The zephyr that oft times blows lightly over the plains of Texas carries with it these days a passenger. On that wind rides the subtle smell of desperation. Taking flight in the Federal District Court of the east-Texas town, Marshall, and emanating from TiVo, co-creator of the Digital Video Recorder market, is that unmistakable scent of fear, of panic, that comes when a company has reached the point in its lifecycle where the "Patent Infringement" lawsuit seems like the only way to save the company.
As you read this, a five-man and five-woman jury is digesting testimony and preparing to deliver a verdict that could either deal another, perhaps deadly, blow to the floundering company, or on the flip-side could give the company a much-needed cash infusion.
Not in dispute is the fact that TiVo is and has been, from its birth in that downtown San Jose mid-rise, a money-loser. While TiVo has managed to gain mindshare, secure a place in the English lexicon, and to help revolutionize how people watch TV, what TiVo hasn't done is make money. In fact, over the course of its 9-year existence, TiVo has lost well over half of a billion dollars.
Jury members will instead be asked to determine the cause of this loss. Is it, as TiVo contends, in part due to Echostar's patent infringement, or is it, as Echostar argues, due to TiVo's mismanagement?
TiVo's claims date back to a series of meetings in the late nineties. It was then that the fledgling TiVo approached Echostar, parent company of Dish Network, in the hopes that they could license the technology to the leading satellite company. It's there that the story begins to turn for the worse.
TiVo, a company blissfully unaware of the term "Industrial Espionage", decided to eschew the traditional Silicon Valley mantra of "PROTECT YOUR IP AT ALL COSTS." Instead they chose to take the path less traveled; they left their prototype behind (at the behest of Echostar CEO Charlie Ergen) and promptly forgot about it.
Over the course of the next couple years, TiVo secured several patents and Echostar managed to produce its own "homebrewed" DVR. TiVo, still hopeful that they would be able to strike a deal with the satellite giant, chose not to push the patent issues with Echostar. On other licensing fronts, TiVo struck a deal with Echostar competitor, DirecTV. Under the terms of that deal, TiVo is reported to receive a licensing fee of $1 per month per user.
Fast Forward to 2004. With the DirecTV relationship quickly deteriorating and with it the possibility that a substantial portion of TiVo's user base could disappear as a result, TiVo filed a lawsuit against Echostar.
The heart of the matter (oddly enough) isn't whether or not Echostar copied the misplaced box. As presiding judge Folsom pointed out to the jury, it's enough to say that they violated the concepts involved in the patent. This is due, in large part, to the "doctrine of equivalents," a legal concept that protects patent-holders against competitors using slight variations to skirt patents. What is at stake is whether or not Echostar violated the "multi-media time-warping system" In essence, TiVo's claim is that they've patented "watching one program while recording another… via a DVR."
If TiVo is successful in proving its claims, the rewards could be big. Experts testified that using market-penetration rates and the DirecTV licensing deal as a benchmark, TiVo could be entitled to a ballpark of 100 million dollars. This is in addition to the strengthening of future claims against other DVR technology companies.
In should be noted that this is not the first time that TiVo has tried to enforce this claim. TiVo had a legal battle with former DVR maker, ReplayTV. The outcome of that case, like most in this space, was a cross-licensing deal.
It's unclear what the end result will be. Even if TiVo were to will this ruling, it's likely that Echostar will drag its heels through a lengthy appeals process. However, any way you cut it, it's sad to see a pioneer stop inventing and start suing.
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