The patent infringement lawsuit TiVo (NASDAQ:TIVO) brought against DISH Network parent EchoStar (NASDAQ:DISH) more than two years ago is still running, and chances are that TiVo shareholders just want it to end already. Every new bit of news seems to spur another price change, and it seems to be giving TiVo's stockholders collective heartburn.
This time, it's a precipitous drop on the heels of an injunction stay, nullifying TiVo's earlier court victory until further notice. The Federal Court of Appeals saw enough merit in EchoStar's defense to allow the sale and operation of its own digital video recorders (DVRs) while the legal system chews over the case one more time. This is far from an unusual step, and TiVo says as much in its press release, but it does extend the ongoing saga by another few months at the very least.
Of course, TiVo is "confident that the jury's decision in TiVo's favor will be upheld" in the Federal Circuit Court, while EchoStar is looking forward to "complete vindication" of its position. Yes, it's a press-release duel at 20 paces.
TiVo has arguably already leveraged its court success into a stronger market position, signing up the odd customer here and there to licensing deals that turn off-brand DVR boxes into a close approximation of full TiVo hardware. I've seen the difference TiVo's elegant interface can make, and I'd be delighted to see a licensing deal involving local cable provider Bright House or its corporate parent, Time Warner (NYSE:TWX).
In the long term, TiVo would love to be the software provider for the DVRs of the world, with the legal backing of a final victory in this lawsuit. Hardware is so expensive to make and sell, you know. The nearly $90 million in damages awarded in the April round of this battle (before the stay) wouldn't have hurt its balance sheet, either.
Predicting the outcome of court battles can be tricky, but we're already several rounds of appeals into this one, and TiVo has won on every level so far. The question for me isn't so much whether TiVo will win, but when, since EchoStar has filibustered the case for more than two years already. EchoStar generates positive free cash flow. TiVo does not, and its cash stash could run out in just a few quarters at current rates, forcing shareholder-unfriendly measures like dilutive stock offerings or another dip into long-term debt. It's a race against time, and I'm staying away until one side or the other gives up the fight.
Fast-forward to further Foolishness:
- TiVo is changing the channel.
- Flash back to TiVo's deal with Comcast (NASDAQ:CMCSA) last year.
- TiVo's triplets are so cute !
TiVo and Time Warner are both Motley Fool Stock Advisor recommendations. To find out what other companies David and Tom Gardner have recommended to shareholders since April 2002, try Stock Advisor free for 30 days.
Fool contributor Anders Bylund holds no position in any of the companies discussed here, but he loves his DVR and only wishes it were better. You can check out Anders' holdings if you like. Foolish disclosure is always available on demand.
