Rovi Prepares to Continue Legal Battles With Amazon, Virgin Media

With more than 5,000 issued patents, Rovi will continue to “pursue litigation” against Amazon and Virgin in a bid to secure agreements with them as it moves to “protect our rights and those of existing licensees,” Carson said Wednesday. Rovi is “pursuing several other patent trials” against Virgin in the U.K. and is “actively evaluating which patents and venue to file our next case against Amazon,” Carson said.

The U.S. Appeals Court for the Federal Circuit ruled in April that Amazon didn’t infringe key Rovi patents, including one for data feeds for IPGs. Rovi sued Amazon in 2011 alleging it infringed five patents, including one granted in 2001 to United Video Properties for an IPG that can be used to order remotely. In the U.K., a court in March dismissed Rovi’s claims that Virgin infringed two patents, including one for IPG system and method. The U.K. High Court invalidated Rovi’s claims against Virgin, the second time Rovi has absorbed a court defeat there. In 2011, a British appeals court upheld a lower court ruling that Virgin didn’t infringe three other IPG-related patents.

"While these decisions were disappointing, our patent portfolio and the success of our licensing business is not dependent on the results of any individual case or small number of patents from our portfolio,” Carson said. In both cases, the decision involved two Rovi patents, he said.

In the case of Virgin, the 2011 decision was tied to an IPG that had “very little functionality,” Rovi Chief Financial Officer Peter Halt said. Virgin has since switched to TiVo-based IPGs that are “much more robust” and “we feel much better about our chances” of prevailing in the current suits, Halt said. Despite the legal wrangling, Rovi is continuing discussions with Virgin with the aim of reaching a “commercial resolution,” Carson said.

Rovi budgeted an “adequate amount” of money this year for the suits, including a separate one involving Netflix, Halt said. As Rovi refiles some cases, legal proceedings “won’t immediately begin,” enabling Rovi to spread out expenses, Halt said. Rovi restarted talks with Netflix last summer after an International Trade Commission administrative law judge ruled the video streaming service didn’t violate one of four patents in a 2012 case. Rovi sued Netflix in 2012 along with LG Electronics, Mitsubishi, Roku and Vizio, claiming it violated seven patents, including those covering parental control technology and a client-server-based IPG. Rovi reached settlements with LG Electronics, Mitsubishi and Vizio last year.

Rovi sold its DivX and MainConcept businesses to Parallax Capital Partners and StepStone Group for $52.5 million with another $22.5 million payment contingent on the companies’ financial performance, Rovi said. Rovi started reviewing “strategic alternatives” for DivX and MainConcept last fall and the sale caps efforts to redefine Rovi as a “discovery-based company,” Carson said. Rovi inherited the DivX video compression and MainConcept H.264 business in buying Sonic Solutions. DivX bought MainConcept for $22 million in 2007 and both companies were acquired by Sonic in 2010.

Rovi also bought Veveo for $62 million, acquiring a company with technology steeped in intuitive and personalized search and recommendation, including the ability to implement voice-based commands in an IPG, Rovi said. Rovi is combining Veveo’s personalization and contextural search tools with its recommendation engine and metadata, the first evidence of which will be released later this year. At the NCTA show in Los Angeles this week, Rovi demonstrated Veveo’s search and recommendation technology combined with its xD software that allows channels to be tuned from a smartphone or tablet. Veveo’s IP also will likely appear in Rovi’s cloud-based IPG technology that’s expected to launch later this year with Mexican mobile network operator America Movil. Rovi completed a “ton of work” on the cloud-based IPG in Q1, readying a platform that can be deployed across a range of devices and extending the company’s reach from its base in CE and cable set-top products, Carson said. With the cloud-based approach, Rovi has been “approaching a number of tier-one” cable operators that may be interested in deploying parts of the platform, including metadata, search and recommendation, Carson said. In addition to the cloud-based platform, America Movil is using Rovi standard Passport IPG in eight markets in Latin America, Carson said.

Rovi’s Q1 net loss widened to $54.2 million from $25.7 million as it took a $2.1 million restructuring charge partly tied to the DivX and MainConcept businesses. DivX/MainConcept had a $1.8 operating loss in Q1 on $14.9 million in revenue, the company said. Rovi’s Q1 revenue rose to $142.4 million from $132.7 million as service provider sales improved to $98 million from $87.5 million. CE-related revenue declined to $29.5 million from $38.4 million, while that in the “other” category improved to $14.8 million from $6.7 million, benefiting from a set-top company taking a one-time perpetual license for Rovi’s advanced copy protection. The pact with the set-top supplier generated about $10 million to $12 million in revenue in Q1, analysts said. Rovi’s IPG advertising business also benefited from the addition of Verizon’s FiOS network during the quarter, a deal that increased the company’s advertising revenue 10 percent in Q1. Rovi also landed in Q1 its first U.S. deployment of its IPG in a digital transport adapter, Carson said.