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Microsoft Sues TiVo - The Why of It - Updated
Wednesday, January 20 2010 @ 03:49 PM EST

Microsoft filed a patent infringement suit against TiVo late yesterday. Microsoft says it's really about defending AT&T, which is one of the companies TiVo has already sued over patents. TIVO says it is too. From the San Jose Business Journal:
The action is seen as being related to a lawsuit that Alviso-based TiVo filed against AT&T Inc., claiming the company's U-Verse TV service illegally uses its "time-warping" technology in its digital video recorders.

TiVo is involved in similar disputes with Verizon Communications Inc., the Dish Network and EchoStar Corp. AT&T service uses Microsoft technology for video delivery and digital recording.

That's, in my view, Microsoft spin, that it's doing this to help out AT&T. I would describe it more like this: remember when SCO sued AutoZone for using Linux in its business? AutoZone didn't write Linux. It just used it. So SCO sued an end user. Similarly, TiVo is suing AT&T. But AT&T didn't write Microsoft Mediaroom, the implicated software. Microsoft did. So naturally, AT&T has demanded that Microsoft indemnify AT&T, and so here comes Microsoft, essentially defending itself, because if AT&T loses, it's Microsoft who has to shell out the bucks.

We learn all this from AmLaw Daily, which provides us with a Microsoft filing, its motion to intervene:
Microsoft's stake in the litigation isn't just for AT&T's honor. It's also, quite possibly, for the potential damages AT&T faces in the TiVo case.

Here's why. Last spring, TiVo sued both AT&T and Verizon in federal district court in Marshall, Tx., accusing them in separate suits of infringing three TiVo patents in their television playback services. AT&T's service, U-Verse, relies on Microsoft's Mediaroom software. On January 15, Microsoft moved to intervene in TiVo's suit against AT&T. Microsoft's complaint in intervention, which seeks a declaratory judgment of non-infringement, simply argues that the software giant has an interest in the litigation because TiVo's allegations involve a Microsoft product.

But Microsoft's brief in support of its motion [PDF] has a very interesting additional piece of information: AT&T's lawyers at Baker Botts, the motion says, have demanded indemnification from Microsoft in the TiVo case. Microsoft senior attorney Stacy Quan submitted an affidavit attesting that AT&T wants Microsoft to back it against "the allegations and claims of patent infringement by TiVo Inc. directed to U-verse products and/or services."

TiVo general counsel Matthew Zinn told the Litigation Daily that it seems clear the new Microsoft suit against TiVo "appears to be related to the AT&T situation....They're defending their customer." Noting that Microsoft told Bloomberg it's "open to resolving this situation through an intellectual property licensing agreement," Zinn said, "It's fair to assume [the new suit] is part of the same strategy."

If you look at the table of contents at the beginning of the motion, here's one header: "Microsoft Has a direct and Substantial Protectible Interest in Defending Its Customer." So that's what it's about. Don't read it if you don't want to know all about patents, by the way. But trust me, they don't sound all that fabulously nonobvious to me. Update: Techflash's Todd Bishop has all the filings.

On page 8 of Microsoft's motion, Microsoft asks the court to let it intervene, saying that if it fails to do so, it risks "damage to Microsoft's relationship with AT&T Inc. and its subsidiaries.":

D. Microsoft Has a Direct and Substantial Protectible Interest in Defending Its Customer.

Since the filing of the Complaint, AT&T Inc. has contacted Microsoft and demanded that Microsoft indemnify AT&T Inc. against Plaintiff's claims in this case. [Quan Decl. Paragraph 2] AT&T subsidiaries distribute Microsoft's Mediaroom software to run on set-top boxes for U-verse. Microsoft cannot decline to intervene and defend against Plaintiffs' infringement claims aimed at such software without risking damage to Microsoft's relationship with AT&T, Inc. and its subsidiaries. In addition, Microsoft has other television and internet service provider customers. To the extent that Plaintiffs' infringement theories are directed at functionality provided by Mediaroom software, the claims in this case cast a potential cloud of uncertainty over Microsoft's relationships with other actual and potential customers.

