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TiVo & Motorola Settle Out of Court

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Reportedly, TiVo Inc. (TIVO) and Google (GOOG)-owned Motorola have settled their patent infringement lawsuit out of court. The settlement ends a long standing dispute between TiVo and Motorola which dates back to early 2011. In Feb 2011, Motorola Mobility accused TiVo of infringing DVR patents.

Motorola indicated that it was seeking to protect its interests after TiVo sued Verizon Communications (VZ), which used Motorola's technology, for patent infringement. Motorola claimed that it had acquired the DVR patents through the acquisition of Imedia, which had filed for the patents in Apr 1995.

TiVo countersued Motorola in Mar 2012 alleging that the latter had infringed three DVR-related patents. Although the terms of the settlement were not disclosed, we believe that the closure of Motorola suit will lower TiVo’s litigation expense going forward.

In the recent years, TiVo has successfully defended its patent litigation lawsuits and has monetized its patents. The end of the lawsuit with Motorola will be the company’s fourth settlement following the settlement of its disputes with Verizon, DISH Network, EchoStar, Microsoft (MSFT) and AT&T.

Through these settlements, TiVo has not only ensured a recurring revenue stream till 2018, but  has also succeeded in lowering apprehensions about its patent rights. This will supposedly enable TiVo to freely use the technology going forward.

However, pending patent litigation issues against Cisco coupled with rising research and development (R&D) costs, higher hardware and sales & marketing costs are expected to impact TiVo’s profitability over the next few quarters. Increasing competition from cable and satellite providers could also hurt profitability over the long term.

Nevertheless, we remain optimistic about TiVo’s growth potential owing to the new MSO partnerships (GCI and Midcontinent), product launches and international expansion opportunities. Moreover, the successful monetization of patents also ensures a recurring revenue stream for the company over the long term.

Currently, TiVo has a Zacks Rank #3 (Hold).

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