Updated with Comcast response: Comcast has a lot riding on its set top boxes, especially its X1 — so it has to be concerned about the patent infringement suit that digital technology company Rovi just filed.
But Rovi also has much at stake: Its shares are down more than 14% this morning after it filed the suit. The companies were unable to renew a licensing agreement they had that expired last night.
“Comcast’s decision to continue using Rovi’s pioneering technology as an unlicensed infringer is simply intolerable,” CEO Tom Carson says. “After numerous attempts at negotiations, Rovi was left with no choice but to defend its intellectual property from unlicensed use.”
Comcast says it disagrees with the allegations and plans to “defend the cases vigorously. Beyond that, we can’t comment on pending litigation.”
Rovi says its patents power remote recording, and program search functions on Comcast’s AnyRoom DVR and X1 box. It wants the U.S. District Court in the Eastern District of Texas, which often hears patent cases, to stop Comcast from using the functions covered by Rovi patents and to compensate for what it calls “the harm inflicted by that infringement.”
While the Comcast suit is the big story, Rovi also announced that it has extended its license agreement with Time Warner Cable which expects to soon be acquired by Charter Communications. In addition it has a standstill agreement with Dish Network to not sue each other while they negotiate an extension of their license deal that expires on April 5.
Rovi its sticking by its financial forecasts for 2016, saying that when it made them in February it “anticipated possible litigation with Comcast.”
Although the fight with Comcast took Wall Street by surprise, Carson hinted in February that the negotiations might hit turbulence. He said that the company had “strengthened our balance sheet, and planned extensively so that if the renewals do not happen timely, we can pursue all of our options.”
TiVo shares are also down, by 4.7% in early trading. The New York Times reported last week that Rovi was negotiating to buy the DVR pioneer. Rovi’s priorities might change if it’s engaged in a fight with Comcast.
Even though Rovi shares are taking a hit, B. Riley’s Eric Wold urges investors to stay cool. “While the pursuit of litigation is typically viewed as a negative” Rovi “made the smart move in initiating the litigation” in the Texas court, which sided with TiVo in other patent infringement cases. If it had waited, then Comcast might have moved first in what it would consider a friendlier venue.
Comcast “now faces the risk of an injunction across its set-top box/subscriber platform as well as incremental damages beyond what would be necessary under a more friendly renewal,” the analyst says.