TiVo Inc. (TIVO), a developer of advanced television services including digital video recorders (DVR), will have to face a reopened patent infringement lawsuit originally filed by Echostar Corp. (SATS) in 2005, according to a recent U.S. District Court order.
Under the order, the U.S. District Court for the Eastern District of Texas lifted its stay on EchoStar’s patent infringement suit against TiVo. The suit, originally filed by EchoStar on four patents, has been brought down to one patent. EchoStar has also changed its position regarding the meaning of claim terms.
The patent pertains to a mechanism that controls how multimedia files are stored, formatted and accessed.
Hostilities between TiVo and Echostar dates back to 2004, when TiVo sued EchoStar, then the parent company of satellite television provider Dish Network Corp. (DISH), for infringing on a key patent used in its digital video recorder set-top boxes, that allows consumers to rewind and fast-forward live TV. In 2008, Echostar spun off Dish Network as a separate company.
In 2005, EchoStar filed a countersuit against TiVo, alleging it for violating four of its patents. The U.S. District Court for the Eastern District of Texas ordered a stay on EchoStar’s case in 2006, pending the federal patent office from re-examining the disputed patents.
In the mean time, three of the patent claims were cancelled, while TiVo petitioned unsuccessfully to dismiss the fourth. TiVo alleged that Dish bought the patents from International Business Machines Corp. (IBM) after TiVo’s suit was filed in 2004.
In the suit filed by TiVo, the company had requested the court to make EchoStar pay $1.0 billion for using the modified technology from April 2008 to July 2009. However, the ruling is at present under the en banc (full panel of Judges) review.
The companies made arguments in a hearing in November 2010 and are awaiting a ruling. TiVo believes that the upliftment of the stay on the Echostar lawsuit will have no impact on the en banc review.
TiVo had earlier witnessed favorable ruling three times in the patent infringement dispute against EchoStar. Under the 5-year multimedia patent infringement, TiVo has been awarded a $300 million ($100 million in damages and $200 million in contempt sanctions) by the U.S. Court of Appeals for the Federal Circuit in the Eastern District of Texas, upholding the lower court ruling in TiVo’s favour.
Recently, the U.S. Patent and Trademark Office (PTO) ruled in favour of TiVo for the third time, reaffirming the validity of all the claims of the Time Warp Patent issue in the second re-examination of the patent at the request of EchoStar. This decision of PTO is final and cannot be appealed again by EchoStar.
Our Take
TiVo remains entangled in various legal battles with a number of companies, which includes Microsoft Corp. (MSFT), AT&T Inc. (T), Verizon Communications Inc. (VZ) and Echostar. Despite receiving $400.0 million from EchoStar; it still has an accumulated deficit of $709.0 million. These legal hurdles are expected to drive its litigation expense, which in turn will hurt profits going forward.
Moreover, competitive offerings from cable and satellite providers such as Comcast Corp. (CMCSA), Cox, Dish and DirecTV (DTV) are threatening its digital video recorder (DVR) business, resulting in reduced subscriber additions.
However, we expect new customer wins and partnerships, new cable deals, gradual roll out of distribution deals, product launches and international diversification to drive long-term growth.
We maintain our Neutral rating over the long-term (6-12 months). Currently, TiVo has a Zacks #4 Rank, which implies a Sell rating over the short-term.
COMCAST CORP A (CMCSA): Free Stock Analysis Report
DISH NETWORK CP (DISH): Free Stock Analysis Report
DIRECTV (DTV): Free Stock Analysis Report
INTL BUS MACH (IBM): Free Stock Analysis Report
MICROSOFT CORP (MSFT): Free Stock Analysis Report
ECHOSTAR CORP (SATS): Free Stock Analysis Report
AT&T INC (T): Free Stock Analysis Report
TIVO INC (TIVO): Free Stock Analysis Report
VERIZON COMM (VZ): Free Stock Analysis Report
Zacks Investment Research
