BlackBerry (NYSE:BB) recently sued Facebook (NASDAQ:FB) and Snapchat maker Snap (NYSE:SNAP) over alleged patent violations. In early March, BlackBerry claimed that Facebook, along with its WhatsApp and Instagram apps, infringed its messaging patents. In early April, it claimed that Snap had violated its map and messaging patents.
BlackBerry is leveraging its patents for BBM (BlackBerry Messenger), its enterprise messaging app, in both cases. BlackBerry initially released BBM in 2005. WhatsApp was launched in 2009, Instagram arrived in 2010, and Facebook Messenger was released in 2011.
BlackBerry claims that it only sued Facebook after "several years of dialogue" with the social network. In the lawsuit, BlackBerry claims that Facebook "created mobile messaging applications that co-opt BlackBerry's innovations, using a number of the innovative security, user interface, and functionality enhancing features that made BlackBerry's products such a critical and commercial success in the first place."
BlackBerry is hitting Snap with similar charges, but it claims that Snapchat's ephemeral messages and Snap Map features infringe on additional patents. BlackBerry claims that it tried to resolve the dispute with Snap "without resorting to litigation" through "various letters, calls, and an in-person meeting."
Investors who haven't followed BlackBerry for awhile might be confused by these abrupt lawsuits. However, they're actually part of a broader turnaround strategy for the former smartphone leader.
The "old" BlackBerry vs. the "new" BlackBerry
BlackBerry controlled about a fifth of the world's smartphone market in 2009. However, the company grew complacent and lost the market to iPhones and Android devices. By the time CEO John Chen took the helm in 2013, BlackBerries accounted for less than 1% of the smartphone market.
Chen pivoted BlackBerry away from the smartphone market, and focused on strengthening its enterprise software and services businesses. The company's main pillar of growth became BES (BlackBerry Enterprise Service), which lets companies monitor their employee's mobile devices. A less significant growth engine was BBM, which still had 190 million users worldwide in 2015.
BlackBerry started outsourcing the production of all its smartphones to Chinese consumer electronics maker TCL in 2016. This led to the creation of BlackBerry Mobile, a subsidiary of TCL that pays licensing fees to the original BlackBerry.
Chen also focused on monetizing BlackBerry's portfolio of about 44,000 patents. That's why BlackBerry sued companies like Avaya, BLU, Nokia, Cisco, Facebook, and now Snap. BlackBerry even sued Ryan Seacrest when he tried to sell an iPhone case with a BlackBerry keyboard.
Patent trolling... or a smart business strategy?
Many critics accused BlackBerry of becoming a patent troll, but the strategy is clearly paying off. BlackBerry's "licensing, IP, and other" revenues rose 54% in fiscal 2018 and accounted for 21% of its top line.
That made its licensing business the fastest growing component of its "Software and Services" division, which also includes its Enterprise Software & Services and BlackBerry Technology Solutions units. BlackBerry's total Software and Services revenues grew 20% during the year and accounted for 80% of its top line.
Unfortunately, that growth was offset by its ongoing declines in handset sales and service access fees, and BlackBerry's total revenues still fell 29% for the full year. But as those two figures drop toward zero, BlackBerry could grow again as an enterprise software and services provider.
That's why analysts expect BlackBerry's revenue to fall just 8% this year, followed by 10% growth next year.
But what about Facebook and Snap?
BlackBerry clearly wants to push Facebook and Snap into licensing agreements that would generate stable, recurring revenues for the IP and licensing business. It's unclear if the lawsuits will pay off, but BlackBerry already squeezed out plenty of licensing fees from other companies.
If BlackBerry wins these lawsuits, they could set a precedent for the company to sue other mobile messaging app makers in the future.