Dish, EchoStar Settle TiVo Patent Dispute for $500M

Dish (s DISH) and sister technology company EchoStar (s SATS) have finally given up on fighting against DVR maker TiVo (s TIVO) in the long-running dispute over DVR patents. After a court decision that found Dish would have to replace a number of its customers’ set-top boxes, the satellite TV provider decided it would be cheaper and easier to license TiVo’s intellectual property instead.

Under the terms of the settlement, Dish and Echostar will pay $500 million to TiVo, which will include an initial payment of $300 million, followed by the remaining $200 million paid out over six installments between 2012 and 2017. As part of the agreement, the companies will also grant patent licenses to one another, including TiVo licensing the Time Warp patent at the center of the case. And the settlement will shut down any pending litigation between the companies and will end any injunctions against Dish and EchoStar.

It’s the injunctions that are really at the heart of the settlement. A federal judge awarded $200 million to TiVo in the case back in September 2009, but the bigger is Dish and EchoStar were found to still be infringing on TiVo’s intellectual property with existing set-top boxes. An April 20 appellate court ruling found Dish and EchoStar in contempt of a permanent injunction for DVRs that continue to infringe, and gave the companies until the end of the month to either settle the case or shut off customers’ DVRs.

In the end, Dish and EchoStar chose to settle, putting an end to a lawsuit that has been running since 2004. While the conclusion of the trial has been favorable for TiVo, the ongoing court costs have taken a financial toll on the DVR pioneer: In March, TiVo said it would borrow $150 million to cover its legal expenses. TiVo’s financial struggles are also due in part to a mass exodus of subscribers. It’s down to just 2 million subscribers, from a peak of 4.4 million in January 2007.

While TiVo has finally agreed to a settlement in the Dish and Echostar case, it still has ongoing lawsuits against Verizon (s VZ) and AT&T, (s T) claiming their DVRs also infringe against its Time Warp technology. In both cases, the technology provider for the pay TV businesses has countersued, claiming infringement by TiVo for other intellectual property. In the case of Verizon, Motorola Mobility (s mmi) has filed suit against TiVo, while Microsoft (s MSFT) is taking the DVR maker to court in defense of AT&T.

One interesting sidenote to the Dish settlement, which might be a sign of things to come: TiVo has agreed to help Dish promote its Blockbuster digital video service. Dish acquired Blockbuster in a bankruptcy auction last month, and has plans to roll out a digital video service using the Blockbuster brand name. According to the press release, Dish sees opportunities to work together with the service. “We are excited to work with TiVo to help develop our Blockbuster video service. Resolving the patent infringement case allows us to further engage with TiVo on a variety of exciting strategic initiatives, like Blockbuster, where we are uniquely positioned to collaborate,” Dish CEO Charlie Ergen is quoted as saying.

Picture courtesy of Flickr user rafaelmarquez.