Court victory boosts TiVo shares
Win over Dish sends stock up 29%TiVo captured a near-total victory on Thursday when an appeals court upheld a ruling that Dish Network infringed some of the DVR pioneer's patents, news that sent shares of TiVo soaring 29%.
The Court of Appeals for the Federal Circuit said that the software that Dish uses for its DVRs infringes TiVo patents, though it overruled a lower court's finding that the hardware also infringes.
The software ruling was enough to affirm that Dish should pay the full $74 million awarded to TiVo by the lower court in April 2006, plus $20 million more in interest and additional damages.
The ruling could have far-reaching implications, including the prospect of Dish having to alter its 4 million DVRs so that they no longer infringe TiVo's patents. But Dish said Thursday that it has already "developed and deployed next-generation DVR software to our customers' DVRs."
So, the decision, Dish said, "will have no effect on our current or future customers."
Dish, which is a company unto itself since EchoStar split into two entities, said it will appeal the ruling. Experts predicted Dish would ask for a rehearing among the three-panel court as well as a "rehearing en banc" that would include a dozen or so judges.
Most times, experts say, such requests are denied, leaving Dish to appeal to the U.S. Supreme Court, if it chooses to go that route.
Such a strategy could cost Dish millions in further interest payments; the company risks collateral damage, with competitors trying to woo Dish's customers who might worry that their DVR service is in jepoardy. Dish was hard at work Thursday squelching such concerns.
"The new software was downloaded months ago, so there will be no interruptions," said spokeswoman Kathie Gonzalez. "Our customers should have no fear."
When the lower courts ruled in TiVo's favor almost two years ago, a judge ordered that Dish disable all but a tiny portion of its customers' DVRs. That order was stayed until the appeal is final, which means not until Dish exhausts its options. Some who are close to the situation said that Dish must still prove its newest software does not infringe TiVo's patents if it wants to avoid having to disable millions of DVRs used by its customers.
"Echostar has made a series of statements over the years related to the infringement of the TiVo patent that have turned out to be both false and misleading," a TiVo spokesman said Thursday. " At this point, it doesn't really matter what Echostar says by way of further self-serving statements. It matters what the courts say -- and the courts have spoken."
While Dish and chairman and CEO Charles Ergen have several options, some analysts argue that company might want to avoid pushing the matter too far out into the future, on the assumption the company is for sale. AT&T, for example, is rumored to be interested in acquiring Dish, though possibly not until the TiVo-Dish patent dispute is history.
The appeals court also indicated TiVo could be awarded further damages since, presumably, it was hurt when the injunction against Dish's DVRs was stayed during the lengthy appeals process.
TiVo, too, has the option of pressing the hardware issue. The judges wrote in their decision, "We remand for any further proceedings that may be necessary with respect to those claims."
For TiVo and CEO Tom Rogers, the ruling has the added benefit of strengthening its patents and giving it an advantage when trying to strike distribution deals with cable companies, such as the ones it has with Comcast and Cox.
"Benefits abound," said Citibank analyst Tony Wible.
"We estimate TiVo will get at least $100 million in cash," Wible said. "More importantly, this win will provide strategic benefits and significant negotiating power with existing MSOs signed and those yet to be signed."
Wible reiterated his "buy" recommendation on TiVo stock and $10 price target. Shares rose $1.97 Thursday to $8.77 on volume that was nine times greater than average.
TiVo shares were already trading a bit higher before the appeals news, perhaps on a deal announced a few hours earlier with CBS.
CBS said it will purchase TiVo's Stop//Watch data, which measures audience behavior second-by-second, so that the network may know which shows and commercials are being fast-forwarded, rewound, paused and skipped. TiVo has a similar arrangment with NBC.
The TiVo-CBS partnership came the same day that TNS Media Research announced it would team with DirecTV this year to create a similar audience measurement business, dubbed TNS DirecTView.
Both TNS DirecTView and TiVo are, in some ways, competing with Nielsen in the television audience measurement business. Nielsen is the parent company of The Hollywood Reporter.
Nielsen and TiVo were once partners, with Nielsen selling data supplied by TiVo regarding the viewing habits of DVR users.
"That partnership ran its course and ended amicably," said Todd Juenger, vp and GM of TiVo's audience and research measurement division. "They're still the dominant player, and we're happy to live side-by-side."