Microsoft's Decision to Settle with Visto Hurts RIMM

Implications: Microsoft's recent settlement of its patent dispute with Visto obviously had implications for those two firms; but the settlement also hurt RIMM in its attempt to make Visto cut a deal.

Analysis: One of the standard responses to a patent lawsuit is for the accused infringer to try to prove that the patents at issue are invalid.  This can be done in court, or it can be done by going back to the Patent Office and asking for a re-examination.

The threat of invalidity looms large when the patent holder aspires to collect royalties from a large number of other players.  If the patent falls, after all, lost is not only the money in the case at hand but also the potential royalties from everyone else.

RIMM knows all this well and, in response to Visto's patent suit, RIMM has been working hard to create a real risk that Visto's patents will be declared invalid.  RIMM was likely hoping that the risk would cause Visto to cut a deal and in that way avoid the possibility that the patents blow up and Visto collects nothing.

Seeing that, the news of Microsoft's settlement is bad news for RIMM.  After all, RIMM's leverage in part turns on the number of potential infringers who have not yet settled.  The more in that category, the more Visto will worry about the possibility of invalidity, and hence the more Visto would be willing to cut a deal rather than litigate validity and infringement to the end.

With Microsoft gone, then, RIMM's leverage just dropped.  And the closer we get to the point where RIMM is the only big fish left in the net, the more likely it is that RIMM will have to actually litigate the case in July and deal with the appeals that follow, all the while continuing to challenge the patents at the Patent Office. 

Settlement, in short, just became a lot less likely.