There are those out that that are still not believers in TiVo and when you encounter them they have this irrational dislike of the company which invented digital video recorders ‘ their arguments range from irritation that a small engineering firm has blossomed to the point where it has successfully sued one of the biggest pay TV operators in the US ‘ Dish Networks, and insist that all of its inventions are obvious. They cite just how many companies are already making DVRs which are not paying TiVo royalties, and think of this as ‘evidence’ that the company is therefore not entitled to them.
If it had been obvious back in 2002 when many of the company’s patents were being filed, then there would have been considerable prior art, and the tiny Alviso California inventor would never have survived so many challenges to its basic timewarp patents. But it wasn’t.
Which is why this week TiVo finally feels strong enough to go after AT&T and Verizon, which pay nothing to it in royalties despite relying heavily on DVRs and multiroom DVRs in their respective IPTV strategies at U-Verse and FiOS TV, and why we think that shortly the floodgates will open for TiVo.
But even now it is having to undergo yet another tests of these patents ‘ an examination triggered at the US Patent and Trademark Office, by Dish Network, still trying to get off the hook from the multiple disasters at the hands of successive courts and appeal courts, over the patent action brought by TiVo in 2004.
This is the second time that such a re-examination of TiVo’s earliest patents has been brought, and although Dish has been crowing loudly at the fact that an initial examination has led to the USPTO rejecting some of the TiVo claims, TiVo was quick to remind us that this is exactly what happened last time the patent was examined closely and not to worry.
The actual statements from the USPTO makes it clear that it doesn’t think that it has actually looked at a number of the points that Dish raises in its objection to the TiVo patents, which appears to contradict TiVo’s belief that it has been over all this before in 2005. But just because the USPTO dismissed a call by TiVo to have the case summarily dismissed does not mean that TiVo has lost, or is likely to lose the case.
But after this patent re-examination, there are no longer any more cases left to try, which is perhaps why TiVo is now finally ready to take on the doubters and cash in on DVR license revenue and is going after the biggest potential pay days in its history at AT&T and Verizon.
The interesting thing is that TiVo has a chequered history of how it goes about charging for its intellectual property. Right at the beginning of its life it tried to get equipment vendors to license its DVR ideas and was relatively successful with deals at Sony, Humax, Thomson and others in the 2002 time frame.
Since that time TiVo has instead chased business either directly from the public or through operators and its most significant deal ever was with DirecTV, which brought its technology (and service) to a huge number of its subscribers, and today somewhere close to 1.5 million still remain receiving TiVo service from DirecTV and other MSOs.
These now include a new deal with DirecTV, for a HD version of the TiVo service, not yet delivered; as well as deals with Comcast and Cox in the US, Cablevision in Mexico and fresh deals with pay TV operators in Australia and New Zealand. But while these deals are being ramped up, the most notable financial effect at TiVo (apart from the multi million dollar payments in its favour in legal cases) is the churn in its own subscriptions and the deliberate steering away from TiVo service which has gone on at DirecTV for the past few years, as an NDS designed DVR was introduced (again with no royalty payments being made to TiVo). This has led to non-direct TiVo subscriptions falling from over 2.4 million to just above 1.5 million in the past three years. Just how hard DirecTV pushes the new HD TiVo service when it is finally released will enormously affect future TiVo indirect revenues.
In the case of Comcast, TiVo has begun working closely with other equipment vendors and companies like Motorola and Scientific Atlanta who are now very attuned to how the TiVo system works, and there is now a software implementation of TiVo on existing Motorola set tops. But it must be remembered that there is, as yet, no direct license between TiVo and either of the cable set top players.
A suit at AT&T and Verizon would, we imagine, attempt to get a license directly from the operators, but the equipment vendors and chip makers, Motorola, Scientific Atlanta, Broadcom, ST Micro, Sigma are all legitimate targets. By taking on some of the biggest telecommunications operators in the world TiVo is showing that now that it has Dish on the run, it is prepared to see this through at ALL operators, and potentially all equipment designers.
TiVo is no stranger to litigation and has been at it almost since it started in business. Time Warner tried to say that DVRs in principle breached copyright back in 1999, in 2000 StarSight Telecast, which made chips to accurately set recording times of programs from a broadcast notification field, sued it for being able to schedule recordings. StarSight was then acquired by Gemstar, now part of Macrovision.
