Appeals Court Upholds TiVo Injunction Against EchoStar
A federal appeal court ruling that EchoStar violated an injunction barring it from continuing to sell satellite receivers/DVRs that infringed a TiVo patent leaves EchoStar with a range of options, analysts said. EchoStar said it will likely appeal to the U.S. Supreme Court the U.S. Court of Appeals for the Federal Circuit’s finding that it’s in contempt of the injunction. But the ruling could also represent table stakes for a possible settlement, analysts said.
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The appeals court, in a 7-5 decision, said EchoStar’s “lack of intent” alone to violate the injunction -- the satellite service operator maintained it designed around TiVo’s so-called time-warp patent -- “cannot save an infringer from a finding of contempt.” The court also said U.S. District Court Judge Thomas Folsom “incorrectly construed” at least one limitation of hardware claims and returned that portion of the case to the lower court.
During its seven-year legal battle with TiVo, Dish redesigned its satellite receiver/DVR to avoid infringing TiVo’s time-warp patent that allows recording one program while watching another. A federal jury in 2006 awarded TiVo $74 million plus interest after finding Dish infringed the patent. Folsom issued an injunction barring Dish from selling products that infringed the TiVo patent.
While EchoStar had argued that Folsom’s order requiring that it disable satellite/DVRs that infringed the TiVo patent was “vague,” the appeals court majority maintained it was “clearly defined” and limited to eight models. EchoStar’s reading of Folsom’s injunction was “strained” despite its being given “ample notice” of its proposed terms, the majority said. Folsom originally ordered that the infringing receivers be disabled within 30 days, but EchoStar had maintained that it developed and downloaded software that was designed around the TiVo patent. Analysts have estimated that four to eight million EchoStar satellite receiver/DVR were covered by the original decision, but that many of those have since received a software upgrade.
In a dissenting opinion, Appeals Court Judge Timothy Dyk maintained TiVo was “obligated” to prove that Folsom’s injunction order barred the “substitution of non-infringing software.” “Under such circumstances, contempt is improper because there is at least a fair ground of doubt as to the wrongfulness of EchoStar’s conduct,” Dyk wrote. “In sum, TiVo was obligated to show that the injunction clearly prohibited the substitution of new non-infringing software. It did not remotely satisfy this burden."
The appeals court decision on the Folsom order requiring EchoStar to disable infringing products was the more important of the two issues at the heart of the case, Sanford Bernstein senior analyst Craig Moffett wrote in a research note. The cost of disabling and replacing the DVRs could be $3 billion and would likely serve as a benchmark for a possible settlement, Moffett said. “As a result, disablement of DVR functions of a large portion of the subscriber base may now be the only option,” Moffett said noting that EchoStar has argued in prior court filings that if the injunction went into affect it would “disastrous consequences” for millions of subscribers. “The only alternative, it would seem, is settlement to sidestep this disablement requirement,” Moffett said. “And that settlement would presumably be on TiVo’s terms."
But Wells Fargo Securities analyst Marci Ryvicker said it appears Dish won’t have to disable many set-tops and could have a “good case” before the Supreme Court given the appeals court’s split decision. The appeals process could mean more delays and more time for “another workaround,” she said. “We still think Dish is in a good position,” Ryvicker said.
The majority’s decision to return the infringement claim to the lower court was “wholly unnecessary,” Dyk wrote. “It is clear that there are colorable differences between the features relied upon to establish infringement and the modified features of the newly accused products,” he said.
EchoStar replaced the start code detection feature that triggered the DVR with a statistical estimation technology. Under TiVo’s patent, video recordings in a DVR consisted of sequential frames of audio and video data that are received in a stream and stored on a hard drive. The infringing DVRs parsed for codes that signaled the start of each video frame and indexed them so they could be located. Under the statistical estimation technology, the same function was accomplished by relying on average frame rate statistics to locate a given video frame. The ruling only applies to EchoStar’s MPEG-based satellite receiver/DVRs and customers won’t suffer any “immediate impact,” EchoStar said. If EchoStar is granted a stay of the injunction, it will work to upgrade any remaining products to its new platform, the company said.