Trade Commission Opens IPG Hearing

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Gemstar-TV Guide International Inc.'s legal team is known to settle cases before they go to trial, but that didn't happen last week as opening arguments began in the company's patent-infringement suit at the International Trade Commission.

Gemstar filed the ITC complaint in February, seeking to force EchoStar Communications Corp., Scientific-Atlanta Inc., Pioneer Corp. and SCI Systems Corp. from importing set-tops with what Gemstar calls "infringing" interactive program guides.

The stakes in the case are huge. Gemstar hopes a successful ITC ruling will also help it win separate patent-infringement suits it is waging in federal courts against EchoStar, S-A and Pioneer. Gemstar also hopes an EchoStar defeat would force the satellite company to pay it millions of dollars for offering subscribers a competing IPG.

Banc of America Securities analyst Michael Benevento estimates that a Gemstar win could see the company pick up an additional 24 million satellite and cable IPG subscribers, and boost Gemstar's price target in 2002 by as much as 50 percent, to $38 per share.

If Gemstar loses the ITC case, S-A and Pioneer, which have had difficulties selling IPGs to cable operators since the patent suits were filed, could bring more competition to Gemstar in the IPG sector.

During his opening argument on Dec. 3, Gemstar attorney William Haigney disputed claims that Gemstar's complaint is an attempt to drive the defendants out of the marketplace.

"We're not out to put anyone out of business, nor could we if we tried," said Haigney, who insisted that the case is about protecting Gemstar's patents, which are the company's lifeblood.

An S-A attorney noted during his opening argument that no court has ever ruled that Gemstar's patents are valid. Gemstar has settled patent-infringement cases before such rulings could be reached, or merged with companies it sued for infringement, as was the case with its unions with Starsight Telecast Inc. and TV Guide Inc., the S-A attorney said.

"For nearly a decade, Gemstar has engaged in a campaign of litigation that has plagued the entire IPG business," the S-A attorney added.

EchoStar attorney Harold McElhinny argued that one of the Gemstar patents the ITC is considering only applies to analog cable, suggesting that the IPG used by Dish Network subscribers doesn't infringe on the patent.

Gemstar has settled most of its patent suits before they ever went to trial, most recently in October 1999, when Motorola Corp. agreed to pay some $200 million for allegedly infringing on Gemstar's IPG patents.

PACKED COURTROOM

The ITC courtroom was packed most of the week. Last Monday's opening arguments drew one of the larger crowds, as 75 people, mostly lawyers, showed up. Some Wall Street analysts, including Banc of America's Benevento, also attended, looking for news that could sway Gemstar's stock price.

ITC administrative law judge Paul Luckern said it's the biggest case he's ever seen. "I've been here for 18 years, and I don't think I've had a case of this magnitude," Luckern told the courtroom last Tuesday.

The hearing, slated to finish by Dec. 14, was running behind schedule last week. Gemstar CEO Henry Yuen, who was to testify on Thursday, wasn't expected to take the stand until Saturday.

Direct examination of Gemstar's key witness, patent expert Phillip Faillace, ran all day Thursday and into Friday morning.

Benevento said it's "way too early to tell" which way the case is going, but that he thought Faillace did well for Gemstar. "I've been very impressed with him, but then again I haven't seen him cross-examined."

Other witnesses called to the stand last week by Gemstar included Starsight Telecast founder Patrick Young — the inventor of one of Gemstar's patents — and Mike Hayashi, senior vice president of subscriber technology and advanced engineering at Time Warner Cable.

Some of the testimony from Hayashi and the other witnesses was confidential, and most non-lawyers were asked to leave the courtroom during much of the witnesses' testimony.

Luckern has said he plans to rule on the case by March 21, when an initial determination will be released.

Within 45 days of the initial determination, six ITC commissioners will vote to either accept Luckern's decision or modify it, ITC spokeswoman Peg O'Laughlin said.

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