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Originally published Tuesday, November 7, 2006 at 12:00 AM

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Lawsuit against Palm makes patent-infringement claims

Patent holder NTP has sued Palm, maker of the Treo e-mail phone, for infringement eight months after winning $612.5 million from BlackBerry creator...

Bloomberg News

Patent holder NTP has sued Palm, maker of the Treo e-mail phone, for infringement eight months after winning $612.5 million from BlackBerry creator Research In Motion (RIM) on a similar claim.

The suit, filed in Virginia on Monday, seeks cash compensation. Donald Stout, co-founder of closely held NTP, said in a statement that the company sued after licensing talks failed. Palm shares tumbled following the announcement.

The lawsuit may prove expensive and time-consuming for Palm management, based on the BlackBerry litigation. NTP sued RIM in 2001, claiming the BlackBerry e-mail devices infringed on NTP patents. After a trial, appeals and a failed initial settlement, the case was finally resolved in March when RIM agreed to pay NTP.

"The cost for RIM was a lot of the management's time and energy and about half of the cash on the company's balance sheet," said Jonathan Hoopes, an analyst for ThinkEquity Partners, who rates Palm shares "accumulate" and doesn't own them. "The worst-case scenario for Palm would be something similar."

Palm should try to get rid of the case "sooner rather than later," Hoopes said.

Palm had $128 million in cash and $400 million of short-term investments on its balance sheet Aug. 31.

Stout said in the statement that NTP "would still prefer to resolve this issue with Palm in a negotiated license agreement that is fair and reasonable to both parties." The suit was filed "as a last resort to protect our valuable intellectual property," he said.

Shares of Palm fell $1.17 to $14.24, their biggest one-day drop since June 30. The shares are down 10 percent this year.

Marlene Somsak, a spokeswoman for Palm, didn't immediately return a call seeking comment.

The suit hits Palm at a time that Chief Executive Officer Ed Colligan is struggling to compete with new devices from larger rivals including Nokia, Motorola and RIM.

Palm on Sept. 21 said first-quarter profit fell 9.2 percent as the company spent more to develop products and battled competitors. Sales rose 4 percent to $355.8 million in the quarter ended Aug. 31, the slowest in three years.

Palm got 76 percent of its revenue from Treo smart phones and 24 percent from handheld computers such as the Tungsten.

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The patents that are the subject of the RIM case are under review by the U.S. Patent and Trademark Office and were rejected in preliminary findings. After a so-called final rejection was issued by the examiners in the office, the case is now before an appeals board within the agency.

In its suit against Palm, NTP provided arguments on why it thinks the appeals board will ultimately uphold its patents.

"As far as the law is concerned, they still have valid, issued patents," said Brian Ferguson of McDermott, Will & Emery, who isn't involved in the case.

NTP, whose only business is licensing patents, first contacted Palm's then parent, 3Com, in January 2000, according to the suit. That's around the time NTP first got in touch with RIM. Letters also were sent in July 2004 and April 2006, according to the complaint.

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