By: Italia Almeida
TiVo, an innovation which ushered household entertainment into a new era by introducing the DVR (digital video recording), has its hands full with some big name lawsuits.
TiVo is set to take Verizon to trial in a large patent battle this fall. In addition, Tivo is involved in ongoing lawsuits involving Motorola, Time Warner Cable and Cisco Systems. TiVo has been an effective litigant, garnering almost $900 million through various other patent suits. However, the costs of these litigation investments is near astronomical at times. In the recent Q2 earnings report, TiVo reported about $13 million of the $65 million in operating expenses are due to legal expenses, meaning that the lawsuits are claiming roughly 20% of expenses put out by the company, and a strong possibility these numbers could grow given the greater difficulty of upcoming resources involved in equipment vendor cases.
TiVo’s strategy is described by president and CEO Tom Rogers as being “vital to protect… innovation” and that “the return on that investment would be clear over time.” While the lawsuits between the telecom’s and TiVo are not likely to significantly affect the DVR company’s actual products and subscribers, it does have a significant impact on its place on the NASDAQ. Litigation is seen as deal slower and impediment to profitability. The counterargument is that TiVo’s success in the courtroom has only increased their ability to monetize IP rights. Regardless, the issues with TiVo, as well as the patent litigation involving Apple and Samsung, will spark a debate as to the impact of legal costs on capital markets.
It is not news that many, many companies have woven lawsuits, mostly for patents, into their business models. Patent lawsuits are certainly not new to TiVo; the company holds hundreds of patents and sues regularly for revenue. In a recent op-ed in the Atlantic, published after his dismissal of the Apple-Motorola suit in federal court, Judge Posner wrote “the cost of patenting and the cost of resolving disputes that may arise when competitors have patents are a social waste.” This analysis, however, is that this analysis excludes pharmaceutical industries where, in Posner’s opinion, the patent system is working, it raises a greater issue on the impact of litigation on our capital markets system. The recent TiVo and Apple lawsuits are also significant given they are some of the first major cases to come after the signing of the America Invents Act (AIA) in early fall of 2011. The Act addresses the litigation strategy by forcing companies to break up lawsuits individually, rather than lumping defendants together, meaning even costlier litigation which TiVo is certainly starting to feel as they had some portions of their suits against Time Warner Cable, Cisco and Motorola severed.
It remains to be seen how patent litigation is impacted by the AIA, particularly whether formerly lucrative lawsuits will become prohibitively costly. Patent litigators beware: the patent troll population could be in decline.