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Dish Network Corp. reported a 26 percent drop in first-quarter net income as the satellite TV company stepped up promotions to reel in customers. Its CEO also warned the company may shut down millions of digital video recorders in a dispute with TiVo Inc.
Dish CEO