In 2001 it was the turn of rival Pause Technology which said that it in fact had filed a timewarp patent before TiVo and then SonicBlue, the new owner of rival ReplayTV, filed a similar suit. In every case TiVo paid no-one anything. It decided there was enough merit in the ReplayTV case that both sides simply dropped their cases, and agreed not to sue anyone, but that was never really resolved.
Scientific Atlanta claims that it can make DVRs because it bought a license from ReplayTV for its technology, even though Replay is out of business now and its IPR assets have been passed around first to Japanese company D&M Holdings and we’ve lost sight of them since that.
TiVo could still issue a suit against any company hiding behind the ReplayTV patents, and probably with the payment of $104 million from Dish Networks (after appeal and a request for the Supreme Court to hear the case was turned down), it has the money to pursue them even more aggressively than it did back in 2001.
There is always another legal action, but the chances that the USPTO will decide that its timewarp patent does not hold, are almost nil. Even if it does, then TiVo has amassed so much more intellectual property since then, all of it included in its product lines and all of it uncontested.
It has added features to DVRs to automatically record programs similar to other programs ‘ either the same show on a different channel, the same actors or directors, or any other combination you want. It has added push VoD ideas for both programming and advertising. It has a service for generating audience measurement data on its own DVRs, patented for other supplier’s DVRs. TiVo also has a widely varied number of advertising tools, so that advertisers can either use adverts which persist through a fast forwarding process, or which reside on the hard drive with EPG links for viewing. It has patents or applications for all of these things, many of which rest on almost no prior art.
So if any individual patent is refuted at TiVo, there is an increasing number of DVR ideas which TiVo can open the door to, which are attractive to all DVR builders, and which many use anyway, having shamelessly copied them from TiVo.
So far TiVo has not sued anyone for these more advanced options, but it could. It has licensed much of this know how to Comcast and DirecTV but not to AT&T or Verizon or hardly anyone outside of the US. But it could, and that’s why we think that much of what U-Verse and FiOS have introduced in the US is directly copied from cable and satellite into the IPTV eco-system. Wherever TiVo gets money from within IPTV, it will be a growing pool of funding going forwards for the next five years, as IPTV is growing at breakneck speed.
The biggest concern to TiVO’s future is the fact that DVRs may have a limited future now that US operations have been freed by the Supreme court to use network PVRs. Cable operator Cablevision won the case on Appeal and the Supreme Court rejected a request to look at the case, allowing the court’s ruling to stand.
Because there is a basic economic advantage to using central servers to offer DVR services, and that it has lower support costs, may lead to many pay TV operators embracing this technology. But most TV watchers see this as the poor man’s DVR, and believe that free or exceptionally cheap DVR services may be introduced, but only for people who are not able to afford their own box. And who is to say that such devices do not need a TiVo timewarp license. After all, it is just a multi-user version of the same thing.
In 2002 TiVo was written off most analyst services, iSuppli and In-Stat to name a few, saying that it didn’t make sense to buy a stand alone device, or that it would soon be built into a set top, with no royalty to TiVo.
But the standalone DVR is resilient because consumers love them and in the case of satellite operators, they cannot rely on a broadband line to deliver DVR programming.
All of which leads us to conclude that TiVo will be successful in some way or other with its suits against the US RBOCs over their IPTV services. And that success may come from AT&T and Verizon pushing the liability for a TiVo license onto their suppliers. That may even lead to TiVo being able to license more advanced advertising services to these players and create a viable long term revenue stream.
We have always said that TiVo should be an intellectual property play, and now for the first time, TiVo appears to agree with us, and its management feels it is in a position to pursue this.
TiVo has filed its suits in the US District Court in the Eastern District of Texas, one of the courts best know for resolving IPR issues. It is seeking damages for past infringement and a permanent injunction to stop the AT&T and Verizon DVRs from being used.
“There are multichannel operators who compete with us through the unauthorized use of our intellectual property,” said TiVo CEO Tom Rogers, in a conference call with analysts. He added that while there were talks, “business agreements have not been reached.”
TiVo does not require a huge royalty stream from its patents, just one which relates to every new home that is signed up for a DVR, and then effectively it will have harnessed the same sales engine to make it grow which Dish harnessed, when AT&T sold its satellite TV service. And we know how effective that is.