Is TiVo a Patent Troll Now?

Is TiVo (Nasdaq: TIVO  ) a patent troll? It might look that way today, when the stock jumped as much as 8.4% on a favorable patent ruling in court.

U.S. District Court Judge David Folsom just posted a definitional ruling in TiVo's infringement case against AT&T (NYSE: T  ) , siding with TiVo's definition of three key patents and dismissing AT&T's pleas to read the patents in a different light. That's exactly the kind of thing that sets Rambus (Nasdaq: RMBS  ) hearts aflutter when the memory-tech specialist plays the part of TiVo and Micron Technology (Nasdaq: MU  ) does its best AT&T impression.

And the ruling presumably sets the stage for a rich settlement, according to analysts. Ma Bell would rather settle early than wait for a potentially disastrous final ruling, according to analysts from Lazard Capital. Isn't that exactly how noted trolls Intellectual Ventures and Acacia Research make their daily bread?

Pause and reflect
Indeed, Lazard expects the AT&T settlement to result in a steady stream of licensing revenue on top of the lump-sum settlement check to cover damages. That's what happened when Dish Network (Nasdaq: DISH  ) settled its own TiVo case earlier this year, after all. TiVo is not shy about the fact that it seeks more license deals for its digital video recorder technology, either. So really, what's the difference?

We can argue all day about the finer points, but there is one very distinct quality of TiVo's that sets it apart from the trolls. TiVo actually makes and sells things. Rambus and Intellectual Ventures don't.

This seemingly irrelevant fact actually makes a world of difference. Rambus can file lawsuits all day long without ever being sued back -- there are no products sales to block, no profits made from infringing on the rights of others.

But TiVo is open to all sorts of retaliation because the company makes and sells both hardware and software. So if TiVo launches a lawsuit, it had better be sure about its merits, because a bad attack can backfire with a vengeance. By contrast, Acacia and friends can simply roll the dice, shrug their shoulders at the occasional setback, and keep betting until they hit a big payday.

Fast-forward
That essential quality also means that TiVo can't rest on its laurels, but must continue to innovate if it wants to stay alive. I see DVR as a huge yet impermanent footnote in entertainment history, and am not sure that TiVo will be able to make the transition into the fully digital era. However, today's ruling underscores the value I see in the stock right here, right now.

TiVo sits on $5.21 of cash per share. Janney Capital estimates that settlements with AT&T and Verizon (NYSE: VZ  ) should boost TiVo's results by about $95 million a year of additional revenue and reduced legal costs. That would effectively boost the top line by nearly 50% and make the company reliably profitable. Add it all up, and the stock looks tremendously cheap at less than $11 per share. Under that scenario, TiVo would get some breathing room to figure out that elusive digital strategy.

That's why I have a mid-term "outperform" rating on TiVo in our CAPS system, and not the long-term thumbs-up I'd usually prefer. Among the opportunities out there over the next year or so, TiVo seems like a decent option. Beyond that, the company will need to prove that it deserves our attention. It's all in the bits and bytes.

Will TiVo get its settlements or will the court battles drag on for another few years? Keeping a close eye on the news flow will help you stay informed. Just click here to add TiVo to your Foolish watchlist, and you're off to a great start.

Fool contributor Anders Bylund owns shares of Micron Technology and TiVo, but he holds no other position in any company mentioned. Click here to see his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of AT&T. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (9) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 14, 2011, at 4:37 PM, northbest1 wrote:

    Hello Anders...You are saying that being a "patent troll" is bad, right?. Then you say that Tivo is an exception because they are an inventor AND a manufacturer. That implies that manufacturing has value, but inventing has none. Hmmmm? Don't trolls ever invent things that are of use to manufacturers?

    Doesn't a patented idea have as much value as a product?

    Aren't some of our greatest inventions made by others besides the inventor?

    Can you expand upon this, as I am a bit confused on your mixture of coinflicting idea's in the definition of "patent troll". Thanks.

