TiVo, Inc. (NASDAQ:TIVO)
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The Company is a provider of technology and services for digital video recorders.
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TIVO has dipped below $10 and has stayed there following the Court of Appeals for the DC Circuit's decision (in May) to vacate its previous decision affirming a district court's ruling in favor of TIVO regarding DISH/EchoStar's contempt of the infringement order issued a while back in favor of TiVo. (Whew!) They will now have an en banc (full panel instead of just 3 judges) hearing on November 9, 2010. A decision will follow (maybe by year's end) that will either find DISH in contempt or order a new trial.
One of 4 things can happen here. (1) TiVo prevails and TIVO stock goes up faster than you can skip past the commercial break; (2) DISH/EchoStar prevails and TIVO stock takes another huge hit; (3) The parties could settle prior to a final decision by the Court of Appeals and any favorable settlement would likely result in an increase in TIVO stock, albiet not as large as a court victory; or (4) DISH buys out TiVo and ends the 6 year-long fiasco (possible, but unlikely in my opinion).
As a disclaimer, I am an attorney by trade. I have thorougly reviewed the litigation in front of the Court of Appeals and I believe TiVio has an extremely good chance of coming out on top in this appeal.
Without getting into too much boring legal jibber-jabber, suffice it to say that DISH was found to have violated TiVo's patent a while back. Then during the appeal of that court decision, DISH tweaked its programming and said "Voila!" our DVR is "different" and no longer infringes on TiVo's patent! Well, after the original appeal was affirmed, DISH didn't stop using its "tweaked" DVR and TiVo cried FOUL! And, for good reasons.
TiVo sought contempt against DISH for disobeying the Court's order to stop using it's patented technology. The district court sided with TiVo. DISH appealed, and Court of Appeals affirmed. DISH cried, "One last time, PLEASE!!!" The Court said, "Ok, fine, stop your whining! One last time, I suppose..." Now the whole Appeals panel will hear the case again in November.
The legal issues are a little more complex than I've outlined, but I have reviewed the details of the case thoroughly. There is not enough space here to go into too much depth. Although nothing is certain about any lawsuit, TiVo has a favorable standard of review of the district court's decision and the benefit of the Court's prior ruling in its favor. As an attorney, I have also considered the somewhat complicated arguments of both sides, and I believe TiVo will be successful. However, this is just one man's opinion.
Therefore, I suggest you fools do some "legal due diligence" here if you can. Take a look at TiVo because I see a stock that is poised to pop. It is a speculative play and I have not looked into TiVo's long term prospects enough to give any long recommendation. But, I believe the downside risk of a TiVo loss in the courtroom to be much, much lower than the upside potential. Short term BUY.
I like your analysis. I am betting the same way. However, there is another side. Recently the Patent Office has ruled that TIVO's patent is not valid. Many firms, including Verizon, haved stated the following:
"Where there is substantial reason to doubt the validity of a patent - as there is when the PTO has determined that substantial new questions of patentablity exist, warranting a reexamination - a district court should not grant or maintain injunctive relief."
I assume you are aware of this ruling by the patent office. Doesn't this make sense? What are your thoughts?
Thanks for the comment Rodger.
Yes, I am aware of the issues with the Patent Office. However, I believe it is an ancillary ruling by the PTO that should not have much of an effect on the court's decision. But, it does not help TiVo in the long run.
The main issue in front of the Court of Appeals is what showing a patentee (TiVo) must make in order to be successful in a contempt action. The Court will be asked to examine the threshold that TiVo must overcome to prove that DISH/EchoStar has continued in its violation of the patent. The validity of that patent is not a primary issue before the court, regardless of what the PTO says.
Regarding your quote from Verizon, this is a case where DISH has already been found to have violated the patent. That is not a decision that will be re-litigated. Therefore, there is no immediate issue regarding injunctive relief between DISH and TiVo. TiVo is now way past that... they have a court order in effect. They have that court order in its favor and the issues before the Court of Appeals will be questions of law regarding TiVo's burden of proof and whether a new evidentiary trial must be held (which would delay all of this another 2-3 years).
One of TiVo's biggest arguments is that public policy dictates that these types of actions CANNOT drag on for several years. Courts like this line of thought. Courts hate protracted litigation and TiVo has this in its favor. A ruling in favor of DISH/EchoStar would mean another 4+ years of litigation. This goes to core issues of whether a patent really means anything at all, or whether a company should be allowed to swim in the courtroom while raking in millions of dollars from American television sets in the meantime.
I must note that after the district court's decision, they opened everything up for more evidence and hearings (1 year's worth). They received all the evidence and heard all the arguments. They ruled in TiVo's favor. TiVo won on appeal. I still believe they are going to be successful on the "last ditch" appeal by DISH.
Again, it's a speculative play. But, everyone needs a few of them in their portfolio, and I think you could do worse.
