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Microsoft, RIM ink new licensing agreement

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Shares of Research in Motion spiked briefly on Tuesday on news that the struggling smartphone maker had signed a new licensing agreement with Microsoft, but investors who hoped the deal meant Redmond would bundle BlackBerry technology with its phones were in for a disappointment.

Instead, RIM has licensed a group of Microsoft patents related to the exFAT file system, a way of formatting flash storage media for use in mobile devices.

"Today's smartphones and tablets require the capacity to display richer images and data than traditional cellular phones," a Microsoft rep said in a canned statement. "This agreement with RIM highlights how a modern file system, such as exFAT can help directly address the specific needs of customers in the mobile industry."

The exFAT technology is loosely based on Redmond's venerable FAT file system, which has been available in some form since before the MS-DOS days. According to Microsoft, the new version accommodates much larger files than earlier file systems and makes accessing them faster.

Equally important for Steve Ballmer and Company, exFAT is also protected by a number of Microsoft patents, in addition to patents pertaining to the older FAT technology.

By licensing the exFAT patents, RIM joins a growing number of device makers, flash storage vendors, and software companies who have chosen to fork over fees to Redmond rather than face possible legal troubles down the road.

In 2009, Microsoft sued GPS navigation system vendor TomTom when it refused to negotiate licenses to patents related to the older FAT technology. TomTom eventually settled for an undisclosed sum, and although critics have continued to challenge the validity of the FAT patents, the industry was put on notice that Microsoft meant business.

The patents on the newer exFAT file system seem less vulnerable to legal challenges than the FAT patents, leading many companies to conclude that licensing them would be the most prudent option. Licensees include such heavyweights as Canon, Panasonic, SanDisk, Sanyo, Sharp, and Sony, among others.

Microsoft says its intellectual property division has inked over 1,100 deals since 2003, though it doesn't say exactly how many have been related to FAT or exFAT.

It also doesn't like to disclose just how much it will receive in fees from its licensees. Camera, camcorder, and digital photo–frame makers get away with paying a flat rate of $300,000, but phone, PC, and network vendors must negotiate their own volume licenses.

Last year, Redmond was reportedly pressuring Samsung to cough up $15 per phone, while the South Korean mobile maker wanted to knock that payment down to $10 per. If such rates are typical, Microsoft could be earning impressive revenue from the mobile phone business, even from customers who turn up their noses at Windows Phone.

Whatever the fee RIM negotiated, however, it was surely less expensive than a potential lawsuit. The Canadian firm is currently burning through its cash reserves as it prepares for next year's launch of its delayed BlackBerry 10 platform, and it can little afford new expenses.

It had a close call in August when a jury said it owed $147.2m in damages for infringing a patent owned by Mformation Technologies, but a judge later overturned that verdict.

For the patent deal with Microsoft to be actually worth the expense, however, RIM still needs to actually do something with the patents. Where are those BlackBerry 10 phones, again? ®

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