J.P. MORGAN notes:
TIVO will get iTouched not Betamaxed.
March 14th, 2010
This morning, the US Court of Appeals for the Federal Circuit granted
Echostar/Dish’s en banc petition. As a result, the full court (11 judges) will hear
the case. Following are our key thoughts:
• While, we believe that en banc review is indicative that the court is
seriously revisiting the facts of the case, we think most of the concerns are
procedural in nature. Both parties (Echostar/Dish and TiVo) were instructed
to file additional briefs addressing 4 issues the court saw as key. We think these
issues are primarily procedural in nature about how the Texas court went about
deciding the case vs. core to the decision in favor of TiVo. As a result, we
continue to believe TiVo’s patents will ultimately hold up.
• Possible outcomes of the en banc review. If TiVo wins, we believe the case
will basically be over. Echostar/Dish does have the option to petition the US
Supreme Court for review, but the Supreme Court hears very few of the cases
proposed and we believe even fewer patent cases. If Echostar/Dish wins, there
are 2 options. First, TiVo could petition the US Supreme Court to hear the case
but, for the reasons we noted above, we find it unlikely this would be granted.
Second, the case could be remanded (returned) to the Texas District Court
where either the same judge hears the case but with modifications on the
procedure imposed by the Federal Circuit or TiVo would file a new patent
infringement action against Dish for the same conduct.
• Estimated timeline. We estimate that the court has granted both parties ~4
months to file additional briefs and responses. As such, we think oral arguments
will likely occur in the fall. We see the total time to receive a decision from the
en banc review taking approximately 9-12 months. Following the en banc
decision, if the Supreme Court decides to hear the case or if the case is
remanded back down to the District Court level, the cases could take years.
• OW thesis still holds. Based on our sum of parts analysis, we believe the core
value of TiVo’s business (excluding litigation awards and potential royalty fees) is $10-$11. As such, we think the current price is an attractive entry point. Aswe continue to believe that TiVo’s patents will be defensible, we are
maintaining our price target of $23.
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