BlackBerry’s Patent Cases Against Facebook and Snap Are Crumbling

A tentative court ruling further reduces the scope of claims involving patent violations related to BlackBerry Messenger.

| More on:
Wireless technology

Image source: Getty Images

Back in early 2018, BlackBerry (NYSE: BB) sued Facebook (NASDAQ: FB) and Snap (NYSE: SNAP) over allegedly violating seven patents for BlackBerry Messenger (BBM), which cover timestamps, message notifications, push notifications for ads, tagging photos, and mapping activities. Facebook and Snap filed motions to invalidate BlackBerry’s patents last June, and all the independent claims for one of the patents (regarding time stamps) were invalidated two months later.

On Sept. 5, a district court in Los Angeles tentatively ruled that two of BlackBerry’s other disputed patents (involving targeted ads) were ineligible for protection because they were merely “dressing up the abstract concept of collecting and compiling information.” The court also invalidated two additional claims for location-based patents, which were only aimed at Snapchat.

Facebook still needs to deal with BlackBerry’s other claims, including two patents for user interfaces. Snap still faces two claims, but one of them is the time stamps claim that was crippled last August. However, BlackBerry is clearly losing its firepower in both cases, and that could be bad news for one of its biggest businesses.

What’s BlackBerry’s angle?

Under CEO John Chen, who took the top job in 2013, BlackBerry gradually phased out its dying smartphone business and licensed its brand and designs to Chinese smartphone maker TCL. It focused on expanding its enterprise software ecosystem with new products and acquisitions; that strategy paid off as its revenue growth turned positive again over the past two quarters.

To boost its margins throughout that transition, BlackBerry aggressively monetized its portfolio of about 44,000 patents by launching a flurry of lawsuits against Facebook, Snap, Twitter, Nokia, Cisco, and even Ryan Seacrest (over the creation of an iPhone case with a BlackBerry keyboard).

Therefore, BlackBerry’s cases against Facebook and Snap aren’t about protecting BBM. BlackBerry already discontinued the consumer version of the app earlier this year due to tough competition from rivals like Facebook Messenger. Instead, BlackBerry is suing Facebook and Snap to feed the growth of its licensing and IP business, which has become a high-margin growth engine in recent quarters:

Licensing & IP Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020
Revenue (millions) $63 $56 $68 $99 $72
Percentage of total revenue* 29% 26% 30% 39% 27%

Source: BlackBerry quarterly reports. *Non-GAAP.

BlackBerry likely knew that the court would invalidate some of its patent claims against Facebook and Snap. But if it lands just one or two blows, the payout could easily offset the legal costs and boost its licensing and IP revenue.

Could these lawsuits hurt Facebook and Snap?

Facebook’s net income fell 49% annually to $2.62 billion last quarter due to FTC and SEC fines, associated legal expenses, and a tax hit from new IRS rules. Those troubles could continue over the next few quarters, as Facebook faces fresh antitrust probes in the U.S. and overseas. The ongoing battle with BlackBerry could exacerbate that pain.

A woman "likes" social media posts on her smartphone.

Image source: Getty Images.

Snap, which hasn’t ever posted a profit, posted a net loss of $255 million last quarter — which was still an improvement from its loss of $353 million a year earlier.

Snap doesn’t face as many legal headwinds as Facebook, but many analysts wonder if the social network can achieve profitability before running out of cash. Snap allayed some concerns in recent quarters with its accelerating user growth and narrowing losses, but a BlackBerry victory could cause its losses to widen again.

Facebook and Snap would also be forced to either pay royalties to BlackBerry or remove key features in their apps. In other words, they could be forced to choose between losing money or alienating users with redesigned apps.

BlackBerry is losing ground

BlackBerry’s decision to sue Facebook and Snap makes sense, even if it caused critics to denounced it as a “patent troll.” However, the tentative ruling indicates that BlackBerry’s cases are losing steam, and investors shouldn’t get their hopes up for big licensing payments from the two social media companies.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Leo Sun owns shares of Cisco Systems, Facebook, and Snap Inc. The Motley Fool owns shares of and recommends BlackBerry, Facebook, and Twitter. The Motley Fool owns shares of Nokia. The Motley Fool has a disclosure policy.

More on Tech Stocks

healthcare pharma
Tech Stocks

Well Health Stock Is Up 7% After Earnings: What Investors Need to Know

Well Health is benefiting from strong demand as it digitizes healthcare and strives to improve patient outcomes.

Read more »

Circuit board with a microchips
Tech Stocks

1 AI Stock That Can Help Turbocharge Your TFSA

Docebo is a high-flying growth stock that operates in the AI space and is a top investment in May 2024.

Read more »

Businessman holding AI cloud
Tech Stocks

This Canadian AI Stock Is Growing at a Breakneck Pace

Canadian AI stock Kinaxis Inc (TSX:KXS) is giving U.S. giants a run for their money.

Read more »

grow dividends
Tech Stocks

Why Hut Stock Surged 11% on Wednesday

Hut 8 (TSX:HUT) stock surged by as much as 11% on Wednesday after strong earnings that delivered on finances and…

Read more »

sad concerned deep in thought
Tech Stocks

The Potential TikTok Ban in the U.S. Is Real: Here’s What it Means for Facebook’s Stock

Meta Platforms (NASDAQ:META) could gain market share from TikTok being banned. That might leave BCE Inc (TSX:BCE) in a bad…

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Tech Stocks

Lightspeed Stock Jumps 15% on Founder Dasilva’s Return, Earnings Beat

Dax DaSilva is back as Lightspeed stock (TSX:LSPD) CEO, and investors were thrilled with the news, along with a 25%…

Read more »

A gamer uses goggles to play an augmented reality game. tech
Tech Stocks

Why ‘Roaring Kitty’ Sent Meme Stocks Soaring Like It’s 2021

Roaring Kitty came back, leading to another rally in meme stocks that could be over before it even gets started.

Read more »

value for money
Tech Stocks

3 Bargains I’d Snatch Up as They Approach 52-Week Lows

Despite their near-term weakness, these three bargain stocks are excellent buys at these levels.

Read more »