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TiVo Logs Another Win Against Dish

WASHINGTON: A federal appeals court today upheld a ruling that technology used in EchoStar’s Dish set-tops violates patents held by TiVo. The U.S. Court of Appeals for the Federal Circuit ruled 2-1 in favor of a lower court ruling that EchoStar’s work-around DVR technology didn’t meet the requirements of a previous injunction.

TiVo first sued EchoStar in district court six year ago, claiming the digital-video recording technology in Dish set-tops violated TiVo patents. Over the course of the legal battle, Dish was ordered to pay damages of $103 million and stop using the technology. The satellite provider then created work-around technology, but the U.S. District Court for the Eastern District of Texas found last June it still violated TiVo’s patents. Dish was slapped with another $105 million in damages and ordered it to disable the DVR function. It appealed and won a temporary stay from the federal court, which today agreed with the lower court.

It’s not yet clear when EchoStar will have to disable the DVR function of Dish set-tops per the court order. As of last summer, an estimated 4 million out of 13.6 million Dish customers had DVR-enabled set-tops.

“We are disappointed in the Federal Circuit’s split decision, but are pleased that Judge Rader agreed with our position,” the Englewood, Colo., satellite TV provider said in a statement. “Therefore, we will be seeking en banc review by the full Federal Circuit. We also will be proposing a new design-around to the district court for approval. At this time, our DVR customers are not impacted.”

Shares of TiVo soared 60 percent on the news, shooting up more than $6 to $16.27 in last afternoon. Wells Fargo analyst Marci Ryvicker said TiVo expects to collect $300 million in damages through July 1. Shares of Dish dropped nearly 5 percent to around $20.60. Dish chief Charlie Ergen should settle, Ryvicker said.

“Though Dish stated it is looking to do a workaround of the workaround, we believe the most logical next step for Charlie Ergen, at this point in time, would be a licensing agreement between the two parties,” Ryvicker wrote. “Our expectations are a maximum of $3 and a minimum of a $1.75 per subscriber per month, which would equate to [approximately] $126 million to $216 million in EBITDA or $2 to $4 in equity value. To us, these amounts appear reasonable and are likely already expected by the market.”

The bottom line, she said was that analysts believed Ergen would do “the right thing and enter into an agreement. Once this occurs, the overhang of this litigation should be removed from the Dish stock.”