Blackberry 2006 Annual Report Download - page 17

Research In Motion Limited • Incorporated Under the Laws of Ontario (In thousands of United States dollars, except per share data, and except as otherwise indicated)
Annual Report 2006 15
For the years ended March 4, 2006, February 26, 2005 and February 28, 2004
In connection with business acquisitions completed by the Company, the Company identies and estimates
the fair value of net assets acquired, including certain identiable intangible assets other than goodwill as
well as liabilities assumed in the acquisitions. Any excess of the purchase price over the estimated fair value
of the net assets acquired is assigned to goodwill. Goodwill is assessed for impairment on an annual basis.
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On November 30, 2005, the United States District Court for the Eastern District of Virginia (the “District
Court”) ruled that the binding Term Sheet (the “Term Sheet”) that was entered into by RIM and NTP,
Inc. (“NTP”) in March 2005 in respect of the litigation between them was not enforceable. At the time
of the March 2005 settlement, RIM recorded $20 million of the $450 million litigation accrual as an
acquired license on its balance sheet. As a result of the November 30, 2005 ruling, the Company
recorded $18.3 million charge to write-off the net book value of the acquired license, after accumulated
amortization, related to the scal 2005 accrual. See “Litigation – Change in Estimate During Fiscal 2006”.
Litigation
As has been more fully disclosed in the Company’s annual consolidated nancial statements and notes
for the scal years ended March 4, 2006, February 26, 2005 and February 28, 2004, the Company was
the defendant in a patent litigation matter brought by NTP alleging that the Company infringed on eight
of NTP’s patents.
On March 3, 2006, the Company and NTP signed denitive licensing and settlement agreements. All
terms of the agreement were nalized and the litigation against RIM was dismissed by a court order on
March 3, 2006. The agreement eliminated the need for any further court proceedings or decisions relating
to damages or injunctive relief. On March 3, 2006, RIM paid NTP $612.5 million in full and nal settlement
of all claims against RIM, as well as for a perpetual, fully-paid up license going forward. This settlement
amount included money already escrowed by RIM as of March 3, 2006.
The licensing and settlement agreement relates to all patents owned and controlled by NTP and covers all
of RIM’s products, services and technologies. NTP granted RIM an unfettered right to continue its business,
including its BlackBerry-related business. The resolution permits RIM and its partners to sell RIM products
and services completely free and clear of any claim by NTP, including any claims that NTP may have
against wireless carriers, channel partners, suppliers or customers in relation to RIM products or services,
(including BlackBerry Connect and Built-In technology), or in relation to third party products and services,
to the extent they are used in connection with RIM products and services.
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As at February 26, 2005, RIM had an accrued liability of $450.0 million in respect of the NTP litigation
which included an intangible asset of $20.0 million. As the full and nal settlement amount paid on
March 3, 2006 was $612.5 million, an additional charge to earnings in the amount of $162.5 million was
recorded in the scal 2006 operating results. During scal 2006, the United States Patent and Trademark
Ofce (the “Patent Ofce”) issued various ofce actions rejecting all claims in all NTP patents. Accordingly,
though the rulings of the Patent Ofce are subject to appeal by NTP, given the conclusions and the
strength of the conclusions reached by the Patent Ofce, no value has been ascribed to the NTP license.
This resulted in an additional charge to earnings of $18.3 million reecting the book value of the intangible
asset at the time the Term Sheet was ruled unenforceable. The charge of $162.5 million, the write-off of
the intangible asset of $18.3 million, as well as incremental legal and professional fees in respect of the
litigation, resulted in a charge to earnings of $201.8 million in scal 2006.