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TiVo wins EchoStar patent suit; The victory could give it leverage as it seeks licensing deals with cable TV operators

Fri, 04/14/2006 - 7:50am

Copyright 2006 Los Angeles Times
All Rights Reserved
Los Angeles Times
April 14, 2006 Friday
Home Edition
Dawn C. Chmielewski, Times Staff Writer
From Lexis Nexis

TiVo Inc. on Thursday won a pivotal patent infringement lawsuit that might allow it to pause and rewind the marketplace the way its pioneering digital video recorders do with live TV.

A federal jury in Texas awarded TiVo $73.9 million after finding that satellite dish provider EchoStar Communications Inc. infringed its patents in a case described as "life or death" for the money-losing video recorder company.

TiVo lawyers said they would seek an injunction barring EchoStar, which owns the Dish Network, from selling digital video recorders. That could help TiVo tamp down competition as it tries to build market share.

Although TiVo is virtually synonymous with the increasingly popular digital video recorders, the company's machines have been overshadowed by those offered by cable and satellite providers. Analysts said TiVo's court victory could give it leverage as it seeks licensing agreements with cable operators that offer set-top boxes with built-in recorders.

"If you're going to defend your patents and try to license it, this kind of win certainly makes those negotiations easier," said Larry Gerbrandt, senior vice president and general manager of Nielsen Analytics, which specializes in emerging media technology.

The verdict sent TiVo's shares up 22% to $9.80 in after-hours trading, after falling 7 cents to $8.05 in regular trading. EchoStar's shares closed up 12 cents at $29.97 during regular trading. They were little changed in late trading.

EchoStar issued a statement calling the verdict a "first step in a very long process" and expressing confidence that the verdict would be overturned on appeal or through a continuing U.S. Patent Office review of TiVo's technology.

"We believe the patent, as interpreted in this case, is overly broad given the technology in existence when TiVo filed its patent," the company said in a statement. "We believe the decision will be reversed."

Only about 12% of U.S. households have digital video recorders, Gerbrandt said. But he expects that number to grow to 18% by the end of the year.

Alviso, Calif.-based TiVo was one of the first companies to develop and market recorders that could pause and rewind live television. But in the seven years since the company went public, it has posted only one quarterly profit -- in the second quarter of last year.

Thursday's verdict was the second piece of good news for TiVo in two days. On Wednesday, satellite television provider DirecTV Group Inc. agreed to extend a partnership with TiVo for three years. DirecTV accounts for nearly 66% of TiVo's 4.4 million subscribers.

As part of the deal, TiVo and DirecTV agree not to assert patent claims against each other. Last fall, DirecTV launched a $30-million ad campaign to promote its own DVR boxes.

TiVo also has an agreement with cable giant Comcast Corp. to sell its recorders.
 
TiVo sued EchoStar in 2004. The two-week trial was at times highly technical in nature, with dueling experts testifying about whether the device marketed by EchoStar was so similar to TiVo's that it infringed TiVo's patents. EchoStar said its Dish Network DVRs used different software and hardware.

TiVo General Counsel Matt Zinn said testimony from the company's co-founder and chief technical officer, James M. Barton, proved the turning point. Barton, whose name is on TiVo's July 1998 "time warp" patent, described how the technology allowed viewers to pause live television when the phone rings, then resume watching the show even though it's still being recorded.

Mark D. Litvack, an intellectual property lawyer with Mitchell Silberberg & Knupp in Los Angeles, said the effect of Thursday's verdict depended on whether the judge grants TiVo's request for an injunction. A shutdown could pose a serious problem for EchoStar.

"Losing money is bad -- and that's a lot of money," Litvack said. "If you get put out of business, that's doubly bad."

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