From The Wall Street Journal - July 03, 2009
By ROGER CHENG
TiVo Inc. shares sank Thursday after a judge ruled that Dish Network Corp. customers could continue to temporarily use their digital video recorders, ultimately delaying a resolution between the two companies.
TiVo and Dish have been locked in a four-year legal battle over the use of technology that allows consumers to pause, rewind and record live television. Dish has lost each legal battle, and had been ordered to stop using the technology in its set-top boxes.
A ruling last month -- which found Dish's efforts to bypass TiVo's patents inadequate -- was seen by many as the final straw that would force both sides into a settlement. Indeed, TiVo shares jumped more than 53% to nearly $11 following the decision.
But late Wednesday Dish was granted another stay from a federal circuit judge following its appeal. Now analysts are expecting a resolution late this year or in early 2010.
In 4 p.m. trading Thursday, TiVo was down 15.6% to $9.09, although it remains up significantly for the year. Dish was down 2.3% to $16.10, amid a broad market drop.
In a legal setback for TiVo, a judge said Dish Network customers can continue to temporarily use their digital video recorders. The two companies have been fighting for four years over use of the technology
Dish contends that it hasn't infringed on TiVo's technology, and that changes it has made to its set-top box get around any TiVo patents.
"All I can tell you is we're confident that we don't violate their intellectual property today, and we think we will ultimately prevail," Dish Chief Executive Charles Ergen told analysts during the last quarterly conference call in May.
Dish said late Wednesday that it was pleased that the federal circuit court blocked the district court's injunction.
Still, the prior rulings aren't encouraging for Dish.
"Based on the advice of outside counsel, and the track record of TiVo thus far in the process (they have prevailed in every previous step), we remain confident in TiVo's overall position," said Hudson Square Research analyst Daniel Ernst.
In June, a federal court awarded TiVo $103 million, in addition to the $105 million Dish has already paid TiVo.
Most believe that if TiVo wins, the two sides will come to a settlement in which Dish pays a recurring licensing fee. TiVo already has a distribution agreement with Dish rival DirecTV Group Inc. and cable provider Comcast Corp.
With fewer customers actually buying TiVo boxes, and instead relying on digital video recorders provided by their TV service provider, the company has shifted its business model to focus on licensing out its technology. A deal with Dish would provide a badly needed catalyst.
In May, TiVo said it was seeing growing interest from second- and third-tier cable operators who want to offer digital video recorder services to their subscribers.
Still, Mr. Ernst warned that patent litigation is not a linear path. If Dish prevails, there will be no chance of a licensing deal with TiVo.
The federal circuit court set an expedited schedule of briefings over the next few months, with oral arguments slated for November.
Write to Roger Cheng at email@example.com