Sept. 24 (Bloomberg) -- Verizon Communications Inc. agreed to pay more than $510 million to end patent-infringement suits filed by TiVo Inc. and ActiveVideo Networks Inc. that targeted features of its FiOS TV service.
Verizon, based in New York, will pay TiVo at least $250.4 million to end a dispute over digital-video-recording services, and agreed to pay CloudTV developer ActiveVideo more than $260 million over the video-on-demand feature.
The cases remove a drag on a service that Verizon is trying to promote as consumers demand more from their televisions. The company reported having 4.5 million FiOS Video connections at the end of the second quarter, a 16 percent increase from the year ago period. The wireline division, which includes the FiOS TV, phone and Internet services, generated $40.7 billion in sales last year and FiOS accounted for 65 percent of that division’s profit, Verizon said July 19.
In the TiVo case, Verizon will make an initial cash payment of $100 million, followed by quarterly payments totaling $150.4 million through July 2018, Alviso, California-based TiVo said today in a statement. Verizon also will pay monthly license fees for every Verizon DVR subscriber beyond a predetermined level.
TiVo and Verizon were scheduled to begin trial Oct. 1 in a federal court in Marshall, Texas. TiVo claimed that Verizon infringed three patents, including one for the so-called time warp system that lets users store TV broadcast programs while watching another show. That patent was at the heart of a seven-year legal battle with Dish Network Corp. that was settled last year.
“We are pleased to have reached settlements with both TiVo and ActiveVideo in these two matters,” Ed McFadden, a Verizon spokesman, said in an e-mail.
McFadden declined to say whether Verizon would alter its profit forecast based on the settlements.
A victory for TiVo could have forced Verizon to remove the DVR service from FiOS TV. Dish had been ordered to remove that function before the settlement was reached.
Verizon also had its own patent-infringement claims against TiVo that probably would have been tried separately. One of those patents was involved in a dispute Verizon had with ActiveVideo.
TiVo rose 38 cents, or 4 percent, to $9.94 at 4 p.m. New York time in Nasdaq Stock Market trading of 10.6 million shares, about five times the three-month daily average. The shares are up almost 11 percent for the year. Verizon rose 4 cents to $45.68 in New York Stock Exchange composite trading and has risen almost 14 percent so far this year.
TiVo said the companies are looking into future distribution of Internet video services through Verizon’s venture with Coinstar Inc.’s Redbox. Verizon and Redbox are testing a streaming video rental service called Redbox Instant that is expected to deliver video in select markets by Christmas.
In the ActiveVideo case, the two companies agreed to a patent cross-license. Closely held ActiveVideo didn’t say how much Verizon is paying in total, except that it involves an unspecified sum in addition to $260 million earlier ordered by a federal court.
The agreement was struck after a U.S. appeals court in August upheld a jury verdict that New York-based Verizon lost and an order that Verizon pay ActiveVideo $2.74 per month for each FiOS-TV subscriber. The appeals court overturned a ruling that would have forced Verizon to stop providing the service to its customers.
“In the end our technology and its value have been recognized,” said Jeff Miller, chief executive officer of San Jose, California-based ActiveVideo.
TiVo has cases pending against Google Inc.’s Motorola Mobility unit and Cisco Systems Inc. Both cases involve set-top boxes made for Time Warner Cable Inc. A trial in the Motorola Mobility case is scheduled for May 2013 and the case against Cisco could head to trial in 2014.
“This is a major victory for TiVo, who will now focus on their legal efforts on potentially larger infringement claims against Google, Cisco and Time Warner Cable,” said Kevin Stadtler, principal of Stadtler Capital Management LLC in Fort Worth, Texas, who owns TiVo shares and is projecting they will rise.
The TiVo case is TiVo Inc. v. Verizon Communications Inc., 09cv257, U.S. District Court for the Eastern District of Texas (Marshall).
The ActiveVideo case is ActiveVideo Networks Inc. v. Verizon Communications Inc., 2011-1538, U.S. Court of Appeals for the Federal Circuit (Washington). The lower court case is ActiveVideo Networks Inc. v. Verizon Communications Inc., 10cv248, U.S. District Court, Eastern District of Virginia (Norfolk).