. de C.V. holds 21.1% of KPN’s stock. According to the complaint, 3G Licensing holds more than 400 patent and patent applications fundamental to a variety of core technologies involving consumer electronics and wireless telecommunication implementations. 3G Licensing’s patents have been licensed by many of the world’s leading mobile technology companies, including Blackberry’s competitors. “Despite lengthy negotiations involving senior members of the parties, Blackberry has refused to license, on mutually agreeable terms, the patents described herein. Plaintiffs therefore file this suit against Blackberry seeking the Court’s protection of their valuable intellectual property rights.” 3G Licensing and KPN are seeking damages arising out of Blackberry’s infringement of the asserted patents, including enhanced damages, as well as attorneys’ fees and other costs. 3G Licensing and KPN are represented by Brian Farnan, a partner with Farnan LLP in Wilmington, Delaware.

Dan Lonkevich

BlackBerry may have a brighter future as patent troll than as a software developer

Cantech Alerts.

Timely picks from Canada's best analysts.

Dan Lonkevich

Cantech Alerts.Timely picks from Canada's best analysts.

Cantech Alerts.

Timely picks from Canada's best analysts.