MARSHALL, Texas – In a case cast as crucial to TiVo's (TIVO) survival, a federal jury decided that EchoStar Communication Corp. (DISH) copied key technologies from the digital video recording pioneer and awarded TiVo nearly $74 million.
The 10-member jury spent just about two hours, including a cigarette break, to decide that the parent of the Dish satellite network had infringed nine sections of TiVo's patent on technology for digital video recorders, or DVRs, that let viewers pause, rewind and fast-forward live TV shows.
"There was no one thing," said jury forewoman Cathy Lindsey, a school secretary. "We just felt like there was infringement on all the charges. It wasn't unanimous to start with, but we were close."
TiVo won most of the $87 million in damages it sought.
The case in federal district court was closely watched on Wall Street, with some analysts even dropping in during the two-week trial. They said a victory would help TiVo win other royalty deals involving DVRs.
News of the verdict sent TiVo shares soaring 21.7 percent, or $1.75, to $9.80 in after-hours electronic trading Thursday night. If that price holds in regular trading when the Nasdaq Stock Market reopens on Monday, it would mark a 52-week high for the stock.
EchoStar shares dropped 22 cents to $29.75 in after-hours trading.
The judge could triple the $73.99 million award — which is subject to appeal — since the jury found that EchoStar had willfully infringed TiVo's patent.
In a statement, EchoStar called the verdict "the first step in a very long process" and said it considered TiVo's patent overly broad.
"We believe the decision will be reversed either through post-trial motions or on appeal," EchoStar said in a statement.
The Englewood, Colo., company also said it is looking forward to trying its countersuit against TiVo, which is scheduled for early next year, also in plaintiff-friendly East Texas.
TiVo attorney Matthew Zinn said the verdict gives his company a boost in its attempt to negotiate licensing deals with cable operators that use TiVo-like boxes from other manufacturers. He said as a last resort, TiVo might file patent-infringement lawsuits against cable companies.
Comcast Corp. (CMCSA) recently signed a deal with Alviso, Calif.-based TiVo, but other cable providers have resisted. They — along with Dish — have taken sales from TiVo by offering boxes and service at lower prices.
Separately, TiVo said Wednesday it extended an agreement with its largest partner, satellite TV provider DirecTV Group Inc. (DTV), for three more years.
Jurors hewed to the recommendation of a TiVo consultant in finding that EchoStar's use of TiVo's patent for a "multimedia time warping system" — which could pause, rewind or fast-forward live TV programs by recording them on a hard drive — cost TiVo millions in lost sales.
EchoStar lawyer Harold McElhinny also blamed TiVo's problems on erratic business decisions — it has lost nearly $650 million since its founding in 1997 — and an overpriced product, saying the company was using EchoStar as a scapegoat for its own failure to compete against other makers of set-top boxes.
"TiVo is a pretty expensive toy," McElhinny said. "I don't think 190,000 people would have bought this particular toy if they could have gotten it free from their cable company."
EchoStar now gives new customers a free recorder.
The trial featured two weeks of often technical testimony by dueling engineers who talked about MPEG transports, output modules, media switches and Direct Memory Access engines.
An engineering professor hired by TiVo said the EchoStar box was so similar that it infringed on TiVo patents. But two professors hired by EchoStar said the Dish box used different software and hardware than the TiVo device.
EchoStar's own original box "didn't work. It was a disaster," TiVo lawyer Sam Baxter said during closing arguments.
That broke down to $32.66 million in lost profits from sales of set-top boxes — $169.50 per box — and another $41.33 million that EchoStar should have paid in royalties on its sales of more than 4 million TiVo-like boxes.
"This is life or death for them," Baxter said of his clients.
The jury declined to award TiVo the full $87 million it sought because the company hadn't stamped all of its boxes with a patent trademark, so damages only covered the period after TiVo filed the lawsuit in January 2004.
Like many of the jurors, Brenda Dotson, a third-grade teacher, took copious notes to understand a case that hinged on technical details about DVRs.
"We just looked at the evidence and tried to maintain the big picture," she said.
Both Dotson and Lindsey, the forewoman, said they made up their minds before Thursday's closing arguments.
"We took good notes," said Lindsey. "At the end of [TiVo's rebuttal case on Tuesday], I put my notebook up and thought, I'm done."
Dotson and Lindsey said were impressed by TiVo co-founder James M. Barton — the first name on TiVo's patent — who described how his box worked and calmly sidestepped efforts by an EchoStar lawyer to trip him up during cross-examination.
"We're just trying to build products that people use and enjoy, and this gives us more runway to do that," said Barton, who also boasted that his company's invention moved viewers out of the Dark Ages.
None of the jurors own a TiVo, although Judge David Folsom said he does.
TiVo sold its first box in 1999, and its ability to let viewers skip through commercials soon made it a cultural catchphrase, spawning the verb "tivo" — to manipulate live TV programs.
Barton and fellow co-founder Michael Ramsay testified that TiVo couldn't win licensing deals, other than one with Dish rival DirecTV, because cable operators didn't respect TiVo's willingness to enforce its patents.
A change in attitude led TiVo to sue much-bigger EchoStar in January 2004, they said.
Englewood, Colo.-based EchoStar had $8.4 billion in sales last year, compared to $172 million for TiVo.
EchoStar attorneys feared jurors would sympathize with TiVo in a David vs. Goliath battle.
Lindsey, the jury forewoman, said she didn't see it that way.
"TiVo is a substantial company in its own right," she said.
After two weeks of a hard-fought trial, lawyers for both sides tried to lighten the mood on Thursday with self-effacing humor.
TiVo's hometown Marshall attorney, Sam Baxter, began by apologetically telling jurors, "If this [trial] were like TiVo, you could just fast-forward through this and go to lunch."
Then he made a joke about trying in vain to get TiVo's lead lawyer, Morgan Chu, to get rid of his trademark bow tie.
A couple of hours later, the winning team of lawyers held a boisterous celebration in a pub across the square from the courthouse. By then, Chu had ditched the bow tie.
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