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Court Ruling Could Mean Trouble for TiVo

Published: Thursday, 2 Jul 2009 | 12:56 PM ET

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By: Julia Boorstin
Correspondent

It's been a tumultuous summer for DVR service TiVo, with a handful of court rulings that have sent the stock bouncing all over the place. The latest news is sending the stock down. Following a major victory for TiVo in early June, now there's a setback: Dish Network subscribers can keep using their DVR service while the court battle wages on, headed to another appeal.

Tivo

Here's the rollercoaster timeline: In early June TiVo [TIVO Loading... () ] won a federal patent case against Dish Network [DISH Loading... () ], sending TIVO stock up 53 percent in just one day. The court determined that Dish violated TiVo's technology patent, awarding $103 million in damages and forcing the company to disable about four million DVRs. (This is on top of a $104 payment a jury awarded TiVo from EchoStar [SATS Loading... () ] in 2006). This ruling lays the groundwork to make other cable and satellite companies pay TiVo to license its service and also makes it an attractive acquisition target.

Here comes the setback: A federal appeals court granted Dish a stay on that contempt order, pending the outcome of its appeal. For now Dish customers can continue using their DVRs and this will drag out the lawsuit until the end of the year. TiVo released a statement insisting its confident it'll win the case and be awarded additional damages, saying "We are pleased that the court recognizes the urgency of ruling on this appeal and has ordered an expedited briefing schedule." But Wall Street isn't happy about the process getting dragged out. EchoStar has spent a lot on this and previous legal battles with TiVo. The company's other options—a settlement or licensing deal with TiVo or another DVR provider—could end the conflict.

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A lot hinges on the outcome of this, more than just the cash TiVo stands to win in the settlement. If a judge upholds TiVo's win, it'll compel not just EchoStar but other Satellite TV and Cable companies to pay to license TiVo's technology.

A twist: On Monday the Supreme Court ruled to allow Cablevision [CVC Loading... () ] and other cable operators to offer DVR services through centralized servers, rather than on individual hard drives. This should make it much easier and cheaper to roll out DVRs to consumers, and will allow them to record more video. (This will in turn allow people to skip more commercials, which is precisely why the media giants tried to shut it down). So what does this mean for TiVo? The rollout of more DVR should mean a bigger market for the leading technology provider in the space, which would be a good thing. But will cable and satellite providers try to use this as an opportunity to get out of paying TiVo's licensing fee? That's what the dip in the stock after the ruling would indicate. We shall see.