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ITC Rules Against Rovi in Netflix Patent Litigation

10 Jun, 2013 By: Erik Gruenwedel, Chris Tribbey

A U.S. International Trade Commission judge in Los Angeles June 7 found Netflix’s interactive program guide and parental control software do not infringe upon patents held by Rovi Corp. The judge also found one of Rovi Corp.’s patents regarding computerized TV scheduling to be invalid.

Rovi in May 2012 filed complaints with the ITC against Netflix and Roku, in addition to previously filed law suits against Mitsubishi Electric U.S., LG and Vizio, alleging infringement on up to seven patents regarding digital entertainment guides made popular by subscription video-on-demand services. Rovi in March reached settlements (i.e. license agreements) with the three consumer electronics manufacturers.

Eric Wold, analyst with B. Riley & Co. in Los Angeles, said Rovi plans to appeal the Netflix ruling, which he said the ITC has until October to finalize. Rovi has separate federal lawsuits in motion against Netflix and Roku.

Wold estimates that a license deal with Netflix could represent as much as $70 million to $90 million in annual revenue during the next three to five years.

“Not only could this opportunity now be at risk, but it could also drive a similar ruling with Roku, which we estimated to be worth as much as $10 million to $20 million in annual revenue over that same period,” Wold wrote in a June 10 note.

Regardless, Rovi is no stranger to litigation. In 2011 it sued Hulu and Hulu Plus claiming the online TV portal and SVOD service infringed upon its patents. The two companies reached an agreement in March.

In 2010 Rovi filed a similar suit against Toshiba, claiming the Japanese consumer electronics company illegally used its technology on its HDTVs. That case was settled when Toshiba agreed to license Rovi technology and use Rovi’s TotalGuide interactive programming guide in its HDTVs.
Rovi is also in court with Amazon and IMDb.com regarding several patents.

Wold said the latest ruling prompted him to downgrade Rovi shares to “neutral” from “buy” — a move he characterized as going to sidelines on a company whose patents appear less relevant in an OTT and TV Everywhere environment.

“Even though Rovi has successfully expanded many service provider agreements to include TV Everywhere coverage, we would not be surprised if investors move to the sidelines until visibility becomes clearer around these complaints and the company’s positioning in this segment’s growth,” he wrote.

Samir Armaly, EVP of worldwide intellectual property and licensing for Rovi, said the ITC case involved just four of Rovi’s 5,000 patents and pending applications. He said Rovi would continue to seek to license companies to the technologies it has developed as well as protecting its intellectual property from unlicensed use, including in the pending federal district court action against Netflix, in which certain issues required in the ITC are not part of Rovi's case.

"While we are disappointed in the initial determination of no infringement and expect to exercise our right to petition the full commission of the ITC for a review of this decision, we are pleased that the majority of the patents involved were confirmed valid," Armaly said. "We continue to believe in the strength, relevance and value of our patent portfolio, which is evident from the extensive licensing we have successfully completed with many leading companies throughout the world.

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