The Court of Appeals for the Federal Circuit gave TiVo an almost certain and final victory over the Dish Network in its patent battle this week, ruling that although the hardware used in the Dish DVRs did not infringe the TiVo patents, the software did, and that the existing $74 million fine, plus $20 million in interest and additional damages, should stand.
While Dish says it plans a request for retrial with a full set of judges, or an appeal to the Supreme Court, it is unlikely that it can do anything more than delay the inevitable and it will simply increase its legal costs and the potential size of the fine and interest.
The US stock market has never really known how to take TiVo but the fact that it has some pretty unassailable IPR has never really been ‘in the price,’ and it needed to jump not just by the $94 million that may soon swell its coffers, but more like 3 times that value on the day, up around 30% to $864 million market capitalization, on the prospect of others that should also pay to license TiVo’s ideas in DVR design, including the most basic time-shifting concept.
Move this entire game forward 5 years and this could be the recently spun out EchoStar Holdings, and its own Place Shifting patents held by subsidiary Sling Media, bringing similar legal actions against EchoStar rivals. It would make so much sense for EchoStar to stump up the $1 billion plus that it might cost to buy TiVo (in shares preferably) and then bring together both of the two most innovative set top technologies into a single license. Of course you’d understand right now if TiVo didn’t want anything to do with such a course, but back when the company first lost its DirecTV franchise, it could have been picked up for a song if an enlightened rival had moved (we tipped it often enough for takeover)
Dish moved immediately to mitigate any further licensing costs by revealing it has already changed the software on its 4 million DVRs some time ago, saying that it’s new software does not infringe and that, the court decision, “will have no effect on our current or future customers.” We’re not so sure. It’s tough to invent a new technology that does much the same as a prior technology but doesn’t infringe and unless Dish has truncated many features and functions, making its customers less happy, it is likely that it will have desertions, which will show in the next quarter, unless it comes to terms with TiVo.
Also there is an outstanding order to switch off all those devices, and unless Dish can prove that its new software does not infringe, then TiVo has every right to ask for them to be switched off now that the appeal is over.
What’s going to happen is that Dish and TiVo will posture for a while, and then they will announce a deal, one that not only gives Dish the rights to the technology, perhaps also selling the TiVo service on its behalf, but one where EchoStar Holdings has some kind of right to distribute and sell the TiVo technology, with CEO Charlie Ergen using his market power and reach to put TiVo in an even better position than it is today.
Certainly if Dish is in sale discussions Ergen doesn’t want it tainted, and if he is now in the set top and satellite technology business, he will want access to the TiVo IPR. From the purely stock market point of view TiVo has more upside to unfold.