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This Legal Firefight Was Inevitable

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Last week, Cisco Systems (Nasdaq: CSCO  ) filed a defensive lawsuit against TiVo (Nasdaq: TIVO  ) . The networking giant wants the courts to make it perfectly clear that it doesn't owe TiVo anything. And of course, that tactic led to an immediate lawsuit in the other direction.

Yep, TiVo is now suing Cisco over exactly the digital video recorder patents that Cisco wanted immunity from. Cisco claims it wants to protect "DVR products and our customers against TiVo's aggressive strategy of wrongfully asserting its patent claims." TiVo, on the other hand, claims that Cisco knew its set-top boxes infringed on TiVo's intellectual property -- the company was, after all, subpoenaed in two infringement cases that ultimately settled in TiVo's favor.

In those cases, TiVo collected $500 million from DISH Network (Nasdaq: DISH  ) and more than $215 million from AT&T (NYSE: T  ) , in exchange for the TV services gaining the licensed rights to sell DVR boxes. AT&T uses hardware from Cisco among others; DISH prefers to roll its own set-top boxes.

TiVo is still pursuing lawsuits against Verizon (NYSE: VZ  ) and Time Warner Cable, with long-term plans to land proper license contracts with pretty much every cable and satellite provider that offers a DVR box. Many of them use Cisco hardware, and others could obviously switch to that brand if Cisco's boxes suddenly come fully licensed. That would put a serious spanner in the works for TiVo, which hopes to become a high-margin technology license wrangler in the long run.

As a TiVo shareholder, I appreciate the company's efforts to protect the business plan against a potential workaround. But TiVo is also filing this countersuit in the Eastern District of Texas -- a hallmark of your typical patent troll, given that district's tendency to side with patent owners. Yeah, it makes sense to file wherever your chances for victory are best, but this still leaves me with a bad taste in my mouth. I'd consider selling my shares over this gaffe if the stock wasn't so gosh-darn cheap and undervalued right now.

The future of TiVo may hinge on these dueling patent cases. To keep a close eye on the proceedings, add the two sides of the legal conflict to your Foolish Watchlist. I also invite you to read one of our latest feature reports, titled "The Only Stock You Need To Profit From the NEW Technology Revolution." Inside we outline an innovative company, like TiVo, gearing up to help companies with the growing problem of "big data." Claim your free copy today.

Fool contributor Anders Bylund owns shares in TiVo but holds no other position in any of the companies mentioned. Check out Anders' holdings and bio, or follow him on Twitter and Google+. The Motley Fool owns shares of Cisco Systems and has a disclosure policy. We Fools don't all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (3) | 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 June 08, 2012, at 9:30 AM, iceman536 wrote:

    Let me get this straight. Mr. Bylund is long Tivo, yet he thinks they are little more than a patent troll. Tivo filed suit in EDTX, where prior litigation took place and a court where they have a high liklihood of winning, but he thinks this is a "gaffe"? Apparently as a shareholder he would prefer that Tivo lose this lawsuit? And as much as he rips Tivo and he wants to sell - he won't.

    Nothing about this article makes one iota of sense. It is illogical all the way through and shows that there is likely hidden motives here. MF shold be ashamed to publish such blatantly irresponsible rubbish.

  • Report this Comment On June 11, 2012, at 12:50 PM, WallStUSA wrote:

    I completely agree with Comment #1. I'm still trying to figure out what exactly the "gaffe" was. Should TiVo have filed suit in a District Court where they'd be less likely to win? Or should TiVo simply not have filed suit at all? Perhaps TiVo should even return the $500 million to DISH and $215 million to AT&T. Why isn't Motley Fool putting these commentaries through a sanity check before publishing?

  • Report this Comment On June 11, 2012, at 1:02 PM, constructive wrote:

    Where patent suits are filed is irrelevant. The real test of whether a company is a patent troll is whether they are successfully competing in the market. Tivo isn't, thus they are a troll.

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