TiVo shares plunge 42%

Drop follows court plans to revisit patent infringement lawsuit

Looks like all that celebrating TiVo investors did in March was about a year premature because a court reversal Friday has wiped out all the hefty gains TiVo stock has managed since then.

A court said Friday that it will revisit TiVo's victory in its patent-infringement lawsuit against Dish Network and EchoStar, a decision that had TiVo shareholders selling the stock in droves.

By the end of trading, the stock had plunged 42% to $10.16, wiping more than $830 million from TiVo's market cap, which wound up at $1.15 billion after Friday's brutal session. Trading volume was 11 times normal.

The latest wrinkle in the 6-year-old court case could undo a ruling in March that said Dish was violating a permanent injunction by using DVRs that were infringing TiVo's patents. That March ruling seemed to indicate once and for all that Dish would have to shut down its DVRs or strike a licensing deal with TiVo.

But those who bought into that seemingly rational assessment a little more than two months ago have been burned -- again -- as all of the gains TiVo shares have made since that decision have been erased in a single day.

Shares of Dish, meanwhile, rose 4% on Friday to $22.9, and shares of its sister company, EchoStar, were off 2 cents to $20.45.

Technically speaking, what the U.S. Court of Appeals for the Federal Circuit said Friday is that all 16 members would reconsider its own March decision that was made by just three of its judges. That three-judge panel ruled in March that Dish was in contempt of court for not disabling its infringing DVRs.

The en banc review by all 16 judges could take from nine months to a year to complete. Dish is arguing that an injunction is inappropriate given its efforts to develop workaround technology that does not infringe TiVo's patents.

"The granting of such a review is rare, typically on the order of 2% of requests, and is usually reserved for especially complex cases or those of particular significance," Craig Moffett of Bernstein Research said Friday.

TiVo and Dish have been going back and forth since the lawsuit was filed in 2004. TiVo has won nearly every step of the way, and courts have awarded it $300 million in damages and interest payments, but the holy grail for TiVo remains elusive: that being a definitive order forcing Dish to replace the 8 million or so DVRs its customers use with noninfringing units or pay TiVo an ongoing licensing fee. Analysts and investors have been assuming Dish would choose the latter option.

TiVo, which also sued AT&T and Verizon last year, has been hoping for a total victory against Dish that it could then use as leverage in striking deals with others who deploy DVRs but don't license TiVo's technology.

TiVo already has a few such deals in place with DirecTV, Comcast and Cox, but those relationships have yet to bear much fruit and TiVo's subscriber ranks continue to fall. At the end of the most recent quarter, TiVo had 2.6 million subscribers, down from 3.3 million a year earlier.
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