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TiVo playing for big stakes at the CAFC

I have just been reading the transcript of a conference call on the Seeking Alpha website, which was hosted by members of the TiVo board and held to discuss the company's third quarter earnings. TiVo, you will remember, is a company we have covered before on this blog in connection with its ongoing litigation with EchoStar and DISH concerning patents relating to video recording. The last time we looked in, TiVo had just been awarded close to $200 million and the two defendants said they would be appealing the decsion to the CAFC. TiVo shares jumped 50% on the news and, we stated, some clever investors must have made a kiling on that.

In the call, which took place on Tuesday, TiVo CEO Tom Rogers reveals that the company presented its arguments to the CAFC in early November. Damages and sanctions in the case so far, he stated, total "approximately $400 million through July 1, 2009"; this is "exclusive of potential further damages and sanctions".

Needless to say, TiVo is confident of prevailing at the CAFC. If it does, the company's cash position will be significantly boosted, Rogers explained. "When you put aside the pattern proceeds from last year, our operating cash increased for the quarter and its [sic] increased for the first nine months of the year, and we've gotten our cash positions to an enviable $245 million before you consider the impact of what we hope will be the Court of Appeals upholding of the additional $300 million or so that the District Court awarded us." In other words, TiVo is looking at a 100% plus cash boost should things go the right way, as well as the unquantifiable but probably much more valuable strategic certainty that a positive outcome would bring.

Clearly, this is a huge case for the company: win and things look very rosey; don't win and things to start getting very messy (Rogers refuses to talk about what TiVo would do should the lower court's decision not be upheld). For their part, investors also have a big call to make. Do they stick with the company and/or buy stock now in the hope that the share price will soar on the back of a favourable CAFC decision? Or do they pass on a buying opportunity or reduce their existing exposure, fearing that the court will not deliver what the TiVo board says it expects? On such choices can substantial amounts of money be won or lost. I am awaiting the outcome of this case with considerable interest.   


Joff Wild
IAM Magazine
26 November 2009

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