After more than seven years of legal wrangling, TiVo this week reached a $500 million settlement with Dish Network and EchoStar over a key DVR patent.
The $500 million, $200 million of which will be paid out in annual installments through 2017 leading up to the expiration of TiVo's Time Warp patent in 2018, is in addition to $104.6 million Dish and EchoStar paid in 2008.
TiVo president and CEO Tom Rogers spoke with Multichannel News technology editor Todd Spangler about the deal and the DVR company's next moves.
Multichannel News: Was the Dish settlement in line with your expectations?
Tom Rogers: Well, I think that the notion of getting a total of $600 million out of this situation -- which as you know is right up there with the famous BlackBerry settlement [Research In Motion settled a patent lawsuit in 2006 for $612.5 million] and one of the biggest of all time -- is a big win. It gives us a tremendous amount of cash.
If we had continued to litigate, and won on infringement as we expected we would, there would have been potentially more money there. Based on the performance of the stock, the market was expecting more money. [TiVo shares closed at $9.33 per share Wednesday, after trading as high as $10.60 on May 2 when the settlement was announced.] But when we looked at the process in terms of how the court laid that out, it could have been two to three more years of additional litigation.
We said, Look, this is one patent and one defendant. We have an enormous portfolio of intellectual property -- we have ways of enforcing this against others. We've established the precedent and taken away any question of whether there is value in this patent. But to be able to take this particular case and nail it for that amount of money was the right thing to do.
MCN: Who is TiVo going to sue next?
TR: Well, we have some major pending litigation [involving AT&T, Verizon, Microsoft and Motorola Mobility]. Beyond that we can't comment.
MCN: Do you believe the Dish settlement gives TiVo more negotiating leverage?
TR: Well, I think you know the answer to that question. This was by far the toughest litigant out there, who plays the game of litigation like nobody else in the business does. [Dish CEO Charlie Ergen] just finished a round with us where he was ordered to pay $90 million, and he could have continued with his delay tactics. And against that backdrop, he decided to pay $500 million.
When the toughest guy who plays the toughest litigation game makes that decision... it sends a very clear signal to others who may be willing to take the chance on litigation. It clearly shows the value and the strength of our enforcement program.
MCN: Are you in talks with either Verizon or AT&T about licensing deals?
TR: I really can't discuss those cases, but I will tell you they're on a schedule. The cases will go forward to claims instruction this spring, and later in the fall go to trial. We have a couple of key patents we did not have at the time we sued Dish. We feel that as strong as the Time Warp patent was our hand is even stronger relative to those cases.
MCN: What's the status of negotiations with Time Warner Cable and Cablevision?
TR: I'll just say in general we have discussions with all levels of players in the cable industry. We have a few ways we can have companies engage with us. We have a pretty flexible model in ways that companies can work with us.
MCN: Dish and EchoStar wired you $300 million on May 2?
MCN: Why did TiVo want the remaining $200 million in payments spread out over the next six years?
TR: Well, there are issues of how the cash is recognized relative to ongoing licensing streams. There's value here in having an ongoing stream, which will substantially increase our revenue and our EBITDA [earnings before interest, taxes, depreciation and amortization]. We'd like to establish that there is real licensing revenue as part of our overall business.
MCN: How was the $500 million figure arrived at?
TR: It was based on a number of factors. It was obviously, once the [U.S. Court of Appeals for the Federal Circuit] ruled, there were certain things about past damages that were clear and the cost of continuing to litigate -- a bunch of things that go into settling at that amount versus what might get paid out down the road.
MCN: Will the payments from Dish and other patent-licensing fees be enough to tide you over until your service provider customers start moving the needle? TiVo is still losing subscribers [with a net loss of 556,000 subscribers in 2010].
TR: Look, in terms of financial resources to play out our hand, and to show true subscriber growth -- yes, we have more than enough financial wherewithal to show that. That's one of the critical things here: If anybody thought there was a risk that we would not have the financial wherewithal going forward, that has been totally removed. That was one of the big question marks here that is gone.
The issue now is, how long will it take for the subscriber rollout [of TiVo's operator partners] to really convince people that we have an enviable trajectory here? We haven't done that because it involves sharing sub information of our underlying partners. As it comes into focus, there's an awful lot of value being created that isn't being shown yet.
MCN: Charlie Ergen joked that you owe him a $600 million dinner. Where are you guys going out to eat?
TR: [Laughs.] Well, he first offered to buy me dinner, then he reneged and said, no, I have to buy dinner and he's not even going to pick up the tip. I said, OK, Charlie, even though you're reneging on the original agreement I'll pay for dinner.
I've known Charlie for a lot of years. As hard fought as this was, this really did not get personal. He always expressed respect for what we do. We have reasons to look at each other now as constructive players.