TiVo lawsuit explodes into billion-dollar stakes

Yesterday, in a go-for-broke strategy which could very well snatch victory from the jaws of defeat, satellite TV systems manufacturer EchoStar (partner and former owner of Dish Network) filed a motion in US District Court in Marshall, Texas, asking the court to suspend proceedings until the outcome of EchoStar's federal appeal is heard, in the patent infringement case brought against it by DVR manufacturer TiVo. An injunction against EchoStar is being stayed pending that appeal.

That's not a big deal in itself. What is big is EchoStar's assertion that sanctions being sought against it amount to as much as $1 billion -- the first time the proverbial math has alluded to TiVo's potential jackpot. This in addition to the $104 million that the Supreme Court decided EchoStar was liable for, in its refusal to hear EchoStar's first appeal.

Marshall, Texas is known as the intellectual property suit capital of America, mainly because juries there have been more generous with damages awards than anyplace else. A billion dollar grand prize, which is apparently what TiVo may seek in sanctions, is not outside of Marshall's ballpark at all.

EchoStar's worst-case-scenario argument to the Marshall, Texas goes like this: Should TiVo prevail on appeal, then the fact that the Appeals Court stayed the EchoStar injunction would mean that the formula for determining damages would have to be reworked, to take into account the intervening appeal.

"Even if TiVo prevails on appeal, aspects of the Federal Circuit's ruling could affect the appropriate remedy," reads EchoStar's motion filed Monday. "TiVo's sanctions motion relies on specific findings that may not remain intact even if the Federal Circuit affirms this Court's conclusion that EchoStar did not comply with every provision of the injunction. If so, any briefing, argument, or ruling on the issue of sanctions in advance of the Federal Circuit's decision would need to be revisited. Deferring sanctions proceedings until after resolution of the expedited appeal would avoid such inefficiency."

TiVo is one of the pioneers of the digital video recorder (DVR) which is, at its most basic level, a cable box that can record TV shows according to programming guides and schedules. One of TiVo's patents related to DVR design, commonly referred to as the "Time Warp patent," covers the way TiVo units could simultaneously record one program whilst playing back one that was already recorded.

Dish Network, which was owned by EchoStar Communications, debuted a similar function in some of its satellite receiver boxes in 2005. It is estimated that about four million of these units were sold when TiVo sued EchoStar for infringing on nine different aspects of the aforementioned Time Warp patent. A Texas jury ruled in TiVo's favor and ordered EchoStar to shell out nearly $73 million in damages. But as Hoefer & Arnett analyst April Horace said at the time, "This is the first inning in a long ballgame. Looking historically at this, the cable industry fights patents and does not just roll over and license technology."

And a long battle it became indeed. Echostar issued a software update to the infringing DVRs which the manufacturer claimed made them legal non-infringing. TiVo TiVo disputed that claim, asking for an injunction on the DVRs. The court again ruled in TiVo's favor and ordered Echostar to disable all DVR functionality on the infringing boxes.

To make a long story short, EchoStar continued to develop workarounds without informing the court, and when these workarounds became known some months later, TiVo moved to hold EchoStar in contempt of court for violating the court's terms of the injunction. Thus the case grew another metaphorical arm: the issue of whether EchoStar was acting in contempt of court when it employed these workarounds. The other arm of the case remained focused on the actual infringement.

The longer this case has gone on, the bigger the payout for TiVo has become. The next hearing on this issue in District Court could be scheduled as early as November.