In patent case, TiVo claims most DVRs use its technology

TiVo is so well known as the pioneer of digital video recorders that many people mistakenly call any DVR a "TiVo." But if the company has its way, that perception may soon have the support of law, which could dramatically reshape the TV business.

In a patent infringement case coming to a head against Dish Network— as well as cases filed last week against Verizon and AT&T — TiVo tivo says that it owns the technology behind processes found in almost every DVR.

That includes a function called the "time warp" that controls everything from fast-forward and rewind to the ability to view the beginning of a TV show as the DVR records the ending.

Competitors "are pushing (DVR) technology as a competitive differentiator to grab customers," says Matthew Zinn, TiVo's general counsel. "That irreparably harms TiVo, because those customers tend not to switch providers."

Dish, dishVerizon vz and AT&T tdeclined to comment.

TiVo has a lot riding on the outcome. It has watched its subscriptions fall 31% since the beginning of 2007, to 3.1 million, as cable and satellite companies marketed less expensive DVRs.

If it wins its patent cases, "there's a high probability that (anyone offering a DVR) will have to pay TiVo licensing fees," says Lazard Capital Markets analyst Barton Crockett.

More to the point, he adds: "If TiVo lost, it would be a $4 stock. If they won, it could be in the high 20s." Shares closed Friday at $10.

TiVo has had the upper hand, so far. A Texas jury upheld its patent claims in 2006. Dish paid TiVo $105 million after the No. 2 satellite company failed to get the decision overturned later that year at a federal district court there.

That was just the beginning. The court ordered Dish to stop serving about 4 million of its DVRs. To avoid that costly prospect, Dish deployed DVR technologies that it said didn't involve TiVo's patents.

That didn't impress federal District Court Judge David Folsom, though. In June, he held Dish in contempt for failing to shut off its DVRs. He is expected to decide soon how much Dish should pay for disobeying the court. TiVo has said that should be about $900 million. Dish says $5 million is more like it.

Dish still hopes to avoid any penalty: It's challenging the contempt decision at the federal Court of Appeals in Washington. Oral arguments are expected there in November.

To make matters more complicated, at Dish's request, the U.S. Patent and Trademark Office has agreed to re-examine TiVo patents that it had previously upheld. Last week, it rejected a TiVo petition to dismiss the case.

"We continue to disagree with that and are considering our options," Zinn says. "But we believe that we will turn this around with the Patent Office once they hear our arguments."