The company that failed to close a deal to buy BlackBerry Ltd.’s BB-T legacy smartphone patents is trying to unwind the subsequent sale by the Canadian corporation to another purchaser and get a second chance to buy the intellectual property.
Catapult IP Innovations Inc. on Tuesday filed a complaint against Malikie Innovations in the U.S. District Court for the Eastern District of Virginia, seeking an order compelling the defendant “to participate in arbitration to resolve disputed ownership” over roughly 32,000 patents Malikie bought from BlackBerry this year.
In its complaint, Catapult said its action “is made necessary because of a breach of contract” by BlackBerry, which is not a party in the matter. The Baltimore-based, Delaware-registered plaintiff disclosed it also began a separate arbitration process against BlackBerry as laid out in their original contract.
Catapult stated it believes the Malikie deal is invalid and that BlackBerry breached their original contract. It is asking a New York-based arbitration panel to unwind the deal “and to convey the patents to Catapult instead.”
Catapult has asked the court to compel Malikie to submit to the jurisdiction of the arbitration panel; both the Catapult and Malikie contracts with BlackBerry, filed with the court, state that the parties agree “any dispute, controversy or claim” related to the contract’s validity, interpretation, breach or termination will be determined by the panel.
Jeremy Fielding, a spokesperson for Malikie’s Dublin-based parent company, Key Patent Innovations (KPI), stated in an e-mail that it “concluded a valid and binding transaction with BlackBerry, and we are proceeding with business as usual. We are not a party to Catapult’s dispute with BlackBerry, and any attempt to include KPI in that dispute has no basis in law or fact.”
Matt Chandler, a BlackBerry spokesperson, said in an e-mail “these claims are without merit and we intend to defend ourselves vigorously.” The claim, filed this week, has not been tested in court.
BlackBerry is familiar with the Virginia court where Catapult filed its lawsuit: In late 2002, it was found guilty of patent infringement and eventually paid plaintiff, NTP Inc. a US$612.5-million settlement.
The software company began exploring the sale of most of its patents in 2020, long after its exit from the smartphone business. The patents still had value: Like other technology companies whose products go into decline, BlackBerry had made a lucrative side business of extracting monies from other companies for use of its technology, either by suing them for patent infringement or reaching licensing agreements. It earned a combined US$886-million in licensing revenue from 2019 through 2021, inclusive.
In January, 2022, BlackBerry signed a deal to sell the IP for US$600-million to Catapult, led by inventor and entrepreneur York Eggleston. The purchase was to be funded by a US$450-million senior secured loan and a promissory note for the balance, secured by a second lien on the patents. A syndicate led by Toronto’s Third Eye Capital provided US$400-million in conditional commitments. Catapult needed to raise US$90-million in equity financing to access the loan.
But five months later, BlackBerry said it was no longer under exclusivity with Catapult and was pursuing other options, given how long the deal had taken to close and because the buyer was still securing financing. By August, Catapult still hadn’t raised the equity. The lending syndicate pulled out.
Despite the deal’s tentative status, BlackBerry disclosed last year that chief financial officer Steve Rai had earned a special US$184,863 bonus in part to for his “stewardship of the process” that led to the deal with Catapult, even though it hadn’t closed and ultimately didn’t.
Last December, BlackBerry announced Catapult was working with a financing partner and that they were negotiating definitive closing documents. But BlackBerry also said it was in advanced discussions with another, fully financed party.
Catapult said in its complaint that it was ready to close on March 14 but that BlackBerry told it a day earlier it wouldn’t close, and then on March 20 “wrongfully terminated” their transaction, which the plaintiff states was valid and binding. At the time, BlackBerry announced Catapult “was unable to secure financing that would have enabled it to complete the previously announced transaction on amended terms that were acceptable to BlackBerry.”
Also on March 20, BlackBerry struck its deal with Malikie, which agreed to buy the patents for US$170-million upfront and US$30-million in cash by three years after the May 11 closing date. BlackBerry can also receive proceeds of up to US$700-million based on a complex earnout deal.
This is at least the third time entities associated with Mr. Eggleston have sued after their attempted purchase of patents fell through and the sellers chose other buyers. In one case, his IP Commercialization Labs LLC lost at trial its attempted challenge of a 2019 asset purchase agreement involving a company called Studio Codeworks.