  • Report this Comment On October 14, 2011, at 5:16 PM, Blakbote wrote:

    So someone who invents and patents his own invention is described as a 'patent troll' if he asks for license fees from those who copy or otherwise use his invention.

    But he suddenly becomes respectable if he starts making something which might just turn out to have infringed someone else's patented invention.

    Something is screwy here.

  • Report this Comment On October 14, 2011, at 5:37 PM, nostockpro wrote:

    Hey Anders, what about the little guy who invents and patents the next great idea? He doesn't have the money or business wherewithal to build a factory, set up distribution, deal with employees, etc. He should just give his idea away right, or else he'll be a patent troll now. Don't want to be a patent troll! Rar!

  • Report this Comment On October 14, 2011, at 5:37 PM, AndreWilliamson wrote:

    The expression "patent troll" refers to patent owners that don't actually use the patents in question. Not the case for Tivo, so to answer your sensationalist headline, "No."

    http://en.wikipedia.org/wiki/Patent_troll

  • Report this Comment On October 14, 2011, at 6:19 PM, cfrdog wrote:

    Tivo is finally starting to get the respect they deserve. Sounds like you are softening up some on Tivo eh? I also think Tivo is a good buy at these levels. I really don't understand why a google, msft or even one of the Dish, Direct or AT&T's out there have not scooped up Tivo. The tech companies could incorporate their own software into TIVO and make it be a powerhouse of a machine. I think TIVO is headed their on their own though. Just seems like a no brainer now that the patents are proving out and cash is in the bank.

  • Report this Comment On October 14, 2011, at 7:28 PM, CaptJDK wrote:

    I own Rambus shares.

    It isn't fair for this guy to spout-off against a company, and particularly when its a litigation action, when he owns shares of one of the companies, AFTER HE WRITES HIS DISTORTED VIEW. It should be up front before he begins. Just as I have done.

    Should Micron lose the civil AT case, it will be interesting if Motley Fool allows him to contribute in the future. HIs 'facts' are prejudices.

  • Report this Comment On October 14, 2011, at 7:41 PM, 87651234 wrote:

    Great article for the uneducated.

    Exactly the reason I chose to cancell my Fool Subs.

    The author says noting about upfront payments, probably 300-400 million each. ATT, V. However ATT has Microsft paying the bills thru an indemnity agreement.

    Easily another $5-8 dollar in cash payments per share.

    The $95 million is revenue going forward @ $1 per subscription, plus the attorney expensesdroping off expense sheet per year is over and above.

    Good luck Fool!!!!

  • Report this Comment On October 15, 2011, at 1:07 PM, tm8710 wrote:

    TMF advertises "insight" for investors. They should add "FUD" because of your evil garbage about companies whose IP has been stolen by thieves like Micron. I sent this to you almost a year ago in repsonse to a similarly dishonest piece. I see that you haven't changed, and neither has my reaction:

    ===============================

    OK, how about this, Anders?

    1) About forty people who write for global business journals take all of the copyrighted material you've ever created and recycle it under their names, freely plagiarizing, stealing and making money from it without ever even acknowledging your existence.

    2) You call all of them up and protest, but almost every one of them either laughs at you or ignores you entirely.

    3) You then file formal legal complaints against these copyright infringers through your lawyers. You think that they have done a pretty good job for you.

    4) However, through incompetence, laziness and even corruption, many of the judges rule against you, citing unrelated matters, circumstantial suppositions conjured up by your enemies. Some judges are sympathetic, however, but they are played by the infringers in a way that results in endless delays (e.g., sick lawyers, the dog ate my briefs, etc.), allowing your complaints to be tied up in the legal system for over a decade. In one case, a jury decides unanimously in your favor, but the judge refuses to finalize your case for years.

    5) In the meantime, another even less competent judge in another state issues another ruling counter to the first judge. This snarls your cases up in the legal system for additional time. You file appeals, which take at least another year.

    6) You now have spent more than you even earn on legal fees, not to mention the time, stress and distraction.

