By DAVID KOENIG, AP Business Writer
EchoStar Communications Corp. rushed to a federal appeals court Friday
in a successful bid to avoid shutting down more than 3 million digital
video recorders used by customers of its Dish satellite-TV service.
But the victory could be only temporary. EchoStnar is fighting an
uphill battle against TiVo Inc., which convinced a jury in April that
EchoStar infringed on its patented TV-viewing technology in making
set-top boxes for Dish customers.
Late Thursday, the federal district court judge who presided over the
trial also sided with TiVo. He issued an injunction ordering EchoStar
to stop selling the recorders and to turn off machines already in
customers' homes within 30 days.
Judge David Folsom also ordered EchoStar to pay TiVo $89.6 million in
damages — more than the $74 million the jury awarded.
The ruling helped push TiVo shares up more than 8 percent Friday.
Investors kept bidding the shares higher even after a federal appeals
court in Washington temporarily blocked the order to disable
EchoStar's video recorders.
The appeals court said that it wasn't ruling on the merits of the
case, only that it wanted more time to study whether the injunction
should be delayed until appeals can be heard.
Meanwhile, EchoStar finds itself under attack in a Florida court on a
separate issue that could also force it to curtail services to Dish
customers.
EchoStar asked the Florida judge to delay until Sept. 11 an order that
Dish stop selling signals of distant network stations — for
example, a customer in Dallas who wants to receive broadcasts from
ABC, CBS, NBC or Fox affiliates in New York or Los Angeles. The judge
denied the request.
A EchoStar spokeswoman, Kathie Gonzalez, said the company had appealed
to the U.S. Supreme Court and was negotiating with broadcasters who
had sued EchoStar to prevent customers from losing their distant
programming.
Both cases hold the potential to cost Dish customers, but the TiVo
affair is easily the more serious, said analyst Matthew Harrigan of
Janco Partners Inc.
"There is absolutely no way they can turn off those (recording) boxes
without getting blind-sided. They would lose a lot of customers,"
Harrigan said. "People who use those boxes really like them. They
would be furious."
That was the argument EchoStar lawyers made in asking the appeals
court in Washington to block Judge Folsom's injunction. Forcing Dish
to disable those boxes would force customers to give up a treasured
service or find new video-recording service from another provider, the
lawyers said.
EchoStar said it continued to believe it didn't infringe TiVo's patent
for "time-warp" technology the ability to record a live television
program while playing another. But EchoStar also said it was working
on modifications to its recorders to avoid future claims of patent
infringement.
Gonzalez, the spokeswoman for Englewood, Colo.-based EchoStar, said
more than 3 million of Dish's 12.5 million subscribers use an EchoStar
recorder that would have been affected by Folsom's ruling. Dish is the
nation's second-largest satellite-TV provider, behind DirecTV.
If the Texas judge's $89.6 million award stands up on appeal, it would
represent about half a year's revenue for TiVo, which hasn't earned a
profit since its founding in 1997. The potential boon could be seen
Friday in Alviso, Calif., company's stock price.
TiVo shares rose 53 cents, or 8.2 percent, to close the day at $7.02
on the Nasdaq Stock Market. EchoStar shares dropped 30 cents, or just
under 1 percent, to $32.45.
TiVo hopes that a victory against EchoStar will convince other cable
and satellite-TV providers that sell digital video recorders, or DVRs,
other than TiVo's to agree to pay royalties and licensing fees to the
company whose name is synonymous with recording TV on a hard drive.
TiVo has a licensing agreement with the nation's largest satellite-TV
provider, DirecTV, which has 3 million TiVo users. A deal with Comcast
Corp., which has more than 23 million cable-TV subscribers, is set to
begin in the fourth quarter. TiVo is still chasing deals with the
other leading cable providers.
"The company on its own is running OK," said Daniel Ernst, an analyst
for Soleil Securities. "Prevailing against EchoStar isn't necessary
for their success and growth, but certainly it would be a nice
catalyst."
The appeals court gave TiVo until next Wednesday to respond to
Friday's move blocking the injunction against EchoStar.
The case is far from over. Even TiVo could appeal.
The Texas judge could have tripled the jury's $74 million award
because jurors found that EchoStar willfully infringed TiVo's
patent. TiVo is considering seeking a larger award on appeal, said
spokesman Elliot Sloane.
Copyright 2006 The Associated Press.
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David Koenig, AP (ap@telecom-digest.org)