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TiVo Accuses Dish of Manipulating Legal System in Patent Fight
Monday, November 8, 2010
Nov. 9 (Bloomberg) -- TiVo Inc. accused Dish Network Corp. and EchoStar Corp. of manipulating the legal system to avoid complying with court orders to stop offering digital-video recording services that violate TiVo's patent.
Dish is asking the nine-member U.S. Court of Appeals for the Federal Circuit in Washington today to consider whether U.S. District Judge David Folsom erred in not granting a full trial, rather than a hearing, to determine if changes made to the company's software effectively worked around the TiVo patent. A 2-1 panel said in March a hearing was adequate.
"They have disregarded every provision" of an order that they stop infringing the TiVo patent, said Seth Waxman, a lawyer at WilmerHale who represents Alviso, California-based TiVo. "EchoStar continues to violate this patent with devices that already had their day in court."
TiVo has been unable to get Dish to shut down DVR service despite winning cases before a jury and an appeals court that found Dish violated TiVo's patent for "time warp" technology that lets users record a TV program and play it back at the same time. The verdict was upheld on appeal, as was an order that Dish stop its DVR service. Dish continued to provide the feature, saying it made alterations to bypass TiVo's invention.
"This device is more than colorably different" from the one that was before the jury in the 2006 trial, Josh Rosenkranz, a Dish lawyer at Orrick, Herrington & Sutcliffe in New York, told the court. "EchoStar has removed the features that TiVo said infringed. In order to do that, EchoStar had to innovate."
The hearing stems from a patent-infringement lawsuit filed in 2004 against Englewood, Colorado-based Dish and EchoStar when they were a single satellite-TV and equipment company called EchoStar Communications Inc. The business split in two in 2008.
$3 Billion Award
TiVo, which has reported net losses in nine of its past 10 fiscal years, has said in court filings it lost a quarter of its customers while Dish was able to double its DVR subscribers.
TiVo has said it will be entitled to about $300 million in damages and contempt sanctions through July 1, 2009, and it will seek more cash for infringement after that date. That's in addition to $100 million Dish paid TiVo after the original appeals court ruling.
Dish may have to pay TiVo more than $2 billion to settle the case, according to Craig Moffett, an analyst at Sanford C. Bernstein in New York. If Dish were required to silence all its DVRs, it would face a worst-case cost of $3 billion, he said.
"The arguments posted in these briefs are relatively consistent, citing the severe risk to all patent holders" if the court sides with Dish, Moffett said before today's hearing.
'Crucial' to TiVo
TiVo stock, which hovered around $10 a share last month, will be worth $20 in a victory over Dish, and will sink to $6 if it loses, said Barton Crockett, an analyst at Lazard Capital Markets in New York. He said today's hearing is "crucial" to TiVo's valuation.
TiVo fell 58 cents, or 5 percent, to $10.71 at 1:02 p.m. New York time in Nasdaq Stock Market trading, and was up 11 percent this year before today.
Dish, the second-largest U.S. satellite-television provider, rose 4 cents to $20.09 and was down 3.5 percent this year before today. EchoStar rose 30 cents to $22.
"The impact of a license fee with TiVo is likely in the stock" of Dish, said Tom Eagan, an analyst at Collins Stewart LLC in New York.
Dish may have to pay TiVo as much as $3.50 a box per month, or about $1.83 billion, he said. Anything more than that would be passed on to customers, he said. Investors have already priced in a negative outcome for Dish.
Siding with TiVo
A split three-judge panel in March upheld a contempt finding against Dish and EchoStar. Today, all nine active judges revisited the issue to determine when patent owners should be forced to relitigate infringement contentions when a product has been redesigned. A new trial would delay a ruling on the altered product, said Circuit Court Judge Pauline Newman.
The court spent much of the hour-long hearing parsing the wording of the original order, and what the jury considered in the trial.
The appeals court is likely to side with TiVo, which claims Dish's interpretation of the law is harmful to patent holders and the judicial system, said Tony Wible, an analyst at Janney Montgomery Scott LLC in Philadelphia.
"The Dish litigation should unlock value through a sizable new annuity stream and cash damages, while validating the intrinsic value of TiVo's" intellectual property, Wible wrote in an Oct. 7 note to investors.
Hewlett-Packard, Microsoft
Hewlett-Packard Co., Microsoft Corp., and Newegg Inc. sided with Dish in court filings, saying that TiVo was trying to claim the design-around infringed the patent in a way that wasn't presented to the original jury. Microsoft, the world's biggest software maker, is challenging the TiVo patent in another case.
"Subjecting defendants to contempt sanctions for developing new products that work in entirely different ways would impede that fundamental, constitutional goal of the patent laws," the companies said in a filing.
General Electric Co., Johnson & Johnson, and SAP AG submitted filings that argued trials should be held when there are substantial new questions to be resolved, without taking a position on the TiVo dispute. The U.S. Federal Trade Commission said the court will have to balance the rights of patent owners with the desire for companies to innovate around patents.
The patent in the Dish case also is the subject of lawsuits TiVo filed against AT&T Inc. and Verizon Communications Inc., the telephone companies that have expanded into television and Internet offerings. Microsoft, which provides software for AT&T's U-Verse, also has accused TiVo of infringing its patents.
DirecTV, the largest U.S. satellite-TV provider, has an agreement with TiVo for use of its DVR service.
The appeal is TiVo v. EchoStar, 2009-1374, U.S. Court of Appeals for the Federal Circuit (Washington). The lower-court case is TiVo Inc. v. EchoStar Communications Corp., 04-cv-01, U.S. District Court, Eastern District of Texas (Marshall).
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