Comcast's legal spat with Tivo could threaten its status as a top tech firm

Comcast customer Gailpin lit up the company’s message board with her Jan. 16 online rant: “I can no longer  manage my DVR from the computer,” she wrote. “I feel like I’ve had the rug pulled out from me! I don’t like scheduling from the TV, but that’s what has to be done now.”

The cable giant, she said,  should “get your head out of your butt.”

Krcoins — who posted anonymously on the Comcast message board like everyone else — joined in with “how can a bunch of moronic lawyers make it really inconvenient for customers.”

Slydoggie added: “Bummer!!!”

Comcast has a big patent fight on its hands and its customers are feeling the pain.

Even as it styles itself as a top technology company in the ranks of Google and Facebook, Comcast has found itself having to intentionally disable the mobile DVR function on X1 and may be forced to disable other X1 features as California-based Tivo Corp. accuses it of taking its technology without paying patent-licensing fees.

Comcast executives reject the idea that it has stolen technology, privately calling Tivo a litigious “patent troll” with outdated and possibly invalid patents. But the sweeping litigation could cast a cloud over Comcast’s long-term effort to develop its own cable boxes, channel guides and interactivity for cable-TV.

“Comcast engineers independently created our X1 products and services, and through its litigation campaign against Comcast, [Tivo-] Rovi seeks to charge Comcast and its customers for technology Rovi didn’t create,” Comcast spokeswoman Jennifer Khoury said last week in a statement. “Rovi’s attempt to extract these unfounded payments for its aging and increasingly obsolete patent portfolio has failed to date. And as we have in its other suits, we will continue to aggressively defend ourselves.”

Tivo disagrees, saying Comcast must fork over licensing fees as other pay-TV, and even some online streamers, have done for its patent portfolio. Tivo, which makes the popular set-top brand, merged with cable-box patent aggregator Rovi Corp. in 2016, consolidating cable box technology in one firm.

Tivo has already won a decision at the International Trade Commission that could lead to an import ban on Comcast-destined set-top boxes, which are made overseas. If upheld, the ban could create the equivalent of a Trump wall at the U.S. border for Comcast set-top boxes, stopping new units from entering the country.

Tivo filed more federal lawsuits against Comcast last month, claiming that the cable giant is infringing on seven additional patents. One patent covers the technology to search using TV remote numerical keys while another enables viewers to pause a program and then view the rest of the show on another device in the home.

“What you get is a virtual fence that goes up around the country preventing the infringing article from coming in,” said Brian O’Shaughnessy, an intellectual property partner with the Washington law firm Dinsmore & Shohl. He noted that ITC actions move much faster than a typical patent lawsuit.

“A [federal] district court case can go on for years and over that time the market for your patented product might be eaten away by other advances in the industry,” O’Shaughnessy said. At the end of the case, the patent holder “might be fighting over a patent that isn’t very valuable anymore,” leaving them with a smaller market and reduced profits. “An advantage of an ITC action is you can cut off access to a very large and lucrative market simply by blocking the importation of infringing products.”

To thwart the import ban, Comcast disabled mobile DVR function so that the foreign-made set-top boxes no longer infringed on those Tivo patents. The function enables subscribers to program their DVR from a smart phone or laptop computer instead of the TV remote.

Comcast officials have warned of the economic consequences to the company, consumers and the Philadelphia region of a set-top box import ban, while also doubting that it will occur. The Greater Philadelphia Chamber of Commerce wrote the ITC last summer to say that an import ban on Comcast-destined set-top boxes “would result in significant economic harm and loss in the greater Philadelphia area and across the country.” Comcast employs 13,000 in Pennsylvania.

A ban would disrupt the flow of new set-top boxes, which are central to acquiring customers and upgrading existing ones.  “We will continue to provide X1 to our customers and offer them new and existing features,” Khoury stressed in her statement.

Arris Group, which employs 1,000 people in Horsham, is one of the set-top box makers whose products would be banned. U.S. Sen. Pat Toomey (R., Pa.) told the ITC, also last summer, that blocking the set-top boxes could harm Comcast and lead to higher cable prices.

Comcast believes that ultimately the federal government won’t enforce an import ban. A hearing over the matter is scheduled for Feb. 2 in Washington. A decision could be made within a month.

But the case — and the threat to both Comcast and Tivo — is far from over.

Eric Wold, an analyst with San Francisco investment bank B. Riley FBR Inc., said on Tuesday that a licensing agreement with Comcast would generate about $55 million a year in licensing revenue for Tivo’s entire patent portfolio.

The company earns about 95 percent of its revenue from licensing agreements for products and intellectual property, tapping the coffers of such giants as AT&T/DirectTV and DISH, company executives say. AT&T pays Tivo a monthly licensing fee of 21 cents per set box while DISH coughs up 25 cents per box. Those fees are paid on many millions of units.

Tivo could also lose the case, devastating the value of its patents, and calling into question its business model. Wold said he was “somewhat concerned” that Comcast could strip more functions from the set top box to avoid the licensing payments.

Comcast has already challenged Tivo’s patents in administrative proceedings and will fight their validity in federal court. Backing Comcast’s position, a panel in the U.S. Patent and Trademark Office has found a “reasonable likelihood” that a Michigan federal court would invalidate four of five contested Tivo patents, Wold said.

Most experts in the industry and on Wall Street believe it all comes down to the price that Tivo is seeking from Comcast to license its patent portfolio. One official wryly noted that Comcast “could build a third tower in Philadelphia” for what Tivo is seeking in its negotiations.

A cable industry insider who was not directly connected to either company agreed, saying that Tivo sought steep fee hikes in its latest round of negotiations, bumps that Comcast rejected.

But he added that everybody pays them. Tivo/Rovi is “not easy to deal with,” he said. “They got it all buttoned up,” describing set-top box intellectual property as a “quagmire.”

If the fight doesn’t limit services, it could drive up consumer prices, lighting up Comcast’s message board once again.