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Verizon Avoids FiOS TV Injunction

Verizon Communications Inc. (NYSE: VZ) and ActiveVideo came away with mixed results late last week when an appeals court ruled on the protracted patent fight between the two companies.

On Friday, Aug. 24, the U.S. Court of Appeals for the Federal Circuit in Washington affirmed an earlier ruling that Verizon is on the hook to pay ActiveVideo damages, including royalties of $2.74 per month -- starting from December 2011 -- for each Verizon video subscriber. ActiveVideo President and CEO Jeff Miller estimated in a statement that the amount Verizon owes the vendor has ballooned to more than $260 million when factoring in damages, interest and royalties. A jury awarded ActiveVideo an initial $115 million award in August 2011.

But the appeals court also reversed an injunction granted by the Virginia district court in November 2011 that was to become effective on May 23, 2012. That was to give Verizon some time to implement a workaround to ActiveVideo's patents while the royalty meter started running. The injunction would have put a stopper in Verizon's VoD service. (See Verizon Slapped With Injunction Over FiOS TV.)

The district court awarded the original injunction after finding that the infringements were causing irreparable harm to ActiveVideo. However, the appeals court said the district court "clearly erred" on that account because the losses to ActiveVideo are "clearly quantifiable" in the form of an ongoing royalty payment/licensing fee.

The appeals court also found that Verizon infringed on three ActiveVideo patents (6,034,678 -- "Cable Television System With Remote Interactive Processor"; 5,550,578 -- "Interactive and Conventional Television Information System"; 6,100,883 -- "Home Interface Controller for Providing Interactive Cable Television") and vacated a fourth (6,205,582 -- "Interactive Cable Television System with Frame Server").

ActiveVideo filed its original suit against Verizon in May 2010. The biggest customer for its Cloud TV platform is Cablevision Systems Corp. (NYSE: CVC), but it recently got in the door at Comcast Corp. (Nasdaq: CMCSA, CMCSK), which is using the vendor's technology to power a VoD interface it's testing in Chattanooga, Tenn. (See ActiveVideo Breaks In at Comcast.)

Verizon declined to comment.

Why this matters
The decision to remove the injunction is a big deal for Verizon because it could have been disastrous to its video business. But it didn't get off scot-free, either, as it's still in line to pay at least $260 million to ActiveVideo, according to the vendor's estimates.

And time will tell if that number will continue to grow. The appeals court remanded part of its decision, calling on the Virginia district court to decide an "appropriate ongoing royalty" due to ActiveVideo by Verizon. How the district court views Verizon's patent workaround will likely factor into that result.

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— Jeff Baumgartner, Site Editor, Light Reading Cable

DCITDave 12/5/2012 | 5:22:49 PM
re: Verizon Avoids FiOS TV Injunction

Does Verizon owe AV for every new customer it signs up until the patent fix is in (so to speak)?

Jeff Baumgartner 12/5/2012 | 5:22:48 PM
re: Verizon Avoids FiOS TV Injunction

Yes, that's how I understood the ruling by the appeals court. Also, working up a follow up blog on the royalty amount Verizon's on the hook to pay per the court, versus what Cablevision's apparently paying, which is peanuts in comparison. JB

Jeff Baumgartner 12/5/2012 | 5:22:47 PM
re: Verizon Avoids FiOS TV Injunction

That's a  great point... we'll have to see how the district court views VZ's workaround, but this has the potential to be a longer-term ARPU problem. They will  have to come up with some creative ways to bridge the gap by enticing subs with  upgrades and new services.   I don't think hitting customers with a new fee to cover the monthly tribute to ActiveVideo will go over so well.  JB


 

wanlord 12/5/2012 | 5:22:47 PM
re: Verizon Avoids FiOS TV Injunction

That a big deal to ARPU, important thing to Wall Street. What will they do next to make up for it? Sneak more VOD menus in the broadcast channel guide so when you think you are selecting to watch a movie on broadcast it throws you into the VOD menu? What a pain in the ass that is. 

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