DISH / EchoStar Fighting Yesterday's War

by: Gerard Hallaren, CFA

The ongoing battle between TiVo (NASDAQ:TIVO) and DISH Network (NASDAQ:DISH) / EchoStar (NASDAQ:SATS) is primarily of financial interest. Yes, it looks like DISH/EchoStar will have to hand TiVo large piles of cash, but we believe investors need to pay attention to TiVo’s large and growing intellectual property portfolio.

To be sure, the company’s original “Time Warp” patents, which are at the center of the battle, are important, but the big asset looks like subsequent patents.

Currently the US Patent Office is re-examining a number of TiVo’s claims that DISH had not previously challenged. This re-examination could well be a material event for investors.

At present, TownHall makes no forecast as to its outcome, however we point out that Rethink expects a positive ruling for TiVo. We also point out that TiVo recently filed suit against AT&T and Verizon for patent infringement in UVerse and FIOS respectively.

In Friday’s ruling that awarded TiVo $200MM for contempt from DISH, the court established a royalty rate of $1.25 per subscriber per month and an additional $1.00 per month as a sanction. Interestingly the court based this ruling on its perception that DISH charges $5.98 per month for DVR service.

According to its website though, DISH’s current DVR pricing is $20 per month. In its ruling, the Texas court said,

If, however, EchoStar is unsuccessful on appeal and nevertheless continues to disregard this Court’s orders, the Court will seriously entertain the award of enhanced sanctions.

Our man in London, Peter White, lays out a passionate case for TiVo based technology it developed after the hotly contested “Time Warp” patents.

Specifically, HD TiVo, Video on Demand, and and Electronic Programming Guide with links resident on the DVR. Moreover, he is optimistic that TiVo will strike revenue generating relationships with Comcast (NASDAQ:CMCSA), other multichannel operators, and potentially set top box manufacturers.