Satellite

Dish Running Out of DVR Space

4/25/2011 12:01 AM Eastern

Dish Network may soon have to pay hundreds
of millions — or possibly more than $1 billion — to resolve its
seven-year legal battle with TiVo.

Last week, the U.S. Court of Appeals for the Federal Circuit
upheld a lower court’s ruling that Dish must disable eight models
of its DVRs found to have infringed on a key TiVo patent.

Dish isn’t saying how many of those are still in use, but said
they’re older, MPEG-2 models that haven’t been available for
several years. TiVo claims it doesn’t know what that number is.

Analysts estimated that between 500,000 and 4 million
Dish/EchoStar receivers are affected by the disablement order.
The specific models are: DP-501, DP-508, DP-510, DP-522,
DP-625, DP-721, DP-921 and DP-942.

“Faced with an imminent shut-down of millions of DVRs
(the precise number has never been disclosed), we believe
Dish will be faced with a gun-to-the-head settlement requirement,”
Sanford Bernstein senior analyst Craig Moffett wrote
in a research note.

Dish would be forced to pay a licensing fee of $1.75 to $3
per DVR per month in a settlement with TiVo, analysts have
estimated.

Dish, however, said it plans to appeal that part of the ruling
to the U.S. Supreme Court. The satellite operator said it
will upgrade affected DVRs “as quickly as possible” to versions
with non-infringing software if it cannot obtain a stay.

TiVo shares soared after the decision was announced April
20, closing up 28% for the day to $10.84 per share. Dish’s stock
dropped 1.7%, to $23.58 per share, last Wednesday.

Meanwhile, the appeals court sided with Dish on a
separate issue, which could lower the amount of damages
the company must pay TiVo.

The ruling vacated a federal district court’s finding of contempt
of the infringement provision of the permanent injunction,
sending that portion back to the court to determine
whether a newly accused product — Dish’s updated DVR,
with software it said did not infringe the TiVo Time Warp patent
— was so different from the product previously found to
infringe that it raises “a fair ground of doubt as to the wrongfulness
of the defendant’s conduct.”

“Dish Network and EchoStar are pleased that the Federal
Circuit Court of Appeals has unanimously vacated the district
court’s contempt ruling regarding our software designaround,”
the companies said.

Now the question is how long Judge David Folsom of the U.S
District Court for the Eastern District of Texas will give Dish
to comply with the disablement order, and whether he will
grant Dish’s request for a stay pending its Supreme Court appeal.
“He could give Dish thirty days, or sixty days … or one,”
Moffett wrote.

TiVo originally sued EchoStar Communications in January
2004. After the satellite operator was found to have violated
the TiVo “Time Warp” patent, Folsom in August 2006 ordered
Dish to disable all infringing DVRs. After Dish/EchoStar did
not comply, the court awarded TiVo a total of about $300 million
in additional damages and sanctions.

The U.S. Court of Appeals for the Federal Circuit upheld the
$300 million award in March 2010. Last week, the court upheld
additional sanctions of $90 million but vacated $110 million
related to the contempt sanction for infringement.

In a statement, TiVo said: “We look forward to the permanent
injunction against EchoStar and Dish Network finally being enforced with respect to the DVRs they must
now disable. This ruling also paves the way for TiVo to receive
substantial damages and contempt sanctions regarding
the DVRs that EchoStar and Dish Network failed
to disable.”

EchoStar and Dish have already paid TiVo $104.6 million
in initial damages, plus those accrued through Sept. 8, 2006,
with interest, after the U.S.
Supreme Court declined to
review the case in 2008.

Separately, TiVo is also in
litigation with Motorola Mobility,
AT&T, Verizon and Microsoft.
The DVR company
last month issued a $150 million
debt offering, in part to
fund intellectual-property
litigation. TiVo had $7.6
million in litigation expenses
for its fiscal quarter
ended Jan. 31, and the
company said it expects
legal costs “will significantly
increase” in the current quarter.

TiVo has struck various distribution and partnership deals
with several pay TV operators, including Comcast, DirecTV,
Charter Communications, Cox Communications, Suddenlink
Communications, RCN and Virgin Media.

WHAT’S NEXT?

Cut a deal: Dish may try to settle the litigation and negotiate a
licensing deal with TiVo for affected DVRs.

Roll new receivers: Dish could try to quickly upgrade customers who
have the older DVRs.

More legal wrangling: Dish may win a Supreme Court hearing and a
stay on the order to disable infringing DVRs.

SOURCE: Multichannel News research

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