Dish Serves Up TiVo's Dessert

TiVo (Nasdaq: TIVO  ) can have its steak and its cake, too.

Earlier today, a U.S. appeals court upheld a previous decision in which Dish Network (Nasdaq: DISH  ) and EchoStar (Nasdaq: SATS  ) were found in contempt of court for violating TiVo's principal patent, which specifies the software and processes for recording video from live TV. Claims related to the hardware design of TiVo's pizza-box recorders were tossed out.

The ruling is 36 pages long (download it here), but the court's essential argument boils down to this quote from page 4:

The district court evaluated two of EchoStar's major modifications to the infringing DVR software and concluded that the modified software continued to infringe. The district court therefore found EchoStar to be in violation of the infringement provision of the injunction. Moreover, the district court found that even if EchoStar had achieved a noninfringing design-around, EchoStar would still be in contempt because it had failed to comply with the disablement provision in the district court's order requiring it to disable DVR technology completely from the receivers adjudged to be infringing at trial.

In other words: Dish didn't do enough to avoid infringement, and failed to remove from its receivers video-recording features that should have been disabled when a lower court issued an injunction.

Shares of TiVo were up more than 50% as of this writing. All told, investors have added more than $500 million to TiVo's market value.

Interestingly, the run-up adds more than TiVo was due in September, at the time of the appeal. The company now says it is owed at least $300 million, and will seek more.

"This ruling paves the way for TiVo to receive the approximately $300M in damages and contempt sanctions awarded to us for EchoStar's continued infringement through July 1, 2009. We will also seek further damages and contempt sanctions for the period of continued infringement thereafter," TiVo said in a statement.

For investors, this decision does two things. First, it affirms TiVo's long-standing legal claims and adds water to a competitive moat that was already getting deeper. Ongoing deals with DirecTV (Nasdaq: DTV  ) and Comcast (Nasdaq: CMCSA  ) are now much more likely.

Second, it makes the company a more attractive acquisition target for any of the big three trying to woo consumers with digital entertainment platforms; Apple (Nasdaq: AAPL  ) , Google (Nasdaq: GOOG  ) , and Microsoft all have plenty of cash to spend.

Let the bidding war begin.

What's the fairest acquisition price for TiVo right now? Do you agree with Tim that Google should pony up for the DVR pioneer? Discuss in the comments box below.

Apple is a Motley Fool Stock Advisor selection. Google is a Motley Fool Rule Breakers recommendation. Microsoft is a Motley Fool Inside Value pick. Motley Fool Options has recommended a diagonal call position on Microsoft. Try any of our Foolish newsletter services free for 30 days.

Fool contributor Tim Beyers is a member of the Rule Breakers stock-picking team. He had stock and options positions in Apple and a stock position in Google at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. The Motley Fool is also on Twitter as @TheMotleyFool. The Fool's disclosure policy almost never holds a grudge.


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