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TiVo Shares Dive on Court Decision

Dish Network LLC (Nasdaq: DISH) chief Charlie Ergen, known for his poker prowess, has hit his one-outer after a court dealt him the card he needed to make his hand and stay in the game with TiVo Inc. (Nasdaq: TIVO).

TiVo shares plunged more than 37 percent in midday trading Friday after the U.S. Court of Appeals granted Dish Network and its set-top and tech spinoff, EchoStar Corp. LLC (Nasdaq: SATS), a review of an earlier DVR patent ruling that favored TiVo.

The decision to grant an en banc hearing comes a surprise, as most observers gave the move little chance of success. In March, Sanford C. Bernstein & Co. Inc. analyst Craig Moffett gave the en banc motion a less than 3 percent chance of being granted, based on simple historical averages. (See TiVo-Dish DVR Skirmish Nears End Game.)

In a note issued today, he said the review gives Dish another shot but doesn’t guarantee it will be victorious. "While the mere grant of another review offers no assurances that Dish will actually win this time around, their odds unquestionably have to be judged better than they were before," Moffett wrote, adding that the en banc review will be based on originally filed briefs.

The case centers on TiVo's "Time Warping" patent and a case that has already been costly to Dish, and could become even more so if earlier contempt charges stand up and force the satellite-TV firm to disable approximately 8 million DVRs that allegedly infringe on TiVo's intellectual property. The decision for a new hearing gives Dish a critical reprieve from having to do that, and breathes new life into a new software design that, Dish claims, provides a suitable "workaround" to the TiVo patent. (See TiVo Stock Skies on Latest Ruling.)

Word of the new court review is a set-back for TiVo, which had hoped the previous ruling would stand up and the long-standing skirmish would be put to rest. The review could complicate TiVo's similar, upcoming patent battle with AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ). It also dampens earlier speculation that Ergen might try to cut his losses by buying TiVo outright. (See TiVo + EchoStar and TiVo: AT&T and Verizon Won't Strike a Deal .)

"We are disappointed that we do not yet have finality in this case despite years of litigation but we remain confident that the Federal Circuit's ruling in our favor will be reaffirmed after all of the judges on the Federal Circuit have had the opportunity to review the merits of this case," TiVo said, in a prepared statement.

Dish shares got a nice bounce from the news, up about 5.87 percent at last check. Shares in EchoStar, whose financial exposure in the TiVo case is much more limited, did not -- they were down 1.27 percent.

— Jeff Baumgartner, Site Editor, Light Reading Cable

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