TiVo Guns Down EchoStar in Texas

A 10-member jury in Texas yesterday ruled that satcaster EchoStar violated TiVo's DVR patent and awarded TiVo with $74 million in damages. TiVo had alleged that EchoStar infringed its patent that covers the recording of one show while watching another.

EchoStar still denies any wrongdoing and plans to appeal the decision. However, there's no denying that it's a huge victory for TiVo, even if it's not long-lasting.

If TiVo had lost the case, it might have been the beginning of the end. The company is struggling to generate new subscribers with the loss of DIRECTV as a marketing partner and its inability to get cable operators to license its DVR software. (TiVo does have a non-exclusive deal with Comcast, which is scheduled to begin late this year.)

But with the patent victory, TiVo has a new weapon to coerce cable operators to sign up. The company can strongly infer that it will seek damages if a cable operator does not use its software. (The tactic appears to have paid off this week with DIRECTV agreeing to a three-year extension of its service contract with TiVo, which will apparently enable TiVo to keep its current base of 2 million plus DIRECTV customers. The extension agreement includes a provision in which the companies promise not to sue each other over patent issues.)

While TiVo's patent case against the cable TV operators would not be as strong as it was against EchoStar (for various reasons), it's still a good negotiating tool, one it didn't have before.

Plus, barring an EchoStar victory in appeals court, TiVo would get $74 million that it didn't have before, minus legal fees and other expenses. For a small company like TiVo, that's not small change.

So, bottom line: TiVo's victory allows the company to play another day. It won't guarantee that the cable industry will license its software, which is crucial to its long-term survival. But it does give it more bargaining power in negotiations.

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