Thanks for your quick reply. I have found a website that has two very good articles on the Dish-TIVO lawsuit. It is IPWatchdog.com. They have looked at TIVO's brief for the en banc suit. The author of the article states the following ( which I had a hard time following):
TiVo vs. Dish at the Federal Circuit: Examining TiVo’s Brief
Written by Gene Quinn
President & Founder of IPWatchdog, Inc.
Patent Attorney, Reg. No. 44,294
Posted: September 23, 2010 @ 6:45 pm
Page viewed 4,624 times
'Several weeks ago TiVo filed its brief in the matter of Tivo, Inc. v. EchoStar Corp., which will be heard en banc by the United States Court of Appeals for the Federal Circuit on Tuesday, November 9, 2010.
In a nutshell I suspect this case will come down to one thing, which is how close is the theory of infringement post trial to the theory of infringement during the trial. TiVo makes the case that the theories need not be identical. This seems to be where Chief Judge Rader’s disagreement lies. In summary they explain:
TiVo did not change infringement theories. At trial, TiVo’s experts testified that PID filtering is parsing and defended validity on other grounds. Likewise, TiVo’s theory of flow control remains focused on the self-regulated movement of data through buffers. In any event, a modified device need not infringe in exactly the way proven at trial. Requiring plaintiffs to present evidence supporting every conceivable infringement theory to obtain a meaningful injunction would greatly multiply trials’ length, complexity, and cost. To preclude enforcement, product modifications must raise new issues that are genuinely too substantial to be resolved without a new suit.
I personally agree(Author of article) that it is unrealistic for plaintiffs to raise each and every theory of infringement, and even if they could and would it is reasonable to expect that a district court judge would not allow it anyway. District courts need to necessarily parse through the issues and settle on those to be litigated, and that requires a narrowing among viable issues to select the core to preserve on the record. (See An On the Record Interview with Judge Rader – “In order to correct errors based on a record you need to understand the challenges of making a record, you need to understand the challenges of administering a trial and narrowing issues.”) That being the harsh reality facing district courts, it seems particularly important not to require a kitchen sink approach or a belt and suspenders approach to infringement theories that would require the plaintiff to prove infringement plus, but rather further justification for the “substantial open issues” standard and awarding the district discretion, at least to the extent that a thorough and complete analysis of the issues was undertaken."
What is particularly interesting about the TiVo position, if you as me, is that they make a strong argument for the value of the patent system and for strong patent rights. At a time when patent rights are under assault from a variety of angles by those who neither understand innovation or incentive based economics this is quite refreshing. It is also at least a little bit odd. As a major technology company TiVo, like all others, is probably a defendant more than they are a plaintiff, particularly when you factor into the equation the numerous threat letters they undoubtedly receive on a daily basis demanding that dubiously related patents be licensed. Of course, this case is the big one, with two industry giants fighting each other, so achieving a positive outcome in this case might easily outweigh any potentially negative downstream consequences of a would-be TiVo defendant in another litigation, but still curious to note. So it is hardly fair to think they would be urging an obviously unfair or unjust rule for defendants when they are more often finding themselves in that role."
The author of this article holds Judge Rader in high regard and cannot understand why he appears to be on the wrong side in this case. Since you are an attorney this info. may make more sense to you than me. What do you think?
Yes, I ran across this article when researching the case. Quinn makes some good points and I agree with his overall analysis on the outcome. What sticks out most to me is his take on TiVo's "value of the patent" argument. If TiVo cannot enforce it's infringement order and DISH can get around it by making minor changes, the patent itself becomes next to worthless. Remember, this case started back in 2003/2004. Ever since this tme, DISH has been making millions off the DVR technology. If it wins this appeal, it could continue to do so until an entire new lawsuit is filed by TiVo and the process is completed again. Courts don't like this type of outcome.
If you run across any more articles, feel free to throw them my way. I will do the same by posting them here. It's an interesting topic!
Article released today. It expresses my thoughts on this litigation quite well.
http://www.ipbrief.net/2010/10/05/tivo-v-echostar-the-appropriateness-of-contempt-proceedings-to-determine-patent-infringement-in-the-re-design-of-an-enjoined-product/
CustardPies,
Congrats to both of us. TIVO's patent is valid and Dish cannot appeal. This is huge. My TIVO options are up 60% in one day. What I think this means is that TIVO, after they win their lawsuit with Dish, can go after Verizon, AT&T, Comcast, etc. They can make them an offer they can't refuse. Either pay us a royalty and use the best DVR in the world or we will sue you. This will give TIVO a huge advantage over upstarts Google TV, Apple TV, etc. The 200 - $300 million won't hurt either, TIVO can throw it all in R&D and continue their technology lead.
