TiVo wins lawsuit

Douglas County's EchoStar may appeal $74 million jury award for patent violation

Joyzelle Davis, Rocky Mountain News

Published April 14, 2006 at midnight

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A Texas jury found that EchoStar Communications violated a key TiVo patent used in digital video recorders and awarded TiVo $74 million in damages.

Douglas County-based EchoStar, operator of the Dish Network satellite-TV service, said in a statement the verdict is "the first step in a very long process and we are confident we will ultimately prevail" either in post-trial motions or on appeal.

The judge could triple the award since the jury found that EchoStar had "willfully" infringed on TiVo's patent.

The finding by the federal jury in Marshall that EchoStar violated TiVo's "time warp" patent - technology that allows viewers to pause, rewind or fast-forward live TV - is potentially more important than the monetary award. Alviso, Calif.-based TiVo, a Silicon Valley company that pioneered digital video recorder technology only to see cable operators buy similar products from other set-top box makers, can now demand significant licensing fees from rivals.

"TiVo's in the driver's seat now," said Brad Lyerla, an intellectual property attorney with Marshall, Gerstein & Borun in Chicago.

"If they lost the lawsuit, it would have been the death knell for TiVo," said Vamsi Sistla, an industry analyst with market research firm ABI Research.

TiVo-based DVRs account for less than one-third of the more than 15 million American homes that have some kind of digital video recorder box. Forrester Research predicts that DVRs - with or without TiVo's branded service - will be found in nearly half of U.S. households by 2009 as cable operators and other electronics makers add DVR features to their equipment.

TiVo indicated this may be the first of many lawsuits, saying in a statement that "this decision recognizes that our intellectual property is valuable and will ensure that moving forward EchoStar and others that want to use our patented technology will be required to provide us with compensation."

The verdict doesn't currently affect the ability of EchoStar subscribers to use their digital video recorders. However, TiVo said it plans to seek a permanent injunction against EchoStar's digital video recorders.

EchoStar said it plans to appeal on the grounds that TiVo's patent "is overly broad given the technology in existence when TiVo filed its patent."

EchoStar also noted that the U.S. Patent Office is re-examining TiVo's patent and the company is pushing ahead with its countersuit against TiVo on a separate patent. That case is set for trial in February 2007.

TiVo introduced its DVR in 1997, and EchoStar introduced its own version a few years later. EchoStar made the technology a key selling point and by September 2003 boasted that a million customers had DVRs, beating TiVo to that mark by two months.

"EchoStar made a good gamble by developing its own DVR technology in spite of this verdict" in terms of the payoff in customer growth and retention, said Jimmy Schaeffler, an analyst with consulting firm The Carmel Group.

In spite of EchoStar's statement that it plans an appeal, a $74 million jury verdict is likely to make any company consider resolving the case out of court, Lyerla said. EchoStar has a reputation for going to trial instead of engaging in settlement talks, he said.

Following a two-week trial, the 10-person jury reached its verdict in less than two hours. TiVo had sought as much as $87 million in damages. That request was based on a financial consultant's estimate of how much TiVo would have earned if EchoStar hadn't sold more than 4 million of its own recorders.

News of the verdict sent TiVo shares soaring nearly 20 percent, or $1.60, to $9.65 in late-session Nasdaq electronic trading. That comes on top of a boost TiVo's shares received Wednesday after DirecTV Group, the largest satellite-TV provider, extended its partnership for three years to 2010.

TiVo recently announced an agreement with Comcast, which has 700,000 subscribers in Colorado, to sell its DVRs later this year.

TiVo sells its recorders for $224 or on a $19.95 per month rental plan.

Lawyers for EchoStar had argued that the company invented its own digital recorder without TiVo technology. They told jurors TiVo was using EchoStar as an excuse for its own failure to compete against other makers of set-top boxes. TiVo has lost nearly $650 million in its nine- year history.

EchoStar, which has about 12 million subscribers, had $8.4 billion in sales last year and net income of $1.5 billion. TiVo, which has about 4.4 million subscribers, posted revenue of $172 million and a loss of $79.8 million.

The lawsuit was filed in the federal courts' Eastern District of Texas, known for results in favor of patent owners. The district court's percentage of victories for patent owners, at 85 percent, is higher than the national average of 67 percent, according to LegalMetric LLC, a St. Louis- based company that tracks intellectual property cases.

'Time warp' violation

• What's at issue: TiVo claimed EchoStar violated its "time warp" patent, which allows viewers to rewind, pause or fast-forward live television

• How much does EchoStar owe? $74 million. $32.66 million for TiVo's estimated sales loss of 192,708 digital video recorders to EchoStar, which has distributed more than 4 million of its boxes. $41.33 million based on an estimate of what EchoStar would have paid TiVo in royalties to license its technology.

• What does it mean for Dish subscribers? The case didn't affect Dish's existing receivers or digital video recorders.

• What happens next: EchoStar said it will file post-trial motions and, if needed, an appeal to overturn the verdict.

TiVo Inc.

TIVO: Nasdaq

$8.05

- 7 cents

EchoStar

DISH: Nasdaq

$29.97

+ 12 cents

davisj@RockyMountainNews.com or 303-892-2514.

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