BlackBerry has sued Facebook for IP theft. This is a tad like David calling out Goliath. Facebook is massive and is arguably the most successful of the social media companies, second only to Alphabet (Google) in terms of success with regard to ad revenue. Its model, once thought to be unsustainable after the dot-com collapse, is based on monetizing information and access from and to its customers. In effect, you are its product.
BlackBerry is a far smaller company. Once one of the smartphone powers, it and its peers were displaced by Apple and Google, forcing the company to pivot. This pivot, one of the most difficult, changed the firm from a smartphone company to a software/services company focused on security, autonomous cars, IoT, and fleet management (among other things). In effect, it went from a hardware company that was very insular, to a software/services company that operated under a licensing model that forces far more aggressive collaboration. The pivot was successful, though the company is still having issues transitioning how people see it.
Litigation isn’t an absolute process and generally favors the firm that can afford to spend the most on the effort. Here, that would be Facebook. However, there are exceptions to this rule and one of them is tied to whether the smaller firm has adequate resources and a greater will to win. That, I think, will eventually allow BlackBerry to win, but this will be an expensive process for both firms. Two things that could affect this, and also favor BlackBerry, would be if the firm were acquired or the Canadian government were to intercede on BlackBerry’s behalf. Both are possible, but unlikely, at this time.
Three Pivotal Points
With litigation, you want to look at three things. First, the merits of the case. In this case, whether there is a reasonable belief that IP ownership is clearly BlackBerry’s and Facebook infringed. Second, which of the litigants has the greatest need to prevail, mitigated by any differences in resources. And finally, what are the additional advantages and disadvantages both firms have (like can Facebook move against BlackBerry the way Apple moved against Qualcomm and adversely affect revenue).
Merits of the Case
Since BlackBerry is now a licensing company and Facebook is not (it is more commonly accused of IP theft), it is reasonable to assume BlackBerry would have done its due diligence before filing action. Knowing full well that Facebook would rigorously defend, it would not have entered into either the negotiation or litigation frivolously. This doesn’t assure a win, but the level of work that BlackBerry would need to do before filing, because this is its business, would typically be substantially greater than Facebook’s initial efforts to defend, given this isn’t Facebook’s business. Neither firm is a novice when it comes to litigation, but in terms of IP litigation, BlackBerry, due to its nature, would have to be more competent in this type of litigation, suggesting the merits of the case to support BlackBerry’s position more strongly.
Will to Win
BlackBerry is now an intellectual property company, in that a sizable portion of its revenue comes from licensing its intellectual property. It isn’t a troll, as Facebook’s legal counsel seemed to imply with this statement, “BlackBerry’s suit sadly reflects the current state of its messaging business. Having abandoned its efforts to innovate, BlackBerry is now looking to tax the innovation of others. We intend to fight.” This was from Paul Grewal, Facebook deputy general counsel. While it is fun to see an attorney talk smack, the reality is that BlackBerry has no choice but to defend its intellectual property because licensing that property is how it makes money.
This position is a tad troubling for Facebook because the attorney comment implies that Facebook believes theft and innovation are interchangeable and that everyone else’s intellectual property, by default, is legally part of Facebook’s innovation.
Intellectual property isn’t as big a thing to Facebook as it is to BlackBerry because Facebook isn’t viewed as a licensing company. Thus, its interest in fighting this case is largely tied to a need to make sure everyone whose patents and copyrights it has infringed don’t look at the firm as an effortless way to make money. But, paying licensing fees to BlackBerry clearly wouldn’t put Facebook out of business.
In contrast, BlackBerry must defend its intellectual property because, should it lose control of it, the impact to BlackBerry’s bottom line could be catastrophic. It can’t let Facebook prevail here because such a result might put it at mortal risk, allowing others to steal its intellectual property, using the Facebook win as a precedence. As far as litigation resources, while Facebook can afford to spend more, BlackBerry isn’t in financial distress and can afford to match Facebook even if Facebook unreasonably increases litigation expense.
Facebook’s Unique Risk
As noted above, the risk to BlackBerry is monetary and significant. However, there is also a significant risk to Facebook, win or lose. As noted, Facebook largely monetizes its customers by taking something the customers don’t value and selling it, in exchange for allowing those customers to access some of this information. Most recently, it has been under a cloud for supplying false information and potentially altering the U.S. presidential election and being part of a hostile effort by the Russian government. This speaks to ethics and places a cloud on Facebook and related potential vulnerability that BlackBerry doesn’t face. In short, depending on how public this dispute becomes and how aggressively BlackBerry fights in a public forum, Facebook could gain the image of a pirate, which would likely propagate additional litigation from other companies, private parties and governments.
Given this extra exposure, the strategy for making the fight more public, driven by the Facebook attorney’s comment above, is particularly problematic. A public dispute between the firms would seem to benefit BlackBerry more than Facebook. Put a different way, positioning BlackBerry as a failed smartphone vendor does Facebook little good because BlackBerry readily admits to the pivot. But Facebook, which largely lives under a questionable revenue model (its ownership over what it sells, personal information on its users, is questionable and it monetizes harmful fake news), is under greater risk.
In the end, this should make it so that Facebook is more motivated to settle than BlackBerry is, and given that BlackBerry is better structured for this fight, this should give BlackBerry a significant edge in the litigation.
Wrapping Up: Long List of Dangers in Corporate Litigation
Litigation at the corporate level, particularly over intellectual property, is risky for both parties. Not only is the process very expensive, but it can damage the brand image of the litigants. BlackBerry can’t allow the theft of its intellectual property, particularly given that licensing that technology is now how it largely makes its money. Facebook can afford to license, but is part of a wave of companies that didn’t believe in software patents and licensing and seemingly gives its products away for free. The issue for Facebook, and other firms like it, is that the “free” concept is false. Should this, or any future litigation, convince a critical mass of people, or a government, that Facebook is an unapologetic IP thief, the resulting regulations, charges and taxes could eliminate Facebook’s ability to profitably function.
One final point: Generally, when one side of a conflict resorts to ad hominem attacks, it is a signal that it knows it is on the losing side. The Facebook attorney’s comments suggest the company is well aware it is on the losing side of this, but it seems very unlikely that BlackBerry will fold just because Facebook is calling it names.
There are other aspects to consider in this case, like which government better supports its respective firms. But Canada appears to support BlackBerry (something BlackBerry CEO John Chen has fostered), while the fake news issues and personal conflicts with the Trump administration have Facebook in a far weaker position.
Thus, BlackBerry will prevail, though the process will likely be expensive and lengthy for both firms.
Rob Enderle is President and Principal Analyst of the Enderle Group, a forward-looking emerging technology advisory firm. With over 30 years’ experience in emerging technologies, he has provided regional and global companies with guidance in how to better target customer needs; create new business opportunities; anticipate technology changes; select vendors and products; and present their products in the best possible light. Rob covers the technology industry broadly. Before founding the Enderle Group, Rob was the Senior Research Fellow for Forrester Research and the Giga Information Group, and held senior positions at IBM and ROLM. Follow Rob on Twitter @enderle, on Facebook and on Google+