Palm Inc. and BlackBerry Maker Will Sign a Licensing Agreement - New York Times

Palm Inc. and BlackBerry Maker Will Sign a Licensing Agreement - New York TimesOctober 17, 2005
Palm Inc. and BlackBerry Maker Will Sign a Licensing Agreement
By LAURIE J. FLYNN

SAN FRANCISO, Oct. 16 - Palm Inc., maker of the Treo smartphone, and its rival Research In Motion, the maker of the wireless BlackBerry device, are expected to announce on Monday a licensing agreement that could alter competition in the market for phones that offer e-mail and other functions, one of the fastest-growing segments of the cellphone industry.

As part of a broad strategy to become a software company as well as a device maker, Research In Motion, or R.I.M., will allow Treos to use its e-mail and communications technology, called BlackBerry Connect.

The deal is significant because it gives Palm, a 10-year-old Silicon Valley company, a greater opportunity to sell Treos to corporations that have spent substantial sums outfitting their workers with BlackBerrys, which are still big sellers among business users.

Treo has gained momentum in the corporate market because thousands of business software programs can run on its devices. Over the last several months, some cellphone makers, like Nokia and Sony Ericsson, have also licensed BlackBerry Connect, but they have only recently started promoting that service.

For R.I.M., the deal with Palm takes the company further down the strategic path it announced more than two years ago, after it became clear that the company needed to reinvent itself if it wanted to maintain its growth rate.

While R.I.M. continues to sign up new subscribers - in its last quarter it added 620,000 accounts, for a total of 3.65 million, its growth is starting to slow.

"It would have been a bigger deal if they hadn't done it," said John Jackson, an analyst with the Yankee Group in Boston. "It's a must-have."

In 2004, the makers of smartphones - cellphones with advanced e-mail, calendar and other computing functions - sold about 3.2 million units.

This year, that figure is expected to nearly double, to 6 million, and to reach 11 million units in 2009, according to Jupiter Media, a research group.

"It's a highly lucrative market that is widely perceived as being under-addressed," Mr. Jackson said. R.I.M., based in Waterloo, Ontario, was one of the first companies to introduce a hand-held e-mail device, and throughout the late 1990's the name BlackBerry became synonymous with mobile e-mail.

But in recent years, Palm, Dell and other device makers, along with phone companies like Nokia and Motorola, have entered that market.

At the same time, R.I.M. has been under pressure from cellular carriers and its corporate customers to strike a deal with Palm so that they can offer a variety of devices with the BlackBerry software.

"Quite frankly, we've had a very strong demand for BlackBerry on Treos," said James L. Balsillie, chief executive of R.I.M. "Our biggest interest is going in and fulfilling that pent-up demand."

Michael Gartenberg, an analyst with Jupiter Media, said, "It's a good idea for them to let the market decide" what software and hardware combinations customers can have. "You don't want to back your customers into a corner."

A big challenge for smartphone companies is to make sure that their products can communicate with other companies' handsets. This is particularly important for corporate customers, whose employees need to be on compatible systems.

According to Ed Colligan, Palm's chief executive, the deal with R.I.M. shows that companies must form partnerships with their rivals to meet their customers' needs. In late September, Palm announced an agreement with Microsoft to use the Windows operating system on a version of the Treo to be offered by Verizon.

Initially, BlackBerry Connect will be available only on the Treo 650, a popular version of the Treo that runs the Palm operating system. Palm plans to make it available later this year or early next year, as soon as it completes deals with cellular carriers to sell it.

One challenge that could thwart R.I.M.'s plans, however, is a legal battle that the company has been fighting with NTP Inc. for nearly four years.

NTP, a patent holding company based in Arlington, Va., says that some R.I.M. products infringe on patents held by NTP that cover the use of radio frequency communications in e-mail systems.

A federal jury found R.I.M. in violation of several of NTP's patents, and earlier this month a federal appeals court denied R.I.M.'s request to reconsider the ruling. R.I.M. executives say they are appealing the case to the Supreme Court.