EchoStar must disable DVRs, judge rules
By Paul Bond
Fri Aug 18, 1:02 AM ET

LOS ANGELES (Hollywood Reporter) - A judge has ordered EchoStar to disable the digital video recorders used by several million subscribers to its Dish satellite TV service because they infringe on patents held by TiVo.

Thursday's ruling from U.S. District Judge David Folsom in Marshall, Texas, demands that within 30 days EchoStar must basically render useless all but 192,708 of the DVR units it has deployed.

The decision comes four months after a jury ruled that EchoStar should pay TiVo $74.9 million because it willfully infringed TiVo patents that allow for the digital storage of TV programming.

The judge also denied EchoStar's request that the injunction be stayed pending appeal, making it difficult for EchoStar to continue offering its subscribers' DVR functionality without striking a quick licensing deal with TiVo or another DVR maker.

While the injunction battle clearly was won by TiVo, the scrappy pioneer of the DVR industry also was handed a loss Thursday when Folsom ruled against its request that the jury award be tripled. The judge, however, ordered EchoStar to pay an additional $5.4 million in interest payments and $10.3 million in supplemental damages, bringing the amount EchoStar owes TiVo to nearly $90 million.

NO BAD FAITH

In ruling against treble damages, Folsom noted that EchoStar was not allowed to present evidence that it received outside legal advice indicating that the DVRs it created did not infringe TiVo's patents. That EchoStar sought such advice before TiVo sued it "could demonstrate a lack of willfulness" on the part of EchoStar, the judge wrote in denying TiVo's request of treble damages.

"The evidence does not show the defendants acted in bad faith, nor does the jury's willfulness finding amount to a finding of bad faith," Folsom wrote.

In asking for an injunction, TiVo argued that, while it would become extinct if unable to protect its patents and sell its DVRs, EchoStar's primary business of satellite TV transmissions does not depend on its ability to offer DVRs.

EchoStar claimed, among other arguments, that TiVo's motive in filing a lawsuit was to gain additional leverage over EchoStar and other prospective business partners in order to strike lucrative licensing deals.

The vast majority of TiVo subscribers, in fact, come by way of a licensing agreement with EchoStar competitor DirecTV. Another agreement with cable giant Comcast Corp. won't bear fruit until later this year, and TiVo has had trouble lining up other big players in the pay TV market, who mostly have been offering their customers generic DVRs.

Siding with TiVo, Folsom wrote that one thing both companies agreed on is that DVR customers are "sticky," meaning that once they obtain a DVR they stick with it, so business that TiVo has been losing to EchoStar might not be recovered without a ruling of infringement.

'CRITICAL TIME'

TiVo, the judge wrote, "is losing market share at a critical time in the market's development -- market share that it will not have the same opportunity to capture once the market matures."

EchoStar also claimed that the timing of TiVo's lawsuit -- several years after EchoStar began selling DVRs -- amounted to proof that it was not suffering irreparable injury. Folsom, though, noted that TiVo hadn't sued EchoStar sooner because it was trying to enter into a business deal with it.

EchoStar also said an injunction would unduly hurt its business, an argument Folsom was not entirely unsympathetic to -- though, again, he came down on the side of TiVo.

"Although the injunction will likely result in some degree of customer loss and will impact (EchoStar's) ability to compete in the market, (EchoStar) will not be irreparably harmed," he wrote.

Folsom's ruling was filed after the close of regular and after-hours trading on Wall Street, so it did not affect the share prices of EchoStar and TiVo. When TiVo won its jury trial in April, its shares moved up 23 percent in after-hours trading, though the stock has since given back much of that gain.

TiVo shares closed up fractionally Thursday to $6.49, while EchoStar shares fell 1.1 percent to $32.75.

Reuters/Hollywood Reporter

EchoStar Wins Stay of TiVo Injunction
By Ed Oswald, BetaNews
August 18, 2006, 12:53 PM

JUST IN After suffering a major court defeat that required EchoStar to disable DVR functionality used by millions of its subscribers, the satellite TV company has won a temporary reprieve. The Federal Circuit Court of Appeals in Washington, D.C. has temporarily stayed the injunction won by TiVo.

"As a result of the stay EchoStar can continue to sell, and provide to consumers, all of its digital video recorder models," the company said in a statement. "We continue to believe the Texas decision was wrong, and should be reversed on appeal. We also continue to work on modifications to our new DVRs, and to our DVRs in the field, intended to avoid future alleged infringement."

The stay is not permanent, however, and the injunction could still stand upon further review by the Court of Appeals.

TiVo downplayed the significance of the stay, saying that it was a routine action to give a court sufficient time to decide if the injunction should take effect during the appeal. "We are very pleased by recent developments involving the issuance of a permanent injunction in our patent case against EchoStar by the United States District Court, Eastern District of Texas," the company said in a statement.

"The court of appeals temporarily stayed the district court injunction only until it decides whether a stay should or should not be in effect for the duration of the appeals process. The court stated that the temporary stay is not based on a consideration of the merits of EchoStar’s request," TiVo added.

TiVo had earlier won the critical victory as part of a patent infringement case against EchoStar, the parent company of DISH Network. A federal judge in Texas ruled Friday that the satellite company must immediately stop the production, sale and use of its digital video recorders within 30 days.

U.S. District Judge David Folsom also forced EchoStar to pay TiVo nearly $74 million in damages as awarded by jury, although he denied TiVo's motion to increase the damages. The final penalty would increase to $90 million based on $5.4 million in interest payments and $10.3 million in supplemental damages however, he ruled.

The ruling means that millions of EchoStar customers will lose DVR capabilities capabilities within a month. The issue now puts EchoStar in a precarious position: either negotiate with TiVo, or risk losing subscribers.

"TiVo is pleased that Judge Folsom has granted a permanent injunction against EchoStar's DVR products along with supplemental damages and interest," the company said in a statement. "This decision recognizes that our intellectual property is valuable and will ensure that moving forward EchoStar will be unable to use our patented technology without our authorization."

A federal jury ruled against EchoStar in April, saying the company willfully infringed on TiVo's patent surrounding the ability to play one television show while recording another, in addition to various DVR functions including the pausing of live television. TiVo filed for an injunction in May.

Folsom agreed with both sides that DVR technologies are "sticky," or that once the customer signs on to the technology, they usually do not migrate to another provider. Thus, TiVo would be losing customers to DISH's solution, and the only way to prevent further damage would be through an injunction.

EchoStar tried to defend itself by saying the suit's timing showed TiVo was not suffering financial harm. Folsom disagreed, noting TiVo had attempted to negotiate with the company during that time.

In an early morning statement, EchoStar disagreed with much of TiVo's position, and said it expected to win on appeal. "We believe that, for a number of reasons, the Texas Court should be reversed in all other respects on appeal. We also continue to work on modifications to our new DVRs, and to our DVRs in the field, intended to avoid future infringement," it said in a statement.