TiVo Shares Fall After No Decision In Dish Case

Anxious Investors Dump Shares As Companies Await Federal Judge's Ruling

By Todd Spangler -- Multichannel News, 9/4/2008 5:25:00 PM

TiVo shares plunged 16.5% Thursday after a federal judge did not issue a decision on the company’s request to hold Dish Network in contempt of a court order related to TiVo’s patent-infringement victory against the satellite operator.

On May 16, TiVo asked the U.S. District Court for the Eastern District of Texas to find Dish Network in contempt for not disabling its DVR functionality as previously ordered under the court’s permanent injunction.

The hearing stems from the April 2006 verdict by a federal jury in Texas that found some of Dish Network’s DVRs infringed on TiVo’s “Time Warp” patent. The damages awarded are now about $94 million, with interest factored in. TiVo claimed in court that Dish Network should pay $220 million in royalties and lost profits for the 18 months that the verdict was stayed to allow Dish to appeal.

The two companies were in court Thursday for a hearing before Judge David Folsom on the issue but Folsom did not reach a decision before adjourning. He said he would try to rule by Oct. 1 but indicated a decision could come as late as November, Reuters reported.

TiVo shares fell $1.41 a share, or 16.5%, closing at $7.31.

TiVo said in a statement, “The court is considering the arguments that it heard today and we remain confident in the outcome.” 

In research note Thursday, Citigroup analyst Tony Wible said the selloff in TiVo shares “is likely driven by event-driven investors interpreting the absence of a decision as incrementally more favorable for Dish.” He said a decision could come later this month, but that “timing is still uncertain, leading to more frustration and selling pressure.”

On Dish Network’s quarterly earnings call last month, CEO Charlie Ergen said the satellite operator designed a workaround for the TiVo patent by creating new software and downloading it to all its DVRs.

“We believe we complied with the injunction,” Ergen said, while adding that he thought TiVo and Dish Network can work together in the future.

In a June 3 research report, Sanford Bernstein senior analyst Craig Moffett suggested that the cost to Dish if it lost the contempt-of-court litigation “could be in a worst-case scenario in the billions…far higher than currently contemplated.”

Moffett estimated that if Dish Network were found in contempt and had to immediately disable its DVRs, it would cost the satellite operator about $1.6 billion. In addition, he said, Dish Network may have to potentially engage in a bidding war for the right to continue offering DVRs.

In late January, a federal appeals court upheld the Texas jury’s judgment against Dish Network. Then in April, the U.S. Court of Appeals for the Federal Circuit refused the satellite provider’s request for a rehearing, a ruling that Dish said it would appeal to the U.S. Supreme Court.

Separately, Dish Network filed suit May 30 in the U.S. District Court for Delaware asking a judge to rule that its new DVR software does not infringe TiVo’s patents.