Dish ordered to pay TiVo another $103 million


Dish Network and EchoStar have lost another court round and have been ordered to pay TiVo $103 million, plus interest, on top of the $104 million already paid. This time Dish/EchoStar were found to be in contempt of the previous court order for continuing to infringe TiVo’s patent.

“We are disappointed in the district court’s decision finding us in contempt. Dish Network will appeal, and will file a motion to stay the order with the Federal Circuit. We believe a stay is warranted and that we have strong grounds for appeal. Our engineers spent close to a year designing-around Tivo’s patent and removed the very features that Tivo said infringed at trial. Existing Dish Network customers with DVRs are not immediately impacted by these recent developments,” said a joint statement from Dish and EchoStar, which are related companies.

Of course, Dish/EchoStar said before they had strong grounds to appeal. But the US Supreme Court refused to hear the case and Dish/EchoStar had to fork over $100 million, plus about $4 million in interest – not to mention the costs of litigation.

Wachovia Capital Markets analyst Marci Ryvicker called the latest development the “worst case scenario” for Dish, saying the best option now for Dish CEO Charlie Ergen is to partner with TiVo and license the patent, as his competitors do.

“Not only did the court rule in Tivo’s favor but it’s the worst case scenario for Dish. Last night, we learned that the Texas court in charge of hearing the workaround case rejected Dish/EchoStar’s attempted workaround claim regarding its patent, found Dish/EchoStar to be in contempt of court and (worst case scenario) ordered the permanent injunction to be fully enforced, which means that the DVR functionality must be disabled in Dish’s roughly 4M DVR-enabled set top boxes (for reference, Dish had 13.6M subscribers at the end of Q1).   The court also awarded TiVo an additional $103M plus interest through April 2008, and we believe there may be additional monetary damages awarded for the period subsequent to April 2008,” Ryvicker said in a note to clients. She added that even if Dish/EchoStar gets a stay from the appeals court (which, indeed, did happen late Wednesday), it is likely to be only temporary and does little for Dish, in her view.

“We believe that at the end of the day, Charlie Ergen’s best option is to partner with TiVo (we don’t know why he didn’t do this in the first place).  TiVo already partners with Comcast, Cox Cable and DirecTV.  However, we believe that Dish would pay TiVo a higher subscriber fee than its peers – ranging from $1.50 to $2.00 per subscriber,” Ryvicker wrote.

As you would expect, there is another round of celebrating at TiVo.

“We are extremely gratified by the Court’s well reasoned and thorough decision, in which it rejected EchoStar’s attempted workaround claim regarding the TiVo patent, found EchoStar to be in contempt of court and ordered the permanent injunction fully enforced.
In addition, the Court’s award of an additional $103 million plus interest through April 2008 makes this victory all the more important. EchoStar may attempt to further delay this case but we are very pleased the Court has made it clear that there are major ramifications for continued infringement,” said a statement from TiVo.

RBR/TVBR observation: The problem now for Dish/EchoStar is that when they finally deal with the reality of having to sign a contract to license TiVo’s DVR technology, TiVo is, quite justifiably, not going to give them any price breaks like other cable and satellite companies got. So, the money will just keep flowing from Dish/EchoStar to TiVo in a larger stream than from any of Dish/EchoStar’s competitors.