In short, the PR version is that Microsoft is defending AT&T as a Good Samaritan. The reality as I read this is the Microsoft is defending itself, because if AT&T loses, Microsoft faces having to pay yet another pile of bucks for having infringed someone's patent, just like what just happened to it in the i4i v. Microsoft patent case Microsoft lost and is appealing. That is what is at stake in this picture. You can see that very clearly in footnote 1 on that same page:
1 If TiVo is willing to state on the record that it is not accusing and will not accuse the software used in the U-verse product and/or service, including any aspect of Microsoft Mediaroom, of infringing the TiVo patents, intervention by Microsoft would be unnecessary.
On page 10, arguing that it would be prejudiced if not allowed to intervene, Microsoft writes:
Microsoft's software and technology are implicated by Plaintiff's infringement allegations.
Microsoft goes on to say it wishes to "exonerate its implicated software once and for all" because otherwise there will be "a cloud of uncertainty and threatened litigation will continue to disrupt its business and its customer relationships." So this is about Microsoft defending its technology. But look at TiVo's statement:
"Microsoft's recent legal actions, including its decision to seek to intervene on behalf of its customer, AT&T, and its recent complaint against TiVo in U.S. District Court, Northern District of California do not bear on whether the AT&T products and services that are the subject of TiVo's complaint infringe the patents asserted by TiVo. Rather these actions are part of a legal strategy to defend AT&T. We remain confident in our position that AT&T will be found to infringe on the TiVo patents asserted."
I gather TiVo thinks this picture is bigger than just what Microsoft is addressing. NewTeeVee has some details on the original litigation:
This isn’t the first time TiVo has engaged in such lawsuits. The company has been in a long legal fight with satellite TV providers DISH and EchoStar about DVR patents, and judges have so far sided with TiVo. Most recently, a court awarded TiVo $200 million. However, the U.S. Patent Office has cast doubts as to whether TiVo should have been awarded patents for time-shifting in the first place — something that is surely going to come up again in Microsoft’s lawsuit against the DVR maker.

Microsoft, of course, has a vested interest in the outcome of TiVo’s lawsuit against AT&T, whose U-verse service is based on Microsoft’s Mediaroom solution. Mediaroom is essentially a media center with online access and DVR capabilities that Microsoft supplies to telcos to support their broadband offerings, and any legal precedence against AT&T would force other potential Mediaroom customers to license TiVo’s technology as well. Furthermore, AT&T has insisted on Microsoft picking up the tab if TiVo prevails in court.

Bloomberg has more about the patents:
Microsoft Corp. sued TiVo Inc. alleging infringement of patents for a system that displays programmable information and a secure method for buying and delivering video programs.

TiVo, the maker of digital video recorders with 2.7 million subscribers, uses portions of the two Microsoft patents in its products or components, including set-top box products, subscription services and software without a license, according to a complaint filed yesterday in federal court in San Francisco.

Microsoft seeks a court order to prevent TiVo from using the patented technology without permission, plus unspecified money damages. In a separate case, Microsoft asked to intervene in a lawsuit TiVo filed against AT&T Inc. so it can challenge TiVo patents related to digital-video recording services.

“We remain open to resolving this situation through an intellectual-property licensing agreement, and we have initiated discussions to engage TiVo in negotiations,” Kevin Kutz, a Microsoft spokesman, said in an e-mail.

So, this isn't about helping out a friend. This is about Microsoft selling software that someone is claiming is patent infringing. Again. AT&T is just using Microsoft Mediaroom. That's why when it got sued, it called up Microsoft. So Microsoft is defending itself. You have to hand it to its PR people, though. They get their spin in print.

Wall Street has been loving TiVo recently, according to Schaeffer's Investment Research:

Overall, options players have been quite smitten with the shares, as the SOIR comes in at 0.27. This low ratio indicates that call open interest more than triples put open interest among options slated to expire in less than three months. This ratio is also lower than 63% of all those taken during the past year. In other words, short-term options speculators have been more optimistically aligned toward the shares only 37% of the time during the past year.

Wall Street is also enamored of the company. According to Zacks, nine of the 12 analysts following TIVO rate it a "buy" or better. This configuration leaves ample room for potential downgrades should the stock fail to perform to their heightened expectations.

TiVo has just amended and restated its change of control agreements with some of the top people. So what are the patents? TechTicker:
Microsoft said the disputed functions are supplied through Mediaroom, a software program that runs on television set-top boxes to let people view photos and play music stored on their personal computers. AT&T, one of Microsoft's biggest customers for Mediaroom, has demanded that Microsoft cover any losses it incurs because of the TiVo suit.
Here is the Microsoft Mediaroom page. Here's where you can read about what Mediaroom does, and no you don't need to accept Microsoft's invitation to download Silverlight to read it:
The top five Microsoft Mediaroom-based services generate on demand revenues that are three times higher than those of the incumbent competitors in their markets. Find out why.
And there is a link to a PDF [PDF] about AT&T's 3Q financial results, including its use of U-Verse, on page 12. I expect TiVo's lawyers downloaded that AT&T PDF already. It's all about how much money they are making from the fabulous technology.

In short, friends, this story has absolutely nothing to do with Linux. I knew you'd wonder, because that was my first thought, too, that maybe this was another TomTom. It's not. And as for TiVo, TiVo may use Linux in its business, but it has not shown any inclination to adopt FOSS values. Linux folks don't sue people over patents. Some of us remember the GPLv3 discussions, and I'd say we nailed it.

And with that, I'm back to doing the blurbs for the Comes v. Microsoft exhibits, and thank you all for the great support. Let's get it done. Just thought you'd want to know what this new litigation is all about.

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