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

Time for a slow-motion replay of telly tech battle

Impact on the UK, international markets

But as Cisco buys NDS it could get hit for devices shipped to DirecTV in the past within the settlement, without TiVo ever getting into a spat with the TV operator which has proved to be its best client – DirecTV. But it would also spill over to international markets.

There are 10 million BSkyB customers, with around 40 per cent having DVRs, so if UK installs alone were taken into the settlement, NDS and therefore Cisco, could be hit for a further $200m. If all the litigation is in the US, where Cisco is headquartered, it might cover those international markets in one go.

All of which accounts for the TiVo share price finally moving up last week, though still not significantly. The company remains worth around $1 billion, despite having $567m in the bank, and the potential to have its full valuation in cash once it has collected from AT&T and Verizon. It can then begin taking on international IPR licensees, some of which would have to be stimulated through the courts, but nonetheless, the company would have enough of a war chest that one of its first targets might be NDS.

TiVo is starting to attract comments about it being acquired, and if Cisco senses that its $5bn acquisition of NDS might be truly compromised by a TiVo action, it wants to get its retaliation in first, and so it has sued TiVo. Cisco could end up having to buy TiVo in order to make the NDS purchase good, and right now that would only cost $400m of its enterprise value, plus TiVo‘s debt, which could be recycled anyway, but which is only $243m, making the entire real cost to Cisco as little as $643m, and giving NDS a future licensing revenue.

Of course it might have to pay considerably more than that, as other bidders would emerge and the deal would be a hostile one, contested by the TiVo management. But otherwise NDS may have as much as a $1bn black hole in its balance sheet if it lost out in litigation to TiVo. N

o one has yet seen the logic of Cisco buying TiVo – whereas we said when the NDS deal was announced that Cisco had bought the wrong company and we still believe that. Cisco is clearly making a bid for key IP based technologies in the delivery of TV services mostly for Telcos around the world and felt that NDS has the best combination with its conditional access market lead, its set top middleware, its UI engine Snowflake and its own XTV DVR technologies.

The two companies are absolutely enraged by one another and at Cable Congress a year ago the respective CEOs were at each other‘s throat, openly criticising each others' company, with the Virgin Media TiVo deal and the Liberty Global UPC Horizon box, being set up in direct opposition.

Now as TiVo explores the rest of Europe we can‘t help thinking that it can damage Liberty Global below the waterline if it partners with the next biggest cable company in every country where Liberty Global operates in Europe, disrupting Horizon sales. This is because Virgin has shipped 677,000 TiVo devices, while Horizon remains unlaunched. All of which makes it completely understandable that TiVo has now countersued Cisco in the last few days, alleging infringement of the selfsame patents that Cisco seeks to have made invalid.

Cisco will have already felt the loss of the AT&T deal, since its Scientific Atlanta division also ships DVRs to AT&T, and the feeling isthat one of its other major customers Time Warner Cable might be next on the list of TiVo IPR infringers. Comcast has in the past kept TiVo close and paid it large sums of money, both to license its technology and in contract to develop further technologies.

TiVo has rightly sued Cisco in the top IPR court in the US, the District Court, Eastern District Of Texas, while the Cisco case is in its home town in California.

Cisco said at the time, "Absent a declaration of invalidity and/or non-infringement, TiVo will continue to wrongfully allege that Cisco DVRs and Cisco's customers infringe the TiVo patents, and thereby cause Cisco irreparable injury and damage." Which is fine except that it is almost a certainty that Cisco does infringe.

There was a belief that Microsoft would defend AT&T against TiVo with its patent hoard, but the company saw the terms with which the court was prepared to discuss the matter and realized it was on a hiding to nothing, and caved in. The idea of using other Cisco patents to beat TiVo up once again is being suggested, but legally no steps have been taken to say TiVo is infringing unrelated patents belonging to Cisco, which was at least tried in the Microsoft case.

As this unfolds, either with bids emerging for TiVo, or yet another major financial court win, US investors may finally see that TiVo is a worthwhile company to hold shares in, not to mention potential counter bids from others such as Rovi or even Microsoft itself or even Google to protect its Motorola Home unit.

Copyright © 2012, Faultline

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