Satellite broadcaster Dish Network Corp. and set-top box supplier EchoStar Corp. will pay TiVo Inc. $500 million to settle a patent lawsuit over digital video recorder technology, the companies said Monday.
The settlement is one of the largest ever over patents. TiVo said it strengthened its hand in trying to get settlements or patent licensing fees from other companies.
Shares of TiVo rose 43 cents, or 4.5 percent, to $10 in opening trading.
Sales of TiVo-branded DVRs have plummeted as cable and satellite companies have added DVR functions to their set-top boxes, allowing them to record television programs and then play them back, as well as pause, fast-forward and rewind.
Some companies, like Dish competitor DirecTV Group Inc., have struck deals with TiVo. Others have held out, with Dish being the most high-profile one.
The settlement "sends a clear message about the strength and enforceability of our Time Warp patent to others in the industry, especially AT&T, Microsoft and Verizon, who are currently involved with pending litigation," TiVo CEO Tom Rogers said.
TiVo, based in Alviso, Calif., first sued Dish in 2004. Dish spun off EchoStar in 2008. Both Dish and EchoStar are controlled by Charles Ergen, the Chairman and CEO of Dish.
Under the settlement, Dish and EchoStar will initially pay TiVo $300 million. The remaining $200 million will be distributed in six annual installments between 2012 and 2017. Dish and EchoStar get licenses to use the DVR technology. In return, EchoStar is granting TiVo a license to use some of its patents.
Citigroup analyst Jason Bazinet said the $500 million total works out to about a 40-cent licensing fee per Dish DVR per month from 2006 to 2021, when TiVo's most important patent expires.
TiVo said it will also help Dish Network promote the Blockbuster digital video service. Dish bought Blockbuster Inc. out of bankruptcy last month.
The settlement deal comes on the heels of a decision by a panel of federal appeals judges holding Dish and EchoStar in contempt of court for failing to abide by an injunction. The judges had decided to send the case back to a lower court to consider whether technology being used in newer Dish boxes still infringes on TiVo's patents.
The April 20 ruling required Dish and EchoStar to disable the boxes and awarded $90 million in damages to TiVo. The settlement dismisses that judgment.
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