Cisco vs TiVo DVR smackdown: Whose patent is it anyway?

Time for a slow-motion replay of telly tech battle

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Analysis It‘s hard to read a "TiVo is sued by someone" headline these days and get excited about it. Multiple courts, going up to the highest in the US, have backed TiVo‘s claims to its Time Warp and other patents, dating back to 2001, so how can it get its patents re-examined once again?

But the US press got all excited this week about Cisco versus TiVo – which appears to be just another case of a large company, one which collects countless royalties for its inventions over the years, resenting the $1 per device fees that TiVo tends to go after for each DVR made that uses its intellectual property. The reason for their excitement is that Cisco is so big, and so it may have the patents to bully TiVo.

But that‘s got the entire process back to front. TiVo invented the DVR and only one company believes that it might not have, and that‘s a defunct company whose assets are now owned by DirecTV, those of Replay TV.

It was Replay TV that first went to war against TiVo over who invented the DVR, and this case was never resolved – both companies pulling their claims before they ran out of money.

What most people won‘t remember is that Scientific Atlanta, prior to being bought by Cisco, had bought a license to Replay TV IPR, and so it believed that it was immune to TiVo‘s claims that its Time Warp Patent, the '389 patent (full number 6,233,389) could challenge it.

A lot of water has flowed under that particular bridge since then and after two deep court re-evaluations of the 6,233,389 patent, it is now solid as a rock. So why has Cisco begun by filing an action to "invalidate" one of the most examined patents in the history of digital video recorders?

The obvious answer, and one or two people have mentioned this, is that Verizon has yet to cave in on the suit that TiVo has brought against it, claiming that its DVRs infringe that and other patents which are now part of the largest patent hoard in video storage accumulated anywhere, with hundreds of patents awarded or requested.

The problem is that any invalidation of the '389 patent would make a mockery of the Dish settlement with TiVo, a case which took about seven years to complete and which resulted in a $500m pay-out. No court in the land is going to even accept a challenge to that patent, and is likely to immediately sweep aside the Cisco request to even re-examine it.

Apart from naming three other core TiVo patents, the other part of Cisco‘s claim is that TiVo is not playing fair in its licensing attempts, and is charging too much for its patents. Historically that‘s not credible.

It has been juries which have settled patents, after a blanket refusal by companies like Dish to pay anything, and so TiVo looks immune to this claim too, and anyway courts have historically shied away from settling the amount any one patent owner can request for an essential patent. Given the fact that companies which offer DVRs under license to TiVo still make generous profits, this too make this a dumb proposal.

Cisco holding off until NDS buy goes through?

But perhaps there is a deeper reason for what at first appears to be a weak legal move by Cisco. Cisco is in the throes of buying NDS, and in the NDS history, it has been a skillful antagonist of TiVo.

NDS designed the DVR that was supposed to be the replacement for TiVo at DirecTV, as a time when NDS was owned by News Corp and DirecTV was also controlled by News Corp. DirecTV was providing some 75 per cent of new sign ups at TiVo and all of its revenue momentum when this happened, and the NDS intervention threatened to halt TiVo revenues dead in their tracks.

TiVo could not sue a technology company owned by its biggest customer, and even after it was supposed to lose all of the DirecTV business, TiVo hoped that it would get back in at DirecTV as a supplier and still did not wish to antagonize News Corp. In the end NDS took a long time to get a DVR to work and TiVo never quite lost its hold at DirecTV.

That relationship all changed when Liberty Media‘s John Malone convinced News Corp‘s Rupert Murdoch to part with its holding and control of DirecTV in 2007 and it was shortly after that it acquired its holding in Replay TV. But despite that intellectual property, DirecTV has continued to take devices and sell service from TiVo, albeit in a modified and less aggressive way than it did in the past.

But also the IPR which Cisco is supposed to have licensed from Replay TV is very old. There are so many additional features that TiVo has built into its technology that Cisco would, in the end, have to take a TiVo IPR license anyway in order to offer advanced searches based on metadata or techniques like recording things it thinks you would like it to record, and not purely those it has been instructed to.

The problem as we see it is that NDS continued to use the DVR design it came up with which it calls XTV, and has sold it around the world, at places including BSkyB in the UK, and at the other Sky services in Germany and Italy.

It has even designed an entire system for Liberty Global‘s UPC (another Malone owned entity) which includes a DVR capability. We are looking at a settlement at Verizon which might stretch to $200m plus in favor of TiVo for the use of its IPR in DVRs, but our understanding is that the bulk of this will be passed onto its suppliers, and we have always thought the lion‘s share went to Motorola, with Cisco supplying perhaps a third of the devices. So Cisco is not harmed hugely by a settlement between TiVo and Verizon, which would effectively mean that devices it supplies from now on would be at a discount so that Verizon could recoup its TiVo license costs.

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