DVR patents:
TiVo trumps AT&T.
Settlement coming?

A US District Court judge has issued a ruling in TiVo’s patent infringement case against AT&T that seems likely to force the latter to negotiate a settlement that involves paying a license fee.

The judge defined how courts should interpret certain terms in three TiVo Digital Video Recover (DVR) patents that the company alleges AT&T is infringing with the set-top box for its U-verse digital TV service. The TiVo patents at issue are U.S. Patent Nos. 6,233,389 B1 ("Multimedia Time Warping System"), 7,529,465 B2 ("System for Time Shifting Multimedia Content Streams"), and 7,493,015 B1 ("Automatic Playback Overshoot Correction System").

Lazard Capital analyst Barton Crockett stated that the ruling is “consistent with our view that AT&T will see a high chance of losing and so will likely enter into a favorable settlement with TiVo.”

TiVo is also engaged in similar patent litigation against Verizon, before the same judge, and has recently engaged in litigation with Echostar, DISH Network, and Microsoft.

Between them, AT&T and Verizon have about 4.5 to 5 million DVR users. A royalty of one dollar per user per month would yield TiVo revenues of $54-60 million annually. According to Janney Capital analyst Tony Wible, a settlement could also save TiVo up to $35 million per year in legal fees.

Wible repeated his “Buy” rating on the stock, commenting

The first claims construction from TiVo’s upcoming litigation is in and heavily favors TiVo. These interpretations will make it much more difficult for [AT&T] to prevail in court as broader interpretations are harder to circumvent, and infringement on any one item creates a problem for [AT&T]. This decision bodes well for the claims construction in the Verizon case, which is being heard by the same judge.

For the second quarter of 2011, TiVo reported revenues of $49.6 million and a net loss of $19.6 million. Its $628 million in cash and investments includes $300 million from a settlement with DISH. Its stock spiked 8.4% on the news of the latest settlement, although it’s still trading below its high for the past 12 months.

TiVo’s products include a DVR that allows users to record four different programs simultaneously, and an iPad app that allows customers to manage their TiVos remotely