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A make-or-break court case

Left as is, patent verdict could end telecom's days

BEDFORD -- Four hundred jobs, $100 million in vanished shareholder wealth, and who can profit from popular cellphone services are all on the line today as a longtime high-tech leader fights for its life in federal court.

Like a death-row inmate looking for a midnight reprieve, Boston Communications Group Inc. is hoping to get out from under a $128 million patent-infringement verdict that has shocked the company. The verdict would represent 19 years' worth of BCGI's profits, based on this year's first-quarter earnings. It's also equal to every dollar in cash, equipment, and property the company owns. With damages, the judgment could soar past $400 million.

''This is a classic example of patent lawsuits running amok," said chief executive E. Y. Snowden, who has had no choice but to float talk of seeking bankruptcy protection.

BCGI shares, which traded around $6 for most of last month, crashed below $1.50 after an eight-person jury in US District Court in Boston returned its verdict May 20. The shares closed at $1.93 yesterday, giving the company a value of $34 million, or $100 million less than before the verdict landed.

For more than five years, BCGI has been battling a lawsuit by a four-person business, Freedom Wireless Inc. The Phoenix company owns several patents covering prepaid wireless calling plans that let consumers buy phones and air time without getting locked into long-term contracts.

More than 20 million Americans, and a rapidly growing number of customers abroad, use prepaid plans, paying $20 to $100 for air time up front and then subtracting from their balance as they make and receive calls.

Having overcome a reputation for exorbitant rates and mediocre service, prepaid is now proving to be a crucial driver of wireless subscription growth, especially among people with poor credit, teenagers, and those at all income levels who just want to avoid a two-year wireless contract.

BCGI has been a key vendor of prepaid wireless systems used by Cingular, Verizon Wireless, and Nextel Communications Inc.'s Boost Mobile unit. The company, which in its 17-year history has frequently ranked as one of the fastest-growing Route 128 technology firms, deployed a breakthrough technology for prepaid in 1996: Instead of making customers buy phones with built-in meters, or dial an identification code or a toll-free number to place a call, BCGI technology lets carriers sell prepaid phones that work the same way as monthly-contract phones. Using a database to match the phone number to the account balance, the BCGI system shuts off service when the balance is used up. But those features, Freedom Wireless successfully argued, were covered by patents it owns that BCGI ''willfully infringed."

BCGI today begins a roughly two-week trial before US District Judge Edward F. Harrington, arguing the jury verdict is unenforceable because Freedom deceitfully failed to disclose to the Patent Office several examples of known technology that would have undercut its patent application.

''That's an allegation that's always made" by losers in patent cases, said Freedom's attorney, William C. Price of Los Angeles. ''It's usually a fairly desperate allegation."

BCGI is considering several other avenues for appealing the ruling to the Washington, D.C., circuit court that handles patent cases, among them challenging the patentability of Freedom's technology.

Price said Freedom and patent holders Douglas Fougnies and Dan Harned know that exacting a $128 million judgment could kill BCGI. ''It's in Freedom's interest that BCGI stay in business," Price said. ''Freedom would love for BCGI to be incredibly prosperous using our method and paying a license royalty."

Freedom also thinks that whatever judgment Harrington upholds, the lion's share should be paid by the companies that have used BCGI's technology, such as Cingular, which is owned by Baby Bell giants SBC Communications Inc. and BellSouth Corp.

BCGI, however, has agreed to indemnify its much-deeper-pocketed customers. Cingular is taking legal action to ensure its protection holds up, and attacking the judgment itself. ''We respectfully disagree with the jury's verdict, and we intend to file an appeal," Cingular spokesman Martin A. Nee said.

Snowden, BCGI's chief executive, said the company can afford to pursue the appeals. But posting a bond for far more than the $34 million company is currently worth to cover the judgment during appeals will be tricky, he said. And while BCGI offers several other wireless technology products, prepaid services represent 90 percent of its revenue. Retaining current customers and signing up new ones will be hard as long as doing business with BCGI exposes them to lawsuits by Freedom, which sued Nextel hours after winning the $128 million.

Snowden said his strategy has been to communicate as often as he can with his 400 employees -- and to ''get my aggressions out" on the rugby field on weekends.

''We're hoping to prevail in the end, but we're all a little bit anxious," said Elena Figler, who has worked for BCGI for seven years and manages internal technology projects. As a single mother, Figler said, she has loved the supportive work climate and friendly, smart colleagues who ''make this a great family company."

Figler said the $128 million ''seems like a lot of money to me. It's concerning that it could potentially go up. We can solve any problem for our customers, but this isn't something we can fix or solve or send to quality assurance. It's out of our control, which is what makes it a bit worrisome."

Peter J. Howe can be reached at howe@globe.com.

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