TiVo Gets Big Win in Dish Patent Dispute

Court finds satellite operator in contempt for infringing set-tops
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Digital video recorder supplier TiVo can finally see the finish line in its long-running patent dispute with satellite operator Dish Network, as a U.S. district court judge found Dish in contempt for not disabling its DVR devices to not infringe on TiVo's "time-warp patent."

Dish, which along with its set-top supplier EchoStar has already paid $105 million in damages to TiVo relating to patent litigation, was ordered by the U.S. District Court for the Eastern District of Texas to disable the DVR functionality in all but 192,708 units of its four million-plus DVR set-tops within the next 30 days. Dish was also ordered to pay TiVo an additional $103 million plus interest for being in contempt of the original conjunction. Analysts expect the ruling will force Dish to strike a licensing deal with TiVo for its intellectual property.

"Dish has assumed enormous risks in this case," wrote Sanford Bernstein analyst Craig Moffett in a note to investors this morning. "And yesterday's 35-page ruling against
Dish Network was indistinguishable from a worst-case-scenario."

For their part, Dish and EchoStar say they will appeal the ruling and file a motion to stay the court's order with the Federal Circuit.

"Our engineers spent close to a year designing-around Tivo's patent and removed the very features that TiVo said infringed at trial," said Dish/EchoStar in a statement. "Existing Dish Network customers with DVRs are not immediately impacted by these recent developments."

But in his research note, Moffett said that yesterday's ruling from U.S. District Court Judge David Folsom was particularly stern and suggested that Dish would be unsuccessful in further litigation.

"Having already lost once in a jury trial (2006), once on appeal (2008), once on its request for a change of venue (to Delaware, earlier this year), and now yesterday in its defense of its software ‘workaround,' and having now been found in contempt for its
failure to comply with its prior disablement injunction, however, its prospects for winning such a stay are uncertain, at best," wrote Moffett.

TiVo, whose shares rose sharply in after-hours trading yesterday, was understandably happy with the court's decision.

"We are extremely gratified by the court's well reasoned and thorough decision, in which it rejected EchoStar's attempted workaround claim regarding the TiVo patent, found EchoStar to be in contempt of court and ordered the permanent injunction fully enforced," said TiVo in a statement. "In addition, the court's award of an additional $103 million plus interest through April 2008 makes this victory all the more important. EchoStar may attempt to further delay this case but we are very pleased the Court has made it clear that there are major ramifications for continued infringement."

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