Research In Motion Ltd. (RIMM) shares extended their losses Wednesday as a growing chorus of analysts said a U.S. appeals court decision was a major legal blow to the BlackBerry e-mail device maker.
Stock in the Waterloo, Ontario-based firm fell 4 percent, or $3.45, to $81.99 on volume of more than 12 million on Nasdaq.
RIM shares closed down 5 percent Tuesday after a wild trading session that saw the stock climb 15 percent at one RIM Tuesday, but said part of the earlier court ruling was flawed and sent the case back to a lower court.
In a series of research notes issued Wednesday, analysts said the decision strengthened the position of closely held U.S.-based patent holding company NTP (search), which successfully sued RIM in 2002 for patent infringement.
They said the appeals court decision increases pressure on RIM to settle out of court.
NTP won an injunction from the U.S. District Court for the Eastern District of Virginia last year halting BlackBerry (search) sales in the United States, but it was stayed.
While the injunction was vacated by the appeal, NTP said it hopes to have the lower court reimplement the injunction. Analysts said this would give NTP huge leverage in negotiations over a settlement with RIM.
"Our client certainly is willing to listen to settlement (proposals), but as of now we are planning to go forward," Kevin Anderson, a lawyer for NTP, told Reuters on Wednesday.
"My instructions from my client are to go forward and get the injunction in place and fully enforce the injunction.... They have lost this case. We believe the injunction is fully supported by the 11 claims."
Merrill Lynch analyst Pat Chiefalo cut his price target on the stock to $100 from $108 and maintained his "buy" rating.
"Given our view of the ruling by the U.S. appeals court, we believe there is greater risk that RIM may incur damages as part of the NTP patent litigation. Further, we believe given this ruling, the likelihood that RIM and NTP settle out of court is growing," he said in a note to clients.
In a note titled "RIM loses this round", J.P. Morgan analyst Paul Coster said investors should begin to value the stock on the basis of fiscal 2006 earnings estimates and reiterated his "neutral" rating.
"The probability of royalty payments and/or a settlement with NTP appears to be high for RIMM after yesterday's appellate court ruling. Eleven of the 16 claims were upheld, and it is apparent that RIMM has now probably lost the case," the note said.
"We are incrementally negative on the news and believe RIMM may need to negotiate with NTP sooner rather than later in order to try and reduce the proposed 8.55 percent royalty fee."
Legg Mason analyst Timm Bechter said he believes the appeal court ruling will be seen as a negative by the market because the best-case scenario, the case being thrown out, did not happen. He maintained his "hold" rating.
"However the second run through the district court may provide RIM with the opportunity to make a better case than it did the first time through and give the district Court reason to modify its judgment and penalties," he said.