Wednesday, May 19, 2010

TIVO v. ECHOSTAR

Editors Note:  The following is a research paper from one of the students in my Entertainment Law & Licensing class I teach at Belmont University’s Curb School of Music.

By G. GRANT GUINANE

tivo_logo_man-744939-790582 On July 30, 1998 Tivo Inc. registered a patent for their multimedia time warping system that allows a user to store selected television programs while simultaneously watching or reviewing another program. They patented their process for making this then phenomenon so as to protect their discovery and to become the exclusive financial beneficiaries of this technology. In 1999 it was announced by Dish Network that along with their affiliate Echostar would soon have the time shifting abilities that Tivo was spearheading. This was the warning sign of what would end up being years of court battles between Tivo and the Echostar-Dish Network team.

Tivo filed suit for patent infringement in January of 2004, once they realized that the patent they obtained was being violated, to seek financial retribution and an injunction against Echostar to halt the production of infringing DVR systems that they were producing. Tivo alleged that Echostar was infringing two software claims, “The process for the simultaneous storage and play back of multimedia data, and the apparatus as well” (Tivo v. Echostar, 2). In addition to the software claims, Tivo asserted that Echostar was violating their hardware patent as well.

The suit was first filed with the United States District Court for the Eastern District of Texas. The court found Echostar to be in violation of both claims by Tivo. The judge issued a permanent injunction against EchoStar ordering them:

(1) to stop making, using, offering to sell, and selling the receivers that had been found infringing by the jury and (2) to disable the DVR functionality in existing receivers, with the exception of select receivers that had already been placed with its subscribers”

(Tivo v. Echostar, 3). In addition, the court awarded Tivo $74 million in lost profits.

echostar-to-dish At that time, Echostar did not appeal the permanent injunction imposed by the court, but it also did not discontinue providing the DVR service. In response, Tivo requested that the district court hold Echostar in contempt. Echostar claimed that it redesigned its product so that it was not infringing any longer.

The district court evaluated EchoStar’s modifications to the infringing DVR software and concluded that the modifications were also infringing. The court concluded

Even if EchoStar had achieved a non-infringing design-around, EchoStar would still be in contempt because it had failed to comply with the disablement provision in the district court’s order requiring it to disable DVR technology completely from the receivers

(Tivo v. Echostar, 4-5).

Dish and EchoStar had argued that it was entitled to a trial to determine if its altered products infringe the patent. The company said it “paid 15 engineers to spend 8,000 hours on the redesign, which took a year” (Decker and McQuillen). Tivo argued against this point saying that the changes made to their DVR players do not make a “colorable” difference.

The court agreed with Tivo stating,

We have made it clear that a lack of intent alone cannot save an infringer from a finding of contempt”

( Tivo v. Echostar, 12).

Echostar claimed that the injunction was unclear, but Tivo claimed the opposite and the record of the court reflected the clarity of the injunction. Also important to note is that the DVR’s time warping software was the only aspect of the boxes required to be disabled; not all of the actual units and hardware, the DVR functionality is just one of many functions that the Echostar Broadcom and 50X receivers performed. Since Echostar never directly appealed the injunction it was judged as a lost cause for them and the court fined them nearly $90 million and amended the previous injunction requiring EchoStar to seek the court’s approval before implementing future DVR software.

The final decision by the Federal Court of Appeals was to uphold the decision made by the district court in a divided 2-1 decision. TiVo said it will be entitled to a total of about $300 million in damages and contempt sanctions through July 1, 2009, and it will seek additional cash for continued infringement after that date. That’s in addition to $100 million Dish paid TiVo after the original appeals court ruling (Decker and McQuillen). While it is a victory for Tivo, they only got a portion of the $1 billion they were seeking.

This case made a huge impact on the DVR industry as well as Tivo’s stock, which skyrocketed following the May 4th decision by the federal court. Tony Wible, an analyst with Janney Montgomery Scott LLC in Philadelphia, wrote in a note today. “The courts have ruled in TiVo’s favor numerous times over the past five years, which should help the company in the company’s litigation against AT&T, Verizon and Microsoft” (Decker and McQuillen).

It is a good that courts are protecting intellectual properties such as Tivo’s patent in this case, so as to discourage the stealing of ideas and encourage the promotion of innovative thinking. The court’s decision to find EchoStar in violation was a good decision, as Tivo should be the sole beneficiaries of their intellectual property, i.e., the patent.

