There are times when a company’s senior management has to simply accept the knocks and bumps of running a big company, look fate right in the eye, curse and move on. Investors, among others, will be concerned that at Dish Networks and its sister company EchoStar, that seems impossible where TiVo is concerned.
The company this week made great mileage out of the fact, as it was flailing around, looking for a get out clause in its patent war with TiVo, in a defense against a contempt request by the DVR inventor and it says the US Patent and Trademark office has issued another re-examination of the core TiVo Time Warp patent.
EchoStar issued a statement saying, ‘We are pleased that the Patent and Trademark Office granted our petition for re-examination of the software claims of TiVo’s ‘389 patent, which are the subject of TiVo’s current motion for contempt. The PTO found that there is a ‘substantial new question’ of patentability as to the software claims in light of prior patents that appear to render TiVo’s ‘389 patent invalid as obvious.”
This is simply code for EchoStar saying ‘We have said that the Time Warp invention was obvious all along, and although we’ve been beaten back as being totally wrong every time, the law says we are entitled to have another crack at it because this is a different hearing.’
TiVo has almost said as much in its own public statement which goes, ‘EchoStar filed its latest request for re-examination after TiVo asked the United States District Court to hold EchoStar in contempt of the Court’s injunction requiring EchoStar to disable its DVR functionality. An evidentiary hearing on the contempt issues is scheduled to be held on February 17.’
And goes on ‘EchoStar’s latest tactic follows numerous failed attempts to invalidate TiVo’s groundbreaking Time Warp patent. In 2006, the District Court rejected all of EchoStar’s validity challenges after a full jury trial and the judgment of validity was affirmed by the Federal Circuit in 2008. The USPTO also conducted a prior reexamination of the Time Warp Patent at EchoStar’s request, which concluded on November 11, 2008, with the USPTO issuing a Reexamination Certificate confirming the validity of all of the claims of the Time Warp Patent without any change. EchoStar’s latest request for reexamination is based on a combination of two prior art references that were both already submitted to the USPTO in connection with the earlier reexamination. The USPTO grants most patent reexamination requests. Contrary to EchoStar’s statement, the USPTO made no substantive findings.’
There have been many points along the way when EchoStar might have made nice with TiVo, but this is trying to slam the door after the horse has bolted, given that at the end of November it paid TiVo $100 million in legal settlements. The issue now is about whether or not the EchoStar work around is now legal, which of course is unlikely given the broad nature of the Tivo patents. Had the senior management cared what investors thought earlier in the process, all of this could have been averted for a royalty payment of around $20 million. (EchoStar CEO Charlie Ergen is a dominant shareholder, but surely he has a legal duty to look out for other shareholders too)
It is no wonder that both DISH and EchoStar shares are in the basement, mostly because Dish lost out in a race with DirecTV to become the default AT&T satellite TV supplier, but also because senior management takes things personally, and upsets the people it negotiates with. So it’s not too surprising that the Krikorian brothers and their buddies who ran Sling Media, the company which EchoStar bought a year ago, for $380 million, are also on the move, planning to depart. They were only tied in for one year it seems, and this cannot be a great place to work for people who are clearly inventors and entrepreneurs.
We have often said that what Dish should have done is put in a bid to purchase TiVo back when Dish was worth closer to $20 billion, and merge the technology with the place shifting of Sling Media. We were told privately that the hostility that Ergen has for TiVo meant that this was never going to happen.
Well here’s a scenario where it might, TiVo, lifted by the rising tide of these patent wars, which are incidentally making its patents ‘unbreakable’ in future proceedings, will begin calling in its markers from anyone who has invented or used a DVR in anger, and it becomes a cashflow monster in intellectual property. This fires its share price and it decides to buy the Place Shifting patents of EchoStar either from a distressed company in need of money, or it buys the company outright as its star falls further and further. It merges the under-rated place shifting patents of the Krikorian Brothers with its own and they live happily ever after.
Before you tell us we’re crazy consider this. In 2003 we suggested that Sony bought Apple, at the time valued at $9.8 billion, around a quarter of Sony’s value at the time. Acquire it before it is too late we advised. And today Apple is valued at 3.5 times Sony’s corporate valuation, and at times has been much higher.