I meant to mention it to you early but I am not buying TIVO stock, I am buying the options(LEAPS). My thinking is/ was that this lawsuit with Dish is a make or break decision for TIVO. If they lose, TIVO will probably eventually go out of business. If they win their stock will probably go back to at least $20. So why buy the stock at 10, when you can buy an option that expires in Jan, 2012 at a strike price of $15 for $2.20. If TIVO wins and the stock eventually goes to say $25, you have bet $2.20 a share to make $25-15 = $10 a share, an almost 5-1 ratio. It is a much better way to play this stock. Especially since TIVO's chances of winning or probably better than 50-50.
Congrats to you too Rodger. This will be an interesting one to watch in the coming months. I also agree with your options play to limit the downside risk. Best of luck!
CP
On one of the website discussing TIVO, someone had the statistics concerning the percentage of times the en banc court sided with the findings of the 3 judge court. I believe it was somewhere in the 70-80% range but I cannot find the article. Do you remember anything about these statistics? I believe TIVO has a better chance than average because Verizon and Dish both cited the vagueness of the patent as their main argument. Now that TIVO's patent has been validated they have lost their main argument.
No, I don't know those types of statistics. The validity of the patent is not a main issue for the court. Therefore, although the recent patent decision is not going to have a major impact on the case, it certainly won't hurt matters for TiVo.
Doesn't Dish have to file their brief before the infringement trial starts in Nov.? I thought we would have seen something by now. It may be a good buying opportunity if Dish can present some good arguments.
CustardPies,
Here is Dish's brief, or a summary of it. What do you think?
Rodger
Dish Network is arguing that the U.S. Patent and Trademark Office ruling earlier this month validating TiVo's Time Warp DVR patent actually provides grounds for why the satellite TV operator should not have been held in contempt by a lower court for violating the patent -- and Dish says a new trial now is warranted.
The satellite operator outlined its position in a letter Monday to the U.S. Court of Appeals for the Federal Circuit, which is undertaking a full-court ("en banc") review of the previous contempt ruling in TiVo's patent-infringement case against Dish and EchoStar. Dish had been ordered to disable an estimated 8 million DVRs, which a Texas federal court said infringed the Time Warp patent.
The PTO on Oct. 6 affirmed the validity of TiVo's DVR patent, reversing the agency's ruling this summer -- after a second re-examination requested by EchoStar and Dish Network -- that the patent was invalid because some of the claims were covered in two prior patents.
But according to Dish, the decision validating the TiVo patent in question -- U.S. Patent No. 6,233,389 ("Multimedia Time Warping System") -- narrowed the scope of the DVR company's previous claims.
"To save its patent from being invalidated, TiVo made statements to the PTO that give rise to a ‘prosecution disclaimer' narrowing the scope of the claims," Dish said in a statement Tuesday. "Because TiVo has never shown that any Dish Network product infringes these narrowed claims, we believe that the contempt order should be reversed, the injunction lifted, and a new trial ordered on whether we infringe TiVo's new substantially narrower claims."
In statement Tuesday responding to the Dish letter, TiVo said: "The PTO recently upheld the claims of the '389 patent for the third time. The PTO's reexamination proceeding has no direct bearing on the issues now before the en banc court. This is just another attempt by EchoStar to delay resolution of this case."
Can't really glean much from that. It would need to read DISH's entire brief to see how solid their argument is. Here's an interesting little article I ran across today. http://www.timesoftheinternet.com/briefs/dish-tivo-case-could-go-either-way/ I also read that a majority of amicus curiae briefs are on TiVo's side. That's certianly good news as well.
With this recent little run-up, it's hard not to take some profits right now though -- given the risks that still exist. But, no guts no glory.
If you go to "investor village - TIVO" it is all pro-TIVO. If on the other hand, you go to Dish's website "dbstalk.com"., it is a toss up who will win the case. Some one is arguing that the patent office narrowed the scope of the patent so that the current version of Dish's DVR does not infringe and did not infringe after they made their software change many years ago. He is convincing enough to give me concern. On the other hand, it Dish owes TIVO $2 Billion, that is a little less than $20 a share in cash adding to TIVO current price of $11 and its potential lawsuits against Verizon and AT&T. I am still all-in, mostly with options that will be worth nothing if TIVO does not win.
In their quarterly report, the President of Dish made the following statement concern TIVO lawsuit:
"On October 6, 2010, the Patent and Trademark Office (the “PTO”) issued an office action confirming the validity of certain of the software claims of United States Patent No. 6,233,389 (the ‘389 patent). However, the PTO only confirmed the validity of the ‘389 patent after Tivo made statements that we believe narrow the scope of its claims. The claims that were confirmed thus should not have the same scope as the claims that we were found to have infringed and which underlie the contempt ruling that we are now appealing. Therefore, we believe that the PTO’s conclusions are relevant to the issues on appeal. The PTO’s conclusions support our position that our original alternative technology does not infringe and that we acted in good faith to design around Tivo’s patent."
This argument is Dish's best bet but answers only one of 4 questions asked by the appeal court. It only address the question " Does a district court judge have the power to issue an injunction when the validity of the patent is vague and the defendent makes a good faith effort to work around the original patent."