Dish settles TiVo patent lawsuit for $500 million


Dish Network and sister company EchoStar have agreed to pay TiVo a half billion dollars to settle their patent litigation, giving Dish a license for TiVo’s key digital video recorder (DVR) patent and TiVo a license for certain EchoStar patents. The settlement ends years of fighting in federal court, with most rounds having been won by TiVo, including a decision last month by an appeals court that upheld a contempt ruling against Dish/EchoStar.

Dish/EchoStar had already paid TiVo $104 million under the original ruling that the DVR used by Dish/EchoStar (which were one company when this all began), so the payments to TiVo will eventually total $604 million. An initial payment of $300 million ($290M from Dish and $10M from EchoStar) will be made immediately, with the remaining $200 million to be made in six equal installments between 2012 and 2017.

Both TiVo and Dish saw their stock prices jump on Wall Street after the settlement was announced early Monday (5/2). While TiVo is the one receiving cash payments, Dish rose even more, apparently since the settlement of the litigation ends any overhang and stops the legal costs of fighting in court. Also, TiVo has signed on for a role in developing and promoting the Blockbuster video service recently acquired by Dish.

“Our take-away from the brief conference call held by TiVo this morning is that DISH had more of the negotiating leverage given that Charlie Ergen was likely to extend the legal process over many years, giving him time to replace the infringing boxes and costing TiVo a lot of money in litigation expense. We did not get much more color other than confirmation that the settlement includes all DISH current and future DVR boxes,” said Wells Fargo Securities analyst Marci Ryvicker in a note to clients.

“The settlement is clearly a win for both TIVO and DISH but we think the positives for DISH – in terms of timing of a settlement, the overall fee, and the ‘partnership’ between the two companies – were completely unexpected and therefore we would expect significant upside in the stock today and going forward.  We reiterate our Outperform rating on DISH stock,” said Ryvicker.

RBR-TVBR observation: Sometimes the changing landscape changes the dynamic in litigation. In this case, it appears that acquiring Blockbuster (at a beaten down price in a bankruptcy auction) may have changed Charlie Ergen’s view on how best to deal with TiVo. Turning a legal protagonist into a partner can sometimes make business sense and Ergen is known to be a shrewd businessman.