Court Upholds $73.9M Award In EchoStar, TiVo Battle

By Erin Marie Daly, erin.daly@portfoliomedia.com

Portfolio Media, New York (January 31, 2008)--A federal appeals court has upheld a lower court's ruling that EchoStar Communications Corp. infringed TiVo Inc.'s patent covering digital video recording software and has affirmed nearly $74 million in damages.

In a ruling handed down Thursday in the U.S. Court of Appeals for the Federal Circuit, a three-judge panel affirmed a judgment of infringement by the U.S. District Court for the Eastern District of Texas that digital video recorders distributed by Dish Network Corp., formerly known as EchoStar, violated the software elements of TiVo's patent.

The judges said that because the damages calculation at trial was not predicated on the infringement of particular claims, and because they had upheld the jury’s verdict that all of the accused devices infringed the software claims, they affirmed the $73.9 million damages award entered by the district court. (With interest, that amount is likely to approach the $94 million mark.)

But the judges overturned the lower court's ruling that EchoStar had infringed the hardware elements of the patent, citing a failure of proof of literal infringement.

That reversal, however, did not have an impact on the damages award.

EchoStar had claimed its DVRs did not infringe TiVo's patent because they can process only one type of digital signal and can't process analog signals at all.

As EchoStar saw it, in order to infringe, its devices would have to be capable of time-shifting both analog and digital signals.

The company argued that the district court committed legal error in not granting its motion for judgment as a matter of law on that ground.

TiVo, for its part, contended that the hardware claims required only that the accused products “accept” television signals based upon a multitude of standards, not that they “process” all such signals.

Because EchoStar’s accused devices accept analog television signals and forward them to the user’s television set for real-time viewing, TiVo argued that those devices infringed the “accepting” limitation, regardless of their processing capabilities.

In their ruling Thursday, the judges said that while the language of the “accepting” limitation was not very precise, they agreed with the trial court that it did not require that a DVR be capable of time-shifting both digital and analog signals.

“The interpretation of the 'accepting' limitation that is least problematic is the one proposed by TiVo — that the reference to the 'multitude of standards' includes not only broadcast standards of the type set forth in the claim but also data standards of the type identified in the written description portion of the specification,” the judges said.

However, the judges reversed the portion of the judgment upholding the jury’s verdict that EchoStar’s DVRs literally infringed the hardware claims of TiVo's patent.

“TiVo simply argues that the evidence showed that EchoStar’s devices assemble video and audio components into separate streams or buffers,” the judges said. “Because we hold that the term 'assembles,' as used in the hardware claims, requires interleaved assembly of the audio and video components, and because the evidence at trial did not show that the 50X DVRs perform interleaved assembly, we necessarily conclude that the 50X DVRs do not literally infringe the 'assembles' limitation of the hardware claims.”

TiVo spokeswoman Krista Wierzbicki said Thursday, “We are extremely pleased that the U.S. Court of Appeals for the Federal Circuit unanimously ruled in our favor in EchoStar's appeal of the district court judgment of patent infringement, full award of damages and that the injunction, which was stayed pending appeal, was ordered to be reinstated.”

“Today’s ruling is confirmation of the value of TiVo’s IP portfolio, which is in addition to the other benefits TiVo has to offer,” she added. “TiVo can now continue to focus on its goal to drive greater distribution in both its stand-alone and mass distribution efforts.”

“This is gratifying for TiVo," said Morgan Chu, an attorney at Irell & Manella LLP, one of the firms representing TiVo in the suit. “The courts have recognized that TiVo was the creator of a revolutionary technology, one that reshaped the entire home entertainment industry. The court’s strong affirmation of the patents will be a great boost to TiVo as it looks to continue to break new ground in creating and marketing leading advancements.”

A representative for EchoStar did not immediately respond to a request for comment Thursday.

However, Dow Jones reported that EchoStar spokeswoman Kathie Gonzalez said that the decision "will have no effect on our current or future customers because EchoStar's engineers have developed and deployed 'next-generation' DVR software to our customers' DVRs."

The ruling comes two months after the U.S. Patent and Trademark Office issued a final decision that all the claims of TiVo's patent were valid, marking the end of a nearly three-year ex parte re-examination process requested by EchoStar.

TiVo had asserted its time warp patent, which covers a method of recording one program while playing back another, against satellite television provider EchoStar in January 2004 in the Texas district court.

A few months before trial in 2006, EchoStar petitioned the USPTO to re-examine the hardware claims of TiVo’s U.S. Patent Number 6,233,389.

In July, the USPTO preliminarily rejected 23 hardware claims while affirming the remaining 42 software claims.

Patent examiner David E. Harvey said that there were two prior patents, U.S. Patent Numbers 6,788,882 and 5,614,940, that independently described all the parts of the ‘389 patent. Harvey said combining the ‘882 and ‘940 patent was obvious, making the ‘389 patent obvious as well.

Meanwhile, at trial, EchoStar asserted that TiVo was using the litigation to attempt to compensate for its failures in the market, having lost $650 million since its launch a decade ago. TiVo countered that it had pioneered the technology in the market.

In April 2006, a Texas jury found that EchoStar had willfully infringed nine claims — two software, seven hardware — in the ‘389 patent.

A few months after the jury verdict, the district court ordered EchoStar to fork over $73.9 million in damages and enjoined the company from selling its infringing DVRs.

EchoStar appealed the district court’s decision, and the Federal Circuit stayed the injunction pending the outcome of the appeal.

The Federal Circuit said Thursday that the stay would dissolve when the appeal became final. The district court could then determine what additional damages, if any, TiVo has sustained while the stay of the permanent injunction has been in effect.

TiVo was represented in the Federal Circuit proceedings by Wilmer Cutler Pickering Hale and Dorr LLP; Irell & Manella LLP; and Ropes & Gray LLP.

EchoStar was represented by Finnegan Henderson Farabow Garrett & Dunner LLP and Morrison & Foerster LLP.

The case is TiVo Inc. v. EchoStar Communications Corp., case number 2006-1574, in the U.S. Court of Appeals for the Federal Circuit.