Motorola Inc. (MOT) and Research In Motion Ltd. (RIMM), the two global giants in the mobile phone market, reached an agreement to settle a patent dispute over mobile technology. In January 2010, Motorola complained to the U.S. International Trade Commission that BlackBerry devices violated its patent rights and RIMM should be banned for importing and marketing BlackBerry phones in the U.S.
 
According to the new agreement between the two companies, RIMM will give Motorola an upfront payment and will continue to pay royalties for using Motorola’s mobile technology. However, the specific financial terms are still undisclosed.
 
Furthermore, the new agreement also includes a term for the cross-licensing of each others intellectual property portfolio for various industry wireless standard and wireless e-mail. Both Motorola and RIMM are likely to benefit in the long-run from this cross-licensing arrangement. The wireless technologies will cover all 2G, 3G, and emerging 4G related intellectual properties of both Motorola and RIMM.
 
We believe the new settlement will be highly beneficial for Motorola. The company’s struggling Mobile Devices segment is still reeling under losses. Management projected that this segment may return to profitability in the fourth quarter 2010. Payment from RIMM will further accelerate this process.
 
On the other side, RIMM might also benefit as higher expenditure for litigation issues may further ruin its operating margin. Although RIMM is still the market leader in the North American smartphone market, it is facing severe competitive pressure from the iconic iPhone of Apple Inc. (AAPL). The new cross licensing arrangement with Motorola will help RIMM to continue its research and development process in order to develop newer high-end BlackBerry devices to effectively compete with iPhones.
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