Shares of TiVo soared on Wednesday, rising by nearly a third, after a federal appeals court upheld a contempt ruling by a lower court against Dish Network. However, the appeals court also ordered the lower court to take another look at whether the work-around developed by Dish still infringes TiVo’s DVR patent. So, Wells Fargo Securities analyst Marci Ryvicker is calling it a split decision.
In the short run, Dish will have to pay TiVo $90 million plus interest, which at last check put the total well over $100 million. That’s in addition to the $104 million that Dish had paid for the original patent infringement.
“We are pleased that the United States Court of Appeals for the Federal Circuit sitting en banc affirmed the district court’s finding of contempt and award of sanctions against EchoStar [Dish and its former parent company are co-defendants] for failing to comply with the district court’s injunction. This marks the second time that the district court’s contempt ruling has been upheld by the Court of Appeals. We look forward to the permanent injunction against EchoStar and Dish Network finally being enforced with respect to the DVRs they must now disable. This ruling also paves the way for TiVo to receive substantial damages and contempt sanctions regarding the DVRs that EchoStar and Dish Network failed to disable. With respect to the remand of the infringement provision of the District’s Courts order, we intend to pursue the most rapid path to resolution. We will continue our efforts to protect our intellectual property from further infringement by EchoStar and Dish Network,” said a statement from TiVo.
Ryvicker, however, said “the ruling is a bit confusing so we break down what we (think) we know:
1) The court found DISH in contempt of the ORIGINAL court order to shut down its DVR boxes. According to Bloomberg and DISH’s statement, these are older boxes most of which have been replaced and if not, then they will be replaced as soon as possible. By the way–DISH is appealing this part to the Supreme Court and is seeking a stay of the injunction while doing so. DISH’s specific remarks: ‘The disablement ruling covers only certain older generation MPEG2 DVRs. We have already upgraded many of these customers and, if we are unsuccessful in obtaining a stay, we will work as quickly as possible to upgrade the remaining customers to our current generation DVRs, as these are not at issue in the ruling.’
2) As part of the contempt ruling above, DISH will be required to pay ~$90M that was awarded to TiVo by the district court. DISH had $2.9B of cash and marketable securities on hand at 12/31.
3) Separately, the court has ruled that should the district court find more than ‘colorable differences’ between the workaround DVR and TiVo’s device, DISH is entitled to a new hearing under the grounds of infringement (rather than contempt). To us, this means DISH and TiVo are likely back in court for an unknown period of time – with plenty of appeals and likely another workaround of the workaround.
BOTTOM LINE: The market seems to think that TIVO has won a major victory (the stock is +34%, DISH -1% and S&P+1%). In all of the confusing things we have read, we are not as sure. It looks to us like DISH doesn’t have to disable many boxes, that they could have a good case at the Supreme Court (decision was not unanimous for TIVO but rather split 7-5), and the ”real” boxes are going back to court with what could be countless delays AND time for another workaround. NET NET–we still think DISH is in a good position (clearly non-consensus but this is our take),” the analyst told clients.