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A Company Held Up - Will the Courts Drive the Getaway Car?

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Tonight, more than ten million Americans will park themselves on the couch to watch television. Although sitting in front of the screen, they will not be flipping channels to find their programs. Programming choices are no longer dictated by prime time schedules, but rather by what their DVR has already recorded.

Welcome to the TiVo generation. In case you somehow missed the biggest innovation in television since Technicolor, a DVR (Digital Video Recorder) automatically records your favorite shows each week. It then stores them for later viewing where you can pause, fast forward and rewind, and even skip commercials. Making this possible is TiVo, a small California company that pioneered the DVR and changed the way we watch TV forever.

Today, the system that fostered the growth of small innovative companies like TiVo is under assault. TiVo's "special sauce" was encapsulated in patents. In most cases, competitors respect patents, and pay to license technology. But for TiVo and the next generation of companies already inventing new technologies a federal circuit court case could destroy the model on which our innovation economy is founded.

Despite having created the DVR, TiVo remains a small company. Most people who benefit from TiVo's technology gain access to it through commercial partnerships with industry leaders such as Comcast and DirecTV. But media giant EchoStar chose something entirely different. They chose not to work with TiVo, but rather released their own, remarkably similar, DVR.

EchoStar promptly found itself in court for infringing on TiVo's patents, and lost. Patent litigation is fairly common in today's innovative industries. Inventors often find themselves fending off challenges to new technologies they have developed. While it is inconvenient, and diverts attention from product development, the ability to seek court protection is an essential security measure small companies need to protect their inventions.

Unfortunately for TiVo, after EchoStar lost in court, they didn't relent. EchoStar appealed again and again. And again. And kept losing.

EchoStar defied a judge's order, was held in contempt, and lost every attempt to pry away TiVo's patent protections. But they succeeded in one insidious manner: they kept TiVo tied up in the courts while they continued, unabated, to pilfer its intellectual property. Throughout, EchoStar's legal expenses were dwarfed by their DVR revenues.

Nine years have passed since EchoStar first began infringing TiVo patents and during this time EchoStar has amassed 14 million DVR customers. Now, despite losing every legal challenge, the case sits before the U.S. Court of Appeals for the Federal Circuit, appealed to within one step from the Supreme Court.

This is not even the latest in EchoStar's courtroom antics. Just last week, a state court in Manhattan found EchoStar in gross negligence in a case involving Cablevision's VOOM subsidiary. The court found that Echostar "systematically destroyed evidence in direct violation of the law and in the face of a ruling by a federal court that criticized EchoStar for the same bad-faith conduct..." The judge further characterized EchoStar as engaging in "procedural gamesmanship" and notes "EchoStar's pattern of questionable -- and, at times, blatantly improper -- litigation tactics." EchoStar has made this legal strategy of courtroom distractions and abuses of law a central part of its business model.

The outcome of TiVo v. EchoStar will mark a decisive moment for our nation's small businesses, innovators, and investors. If EchoStar can continue to overwhelm TiVo and the courts with groundless litigation, there's no reason to assume that EchoStar will stop its behavior. And while that might mean curtains for TiVo, the precedent set by such a decision will have a chilling effect on the future of American innovation. If a big company is rewarded for its litany of transgressions against the courts, TiVo, and our patent laws, you can bet other large corporations will follow this strategy.

Our country's entrepreneurs will lose their incentive to innovate. Venture capitalists and inventors will be reluctant to spend time and money on inventions that will inevitably be stolen by a larger company. Their return on investment would be put in such jeopardy that it would no longer make sense to invest in innovation.

Would you really expect Coca Cola or the Polaroid camera to have been invented if Dr. John Pemberton or Edwin Land knew their creations would be stolen? As distant as it seems now, these companies started out as inventions by individual owners.

TiVo is the test case for this growing problem. They are a well known, small company whose product has changed American life forever. If they are denied the profit of their work and innovation, is any company safe? After all, it's a whole lot easier to steal something than invent it. And if the judicial system doesn't offer a compelling disincentive for such behavior, is it really a crime? Or just the cost of doing business?

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