September 4, 2008

TiVo vs DISH—Patent Squabble Still Lingers as DirecTV Inks New Deal

Is it Round 25 yet? TiVo and DISH face off in a TX Court Thurs over whether the DBS player can continue to use its current DVR service. The contempt hearing centers on whether DISH should have disabled all DVR functionality, not just TiVo-infringing functionality (DISH was found in '06 to be infringing on a TiVo patent). Both sides are optimistic they'll prevail. Even if the judge rejects TiVo's argument, "DISH is not out of the woods," Stifel Nicolaus said in a note to clients Wed. "We would expect TiVo to then pursue the more traditional course of arguing that [DISH's] design-around also infringes TiVo's patent claims and should also be enjoined. TiVo bears the burden of proof, but we understand that judges in patent cases are often skeptical of work-around claims." The worst case scenario for DISH is that the court sides with TiVo, a DE court rejects DISH's pending request to have its workaround declared non-infringing and the US Supreme Court denies DISH's pending request to review the patent verdict. That could force DISH to stop providing its DVR service as early as Oct, according to Stifel. TiVo shares were boosted Wed by a deal to develop a new HD DVR for DirecTV. DirecTV has been without a deal to deploy new TiVo product for the past few years. "That's now cured," TiVo CEO Tom Rogers said at an investment conference Wed. "Both DirecTV and ourselves are excited that a marriage that once worked extremely well together now has a second shot at coming out with a leading edge product," The new device, set to premiere in the 2nd half of '09, will support broadband and both companies' services and features. DirecTV will continue to develop its own DVR products. The deal extends TiVo and DirecTV's pact to Feb 2015, with DirecTV paying a "substantially higher monthly fee" for HHs using the new HD DVR than the fee for previously deployed DVRs with TiVo service, according to an SEC filing. Rogers was upbeat about TiVo's chances of striking more deals with cable, a la Comcast and Cox. "We've looked at the generic DVR world, talked to operators—who were none to happy with what their DVRs were like and the customer feedback they were getting—and we figured out a way to create a software upgrade to those boxes," he said.