    7) All this time, you read in the media that you are "exploiting" other reputable writers in the courts to get money from them (i.e., licenses and damages). You are called a "Copyright Troll" and these articles are fueled by subterfuge and evil "spin" by the copyright infringers themselves.

    8) You have offered to reasonably settle with your infringers, but they refuse, knowing that they can eventually beat you into the ground until you disappear using the slothful, broken legal system. They know that time is on their side.

    9) Finally, all of your brilliant and eloquent creative expression is sucked out of you, because there is no longer any incentive to create.

    IT JUST DOSEN'T PAY TO WRITE OR FIGHT, DOES IT ANDERS?

    Some responsible journalists do the necessary research before writing about this subject. Sure, it's complicated and time-consuming. But every job well done is the result of proper experience, research and background.

    Others just go on impressions which have been shaped by other writers which in turn have been shaped a cartel of infringers and anti-trust violators.

    Guess which group you're in?

  • Report this Comment On October 16, 2011, at 12:24 AM, zeka115 wrote:

    YOU WANT THE TRUTH!!

    Any newby here should read juicy stuff!!!

    I see no harm posting NJ's post again

    I think that the cartel is concerned about what a jury might come up with for damages. At this point, the cartel might resort to almost any tactic in the hope that jurors might disobey Judge McBride's jury instructions and do some of their own research on the internet.

    I no longer post on Yahoo or read the Yahoo board, but I can imagine the TMF article is being waived around like a red flag by the shorts and the cartel. I hope that no member of the jury ever sees that TMF article. But, if they are doing their own independent research, I would hope they would stumble on a few of these articles.

    Useful Links for the Business Press

    In case anyone in the business press is looking for useful factual links about what really happened in this case, see the links below (I hope they all still work).

    An Excellent Expose' on Micron's Price Fixing by the ABC affiliate in Boise is available on Youtube (this is Micron's own hometown TV station telling the story)

    http://www.youtube.com/watch?v=y951Se8fqg0

    Bloomberg article on DRAM Price Fixing

    http://www.bloomberg.com/apps/news?pid=20601170&refer=ho...

    Micron Amnesty Agreement (Did they meet the published DOJ criteria listed for amnesty? This might be a good article to research by Bloomberg or Barron's or Business Week)

    http://www.scribd.com/doc/10893803/Micron-Amnesty-Agreement1

    Boise TV Station article on Micron Price Fixing

    http://www.kivitv.com/story/8363185/inside-microns-big-fix?r...

    If you want a succinct version of the what transpired within the DRAM Price Fixing Cartel, take a few minutes to read this document. It especially relates to Micron's history in the DRAM Price Fixing Cartel.

    http://www.scribd.com/doc/56036603/Micron-Fong

    Samsung USDOJ Plea Agreement (clearly spells out RDRAM)

    http://www.justice.gov/atr/cases/f213400/213483.htm

    Infineon Sentencing Memorandum (clearly spells out RDRAM)

    http://rambus.org/legal/antitrust/ifx_sm.pdf

    Elpida US DOJ Plea Agreement (clearly spells out RDRAM)

    http://www.usdoj.gov/atr/cases/f220400/220477.htm

    Hynix Plea Agreement (never made production quantities of RDRAM, but did fix prices on DRAM and boycott RDRAM)

    http://www.usdoj.gov/atr/cases/f209200/209231.htm

    FTC Initial Decision (the definitive document about what really happened)

    http://www.ftc.gov/os/adjpro/d9302/040223initialdecision.pdf

    US States Attorney General Complaint against the DRAM Cartel (pages 10-21 are the juicy stuff)

    http://ag.ca.gov/newsalerts/cms06/06-066_0a.pdf

    Court of Appeals of District of Columbia Appeal (setting aside the FTC Verdict against Rambus)

    http://pacer.cadc.uscourts.gov/docs/common/opinions/200804/0...

    Court of Appeals of the Federal Circuit (overturning Judge Payne's Samsung decision)

    http://www.cafc.uscourts.gov/opinions/06-1579.pdf

    The story of Rambus (thanks Arno)

    http://rambus.org/story/

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