DALLAS – E*hoStar Communications Corp. rushed to a federal appeals court Friday in a successful bid to avoid shutting down more than 3 million digital video recorders used by customers of its D*sh satellite-TV service.
But the victory could be only temporary. E*hoStar is fighting an uphill battle against TiVo Inc., which convinced a jury in April that E*hoStar infringed on its patented TV-viewing technology in making set-top boxes for D*sh customers.
Late Thursday, the federal district court judge who presided over the trial also sided with TiVo. He issued an injunction ordering E*hoStar to stop selling the recorders and to turn off machines already in customers’ homes within 30 days.
Judge David Folsom also ordered E*hoStar to pay TiVo $89.6 million in damages – more than the $74 million the jury awarded.
The ruling helped push TiVo shares up more than 8 percent Friday. Investors kept bidding the shares higher even after a federal appeals court in Washington temporarily blocked the order to disable E*hoStar’s video recorders.
The appeals court said that it wasn’t ruling on the merits of the case, only that it wanted more time to study whether the injunction should be delayed until appeals can be heard.
Meanwhile, E*hoStar finds itself under attack in a Florida court on a separate issue that could also force it to curtail services to D*sh customers.
E*hoStar asked the Florida judge to delay until Sept. 11 an order that D*sh stop selling signals of distant network stations – for example, a customer in Dallas who wants to receive broadcasts from ABC, CBS, NBC or Fox affiliates in New York or Los Angeles. The judge denied the request.
A E*hoStar spokeswoman, Kathie Gonzalez, said the company had appealed to the U.S. Supreme Court and was negotiating with broadcasters who had sued E*hoStar to prevent customers from losing their distant programming.
Both cases hold the potential to cost D*sh customers, but the TiVo affair is easily the more serious, said analyst Matthew Harrigan of Janco Partners Inc.
“There is absolutely no way they can turn off those (recording) boxes without getting blind-sided. They would lose a lot of customers,” Harrigan said. “People who use those boxes really like them. They would be furious.”
That was the argument E*hoStar lawyers made in asking the appeals court in Washington to block Judge Folsom’s injunction. Forcing D*sh to disable those boxes would force customers to give up a treasured service or find new video-recording service from another provider, the lawyers said.
E*hoStar said it continued to believe it didn’t infringe TiVo’s patent for “time-warp” technology – the ability to record a live television program while playing another. But E*hoStar also said it was working on modifications to its recorders to avoid future claims of patent infringement.
Gonzalez, the spokeswoman for Englewood, Colo.-based E*hoStar, said more than 3 million of D*sh’s 12.5 million subscribers use an E*hoStar recorder that would have been affected by Folsom’s ruling. D*sh is the nation’s second-largest satellite-TV provider, behind D*recTV.
If the Texas judge’s $89.6 million award stands up on appeal, it would represent about half a year’s revenue for TiVo, which hasn’t earned a profit since its founding in 1997. The potential boon could be seen Friday in Alviso, Calif., company’s stock price.
TiVo shares rose 53 cents, or 8.2 percent, to close the day at $7.02 on the Nasdaq Stock Market. E*hoStar shares dropped 30 cents, or just under 1 percent, to $32.45.
TiVo hopes that a victory against E*hoStar will convince other cable and satellite-TV providers that sell digital video recorders, or DVRs, other than TiVo’s to agree to pay royalties and licensing fees to the company whose name is synonymous with recording TV on a hard drive.
TiVo has a licensing agreement with the nation’s largest satellite-TV provider, D*recTV, which has 3 million TiVo users. A deal with Comcast Corp., which has more than 23 million cable-TV subscribers, is set to begin in the fourth quarter. TiVo is still chasing deals with the other leading cable providers.
“The company on its own is running OK,” said Daniel Ernst, an analyst for Soleil Securities. “Prevailing against E*hoStar isn’t necessary for their success and growth, but certainly it would be a nice catalyst.”
The appeals court gave TiVo until next Wednesday to respond to Friday’s move blocking the injunction against E*hoStar.
The case is far from over. Even TiVo could appeal.
The Texas judge could have tripled the jury’s $74 million award because jurors found that E*hoStar willfully infringed TiVo’s patent. TiVo is considering seeking a larger award on appeal, said spokesman Elliot Sloane.