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Video software

TiVo-Dish DVR Skirmish Nears End Game

The years-long patent battle between TiVo Inc. (Nasdaq: TIVO) and Dish Network LLC (Nasdaq: DISH) may be nearing its end after a US District Court judge extended an existing stay on Dish's DVR injunction until April 30, a date that inches the satellite-TV giant closer to an unenviable position in which it might have to disable millions of infringing boxes or face more sanctions.

"This would appear, at long last, to set the end game in motion," Sanford C. Bernstein & Co. Inc. analyst Craig Moffett surmised in a research note issued Friday morning, adding that the date was set in response to an emergency motion Dish filed on March 9 seeking an expedited evaluation of its latest "software workaround."

The squabble centers on TiVo's "Time Warping" patent. In the most recent turn, TiVo hinted earlier this month that it's in line to get an additional $300 million in damages and a contempt sanction against Dish. A tidy sum, for sure, but still well below the $1 billion in sanctions TiVo was hoping for. (See TiVo Stock Skies on Latest Ruling, Court Affirms TiVo/EchoStar Ruling, Court Awards $200M More to TiVo , and TiVo Wants Ergen to Dish Out $1B .)

Dish and its technology and set-top subsidiary EchoStar Corp. LLC (Nasdaq: SATS) are seeking a full Federal Circuit review of the case, and have submitted a new design that, they claim, provides an adequate workaround to the TiVo patent. (See Dish Working on Another Work-Around .)

Failing to obtain that review could spell big trouble for Dish, according to Moffett.

"Unless granted an en banc hearing in which the primary and Appeals Court decisions are reversed, Dish's [approximately] 8 million infringing DVRS will have to be disabled one way or the other... and now we know when," Moffett wrote.

Although complete disablement of the infringing boxes remains a possibility, a big, expensive box swap-out project might not solve all of Dish's problems either.

Without a court-approved, non-infringing software workaround, which can't be secured before April 30, "even replacement boxes would pose enormous risk," as Dish couldn't be sure whether they would also have to be disabled, Moffett noted.

Short of a successful reversal, Dish, if forced to disable the DVR function in millions of satellite receiver boxes, also faces the distinct possibility that subscribers could flee to other TV service providers.

Dish isn't an odds-on favorite to get the hearing. Moffett estimates the motion "has less than 3 percent chance of being granted (based on simple historical averages)."

Doing nothing is also a potentially costly option. Moffett says the judge has the discretion to impose sanctions beyond the current $2.25 per-box per-month run rate, should Dish willfully continue to infringe. That could include treble damages ($6.75 per box) and/or disgorgement of profits, he added.

Dish's precarious situation has also rekindled rumors that the company should just cut its losses and buy TiVo outright.

— Jeff Baumgartner, Site Editor, Light Reading Cable

Cooper10 12/5/2012 | 4:40:28 PM
re: TiVo-Dish DVR Skirmish Nears End Game DISH Operating Cash Flow was $2.2B last year. If they have ~60% DVR penetration and have to pay $2.25/sub/mo in licensing fees, this is a NEW $225M+ annual expense, or ~10% of their annual operating cash flow (ouch!). And given the history, TiVo is probably asking for more than $2.25/sub/mo, and DISH has very poor leverage in the negotiation.

Charlie likes high stakes poker...he should have folded before the pot got this big.
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