Tivo (TIVO), the pioneer in video recording devices lost most of its franchise to generic versions of its original product. Tivo has claimed that many of the products developed by its competitors violate the small company’s intellectual property. Tivo has a defense for that. It took satellite firms Dish Network (DISH) and EchoStar to court, and accused them of illegally using Tivo’s inventions. The first rounds of the legal action were decided in Tivo’s favor.  The matter is now in limbo as the patent office reviews Tivo’s filings.

Tivo has now taken its patent protection fight to AT&T (T) and Verizon (VZ), making legal claims fairly similar to those against the satellite TV companies. Tivo filed complaints in the United States District Court, Eastern District of Texas, against AT&T Inc. and Verizon Communications, Inc. for infringement of three TiVo patents which covers its Multimedia Time Warping System, its System for Time Shifting Multimedia Content Streams, and its Automatic Playback Overshoot Correction System. The complaints seek damages for past infringement and a permanent injunction, similar to that issued by the United States District Court, Eastern District of Texas against DISH/EchoStar.
In the meantime, Tivo also said it lost $2.9 million in the last quarter after making $2.9 million in the same quarter a year ago. The company continues to struggle which makes these suits essential to its future. Tivo is going from becoming an operating company to one with a business based on litigation and its years-old intellectual property.

Tivo’s market cap is only $1 billion and it lost its position as a provider of leading edge technology more than half a decade ago. Tivo’s shares now trade at $11, down from nearly $60 in early 2000. It has become a firm that time passed by.
The only unusual thing about the Tivo suit is its timing. The company appears to have waited until AT&T had broadened its distribution of its fiber-to-the-home U-verse TV product and Verizon had done the same with its FiOS offering. The subscriber count for U-verse is 1.6 million. FiOS has 2.5 million customers. Both services are growing quickly and the two telecom companies are counting on these fiber businesses to create much of their future growth.

Tivo has picked the perfect time to get AT&T and Verizon into court. It threatens a business that the two companies have spent billions of dollars developing and one which has to increase exponentially to give the firms a reasonable return.

Tivo’s lawyers have been clever as they brought the company’s legal action when its opponents would be at their most vulnerable. Neither AT&T nor Verizon can afford to have anything slow the growth of their services.

Tivo has not done anything wrong by using convenient timing. This is, in fact, the product of perfect legal work. It may take Tivo several years to press the suits and the firm’s efforts may fail. If they succeed, the settlement may be the only return that Tivo’s shareholders will ever see. It stopped being an innovator years ago.

Douglas A. McIntyre

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