- The Washington Times - Sunday, March 26, 2006

DALLAS (AP) — In a case beginning this week, a Texas jury will be asked to decide whether satellite-TV giant EchoStar Communications Corp. stole TiVo Inc.’s technology that lets viewers skip the commercials.

The trial is scheduled to start Wednesday in U.S. District Court in Marshall, 150 miles east of Dallas. It is expected to last about two weeks.

If TiVo wins, it could sue cable companies that offer other set-top boxes or at least force them to pay licensing fees. Defeat probably would relegate TiVo to a niche place in the market it created, analysts say.

TiVo produced a stand-alone digital video recorder, or DVR, in 1997 and changed the way Americans watch television. It now has more than 4 million subscribers, but TiVo’s growth slowed as EchoStar and cable companies offered other DVRs, usually at lower prices.

EchoStar, the nation’s second-biggest satellite TV provider, produced its first DVR in 1999 and now offers free boxes to new customers.

Neither TiVo, based in Alviso, Calif., nor Englewood, Colo.-based EchoStar would comment.

In its lawsuit, TiVo charged that EchoStar’s set-top box violates TiVo’s patent for a “multimedia time warping system” developed by a half-dozen engineers in California. Lawyers familiar with patent cases say TiVo hopes for a verdict that would pay it millions of dollars — a sum equal to what EchoStar would have paid TiVo to license its technology the past five years.

EchoStar attorneys denied that the satellite company infringed on the patent, and they said the patent is invalid anyway. EchoStar filed a countersuit, which is scheduled for trial next year in Texarkana.

TiVo’s lawsuit includes engineering diagrams and a dense description of how a TiVo box works. Testimony is likely to be technical, and both sides likely will call expert witnesses.

On a simpler level, TiVo attorneys have said they will portray their client as an underdog. EchoStar earned $1.5 billion on sales of $8.4 billion last year. TiVo hasn’t earned a profit, and sales last year were just $172 million.

By suing EchoStar in East Texas, the TiVo attorneys picked an area considered kind to plaintiffs.

“The David-versus-Goliath strategy may play very well in a courtroom like this,” said Brian Coyne, an analyst with Friedman, Billings, Ramsey & Co. who has followed the case closely. “But this case is a big attention drain for [TiVo] management. They would be better off focusing on fixing their distribution system” with cable operators.

April Horace, an analyst with Hoefer & Arnett Inc., said that even if TiVo wins, it probably won’t sue cable companies that use other set-top boxes because it is negotiating deals with them. It has struck a deal with Comcast Corp. to produce a box that will carry the TiVo name and may offer additional functions, including downloading video from the Internet.

Still, Ms. Horace said, TiVo faces stiff competition from box makers including Motorola Inc., NDS, which is owned by News Corp., and Scientific-Atlanta Inc., which is being acquired by Cisco Systems Inc. Its relationship with satellite-TV provider DirecTV Group, which accounts for about half of new TiVo subscribers, will end early next year.

“TiVo might be able to carve out a niche, but it’s competing against large corporations with significantly larger [research and development] efforts and much deeper pockets,” Ms. Horace said. “I’m concerned about the long-term fundamentals of their business.”

TiVo is trying to stay ahead of the competition by introducing remote programming of DVRs from the Internet and cell phones, and loading of TV programs on personal computers, IPods and other devices.

TiVo executives have said they are developing more products for patent.

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