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The ruling today affects Dish’s older DVRs and leaves open the question of whether software on newer models was changed enough to get around TiVo’s patent for the “time warp” technology that simultaneously records and plays back television programs. Dish, the second-largest U.S. satellite-TV provider, is entitled to a new hearing on the altered products, the U.S. Court of Appeals for the Federal Circuit in Washington said.
“It’s a big win for TiVo because it can move forward to pursue its rights and remedies but it’s obviously not a total win,” said Ed Reines, a lawyer at Weil Gotshal & Manges in Redwood Shores, California, who isn’t involved in the case.
TiVo, a pioneer in the market for home DVRs, has been trying to shut down Dish’s DVR service since winning cases before a jury four years ago and before an appeals court in 2008 and 2010. Dish, formerly known as EchoStar Communications Corp., said it will ask the U.S. Supreme Court to review the case, and seek to have the order put on hold during that period.
“This ruling is going to move them toward a settlement because Dish already has two strikes against it,” said Rich Tullo, an analyst with Albert Fried & Co. in New York who has a “buy” rating on TiVo shares. “At the end of the day, Dish has to look at this in context of its acquisitions and cash flow and decide what the cost-benefit of losing is.”
Monetary Damages
The judge in the original trial awarded Alviso, California- based TiVo $200 million in contempt sanctions. The appeals court today upheld $90 million of that, which was related to contempt of the disablement order, and ordered the judge to recalculate the remaining $110 million.Without a settlement, Englewood, Colorado-based Dish may be forced to pay as much as $1 billion to TiVo, Tullo said.
TiVo rose $2.84, or 34 percent, to $11.21 at 2:41 p.m. New York time in Nasdaq Stock Market trading. The shares reached $12.65 earlier for their biggest intraday gain since March 4, 2010. Dish fell 30 cents to $23.57.
“This marks the second time that the district court’s contempt ruling has been upheld,” TiVo said in a statement. “We look forward to the permanent injunction against EchoStar and Dish Network finally being enforced.”
DVR Models
TiVo, which has reported net losses in nine of the past 10 fiscal years, has said in court filings it lost a quarter of its customers, while Dish was able to double its DVR subscribers.Dish may have to disable DVR functions on eight receiver models, according to the ruling. The company has claimed it has since developed a new product that doesn’t infringe TiVo’s technology and said in a statement today the order to halt the service only covers older models. Existing customers “are not immediately impacted by these recent developments,” Dish said.
“We have already upgraded many of these customers and, if we are unsuccessful in obtaining a stay, we will work as quickly as possible to upgrade the remaining customers to our current generation DVRs, as these are not at issue in the ruling,” the company said.
The lawsuit was originally filed against Dish and EchoStar when they were a single satellite-TV and equipment company. The business split in 2008, and Dish has agreed to cover the bulk of liability in the case, the company said in its annual report.
Failure to Comply
A panel of the Federal Circuit ruled 2-1 in March 2010 that Dish was in contempt of an order to stop its DVR service because the altered system wasn’t that different than the one presented to the jury. All active judges of the court decided to revisit the issue to determine when someone who claims to have worked around a patent is entitled to a new trial.Dish, which argued to the appeals court that the order to shut off its DVR service was vague and too broad, never sought clarification from the trial judge, the Federal Circuit ruled.
“Nor did it ever disable any DVR functionality in even a single receiver that had been found infringing by the jury,” the appeals court said. “It unilaterally decided that downloading modified software to its infringing receivers was sufficient to comply with the district court’s injunction.”
In its 2010 annual report, Dish said that being forced to stop providing DVR service and failure to reach a licensing agreement with TiVo “would result in a significant loss of subscribers and place us at a significant disadvantage to our competitors.” It also may lead distributors to decrease their marketing of the network, Dish said.
Bigger Fish
DirecTV (DTV), the largest U.S. satellite-TV provider, has an agreement with TiVo for use of its DVR service. The patent expires in 2018.Following the March 2010 Federal Circuit ruling, Dish claimed it had developed another way to work around the TiVo patent, and asked the court to review that version. The judge hasn’t ruled, because of the appeal that had been pending.
Dish has its own patent-infringement case pending against TiVo filed in 2005. The case had been on hold because the U.S. Patent and Trademark Office is taking a second look at the Dish patents, which were bought from International Business Machines Corp.
TiVo also is involved in patent suits with Microsoft Corp., Motorola Mobility Holdings Inc., AT&T Inc. and Verizon Communications Inc. (VZ) It claims Verizon’s FiOS and AT&T’s U-verse television and Web services infringe patents.
“TiVo wants this resolved,” Tullo said of the Dish case. “They’re fatigued and they’ve got bigger fish to fry with Verizon and AT&T.”
The appeal is TiVo v. EchoStar, 2009-1374, U.S. Court of Appeals for the Federal Circuit (Washington). The lower-court case is TiVo Inc. v. EchoStar Communications Corp., 04-cv-01, U.S. District Court, Eastern District of Texas(Marshall).
