Dish Network and EchoStar to pay $500 million to settle TiVo patent suit

Dish Network Corp. and its former EchoStar division agreed to pay TiVo $500 million to settle a long-running patent dispute involving digital video recorder technology.

Under terms of the settlement, Dish Network and EchoStar Corp. will make an initial payment of $300 million, and then make six equal payments of $33 million through 2017. The companies agreed to dismiss any litigation connected with the matter.

“There have been all kinds of questions and uncertainty as to whether our intellectual property had any real value,” said TiVo Chief Executive Tom Rogers. “We have clearly answered that question.”

TiVo has aggressively sought to protect its pioneering DVR technology in the courts. TiVo sued Dish Network and EchoStar in 2004, accusing the companies of infringing on its “Time Warp” patent, which allows viewers to record, replay and fast-forward television programs. The company also sued AT&T Inc. and Verizon Communications Inc., alleging the television services these telecommunications giants offer violate TiVo patents. Microsoft Corp., which makes the software used in AT&T’s set-top boxes, filed its own defensive suit accusing TiVo of patent infringement. All of these cases are still pending.

As part of the agreement announced Monday, TiVo granted Dish Network and EchoStar, a maker of television set-top boxes, licenses to use the Time Warp technology. An April 20 federal court ruling would have required Dish and EchoStar to disable boxes and pay $90 million in damages to TiVo.

EchoStar is a sister company to Dish Network. Both are independent companies with different management teams but share the same chairman, Charlie Ergen.

EchoStar makes set-top boxes for Dish Network and other companies and operates most of Dish Network’s satellites.

Ergen, who is also chief executive of Dish, sought to put the best face on the outcome during an earnings call Monday with Wall Street investors

“First and foremost, there just wasn’t anything to argue about anymore once we got the court of appeals ruling,” Ergen said. Had Dish continued its court battle over the legitimacy of its technical work-around, Ergen said there was a risk that “TiVo would have won on the design-around aspects of the case, which would have been a knockout blow for us.”

Analysts applauded the deal, noting that the amount was less than some had expected.

“It finally eliminates, after nearly five years, a significant overhang that in the worst-case scenario would have meant disablement of potentially millions of DVRs, triggering a consequent exodus of DVR subscribers,” wrote Sanford C. Bernstein & Co. analyst Craig Moffett.

The payout delivers much needed cash to TiVo’s bottom line. The Alviso, Calif., technology company reported a $34-million loss for the fourth quarter, which ended in January. The company raised $150 million through a private offering in March to pay its legal bills and for research and development.

“It substantially changed the cash position of the company,” said Rogers, noting that TiVo will have $670 million in cash on hand.

Rogers said TiVo would look to play a role in helping Dish Network promote the Blockbuster digital video service. TiVo boxes already offer Blockbuster on Demand, which allows people to browse and rent movies from their couches. The nation’s second-largest satellite television provider completed its acquisition of the struggling chain last week and Monday named a new president, Michael Kelly, Dish Network’s former executive vice president of commercial services.

Ending the litigation allows Dish Network to focus on building its business. The pay-TV provider said it had gained about 58,000 net subscribers during the quarter that ended March 31, bringing the total number to 14.2 million.

dawn.chmielewski@latimes.com