To play devil’s advocate, however, such decision does stifle competition in the industry, namely, EchoStar was the only true competing DVR provider with any clout.  Generally speaking, it is not good to promote a monopolist environment in any industry. This is essentially the state of the DVR industry until Tivo’s patent expires in 2018.

This decision confirms the principal that the twenty years of exclusive ownership granted by patent law is a positive thing—without that right someone could easily profit off of another’s innovation and inventive nature.  It is reassuring to see that judges like those in this case are still interested in the protection of important intellectual discoveries such as Tivo’s time warping technology. It also also reinforces the fact that courts will enforce their injunctions against parties and do not take it lightly when a defendant tries to skirt the injunction or slyly work around it. EchoStar’s was penalized an extra $90 million because they tried to do things their own way and work around the court.

These proceedings took over five years, but Tivo still has many legal proceedings ahead of them, probably enough to last the entirety of their patent ownership and beyond! Nonetheless, the EchoStar decision is the most positive sign that Tivo could have received in the midst of the myriad of legal battles they are still facing. This case proves that if one want to protect valuable ideas and methods they had better be ready to fight tooth and nail in the court system for years on end—luckily the reward can be great.

Works Cited

Tivo v. Echostar. No. 2009-1374. U.S. Court of Appeals for the Federal Circuit. 4 March 2010.

Decker, Susan, and William McQuillen. "TiVo Wins Court Ruling Against Dish, EchoStar (Update4)." Businessweek.com. Ed. David E. Rovella. Bloomberg, 4 Mar. 2010. Web. 11 Apr. 2010.

gg Grant Guinane is a recent graduate of Belmont University.  He obtained a B.A. in Entertainment Industry Studies with a focus in writing and music, as well as a minor in marketing.  Originally from St. Joseph, Michigan, Grant came to Nashville to pursue music.  He currently lives in Detroit, Michigan.

Thursday, May 13, 2010

The Limewire Ruling: New King of the Hill for Illegal Downloading Decisions

The U. S. District Court for the Southern District of New York ruled against LimeWire and its parent company, Lime Group, finding them liable for inducement of copyright infringement based on the use of their service by subscribers. 

U.S. District Judge Kimba Wood issued the 59-page decision Wednesday, siding with the 13 record companies that sued Lime Wire LLC and founder and Chairman Mark Gorton through the RIAA claiming copyright infringement and unfair competition.lime_220x147

In finding the company liable, Wood opined that LimeWire had optimized its application to "ensure that users can download digital recordings, the majority of which are protected by copyright," and that the company actively "assists users in committing infringement."  Wood also found that the defendants knew their technology was being used to download copyrighted tunes and took no "meaningful steps" to prevent the infringement. In addition, Lime Wire marketed its software to people "predisposed to committing infringement" and assisted those people, the judge ruled.

Major labels, as represented by the RIAA, were predictably thrilled with the outcome.  "This definitive ruling is an extraordinary victory for the entire creative community.  The court made clear that LimeWire was liable for inducing widespread copyright theft," RIAA chairman and CEO Mitch Bainwol relayed.

Lime Wire Chief Executive George Searle issued a statement saying the company "strongly opposed the court's recent decision."  The statement continued:

"Lime Wire remains committed to developing innovative products and services for the end-user and to working with the entire music industry, including the major labels, to achieve this mission," Searle said.

Searle did not say whether Limewire would appeal the ruling.

The Recording Industry Association of America proclaimed the decision was "an important milestone" in the battle against online copyright infringement, because Gorton was found personally liable, in addition to the company of which mitch-bainwol-riaa he was the chairman.  Personal liability against a corporate director is rare.

"The court has sent a clear signal to those who think they can devise and profit from a piracy scheme that will escape accountability," Mitch Bainwol, chairman and chief executive of the RIAA, said in a statement.

LimeWire, launched in 2000, is one of the largest remaining commercial peer-to-peer services left on the Web. The company claims to have more than 50 million monthly users.  The company has managed to defend itself against major label legal action for years.  

In issuing her opinion, Wood relied heavily on the 2005 Grokster ruling, in which the Supreme Court said that a file-sharing service was liable when customers were induced to use it for swapping songs and movies illegally.  The test established by the Supreme Court in MGM v. Grokster for provider liability is whether the company actively induced users to commit infringing activities.  While LimeWire argued that it did not, Judge Wood noted that the company actively  “markets LimeWire to users predisposed to committing infringement.”

The record companies that sued Lime Wire included Arista, Atlantic, BMG Music, Capital, Elektra, Interscope, LaFace, Motown, Priority, Sony BMG, UMG, Virgin and Warner Brothers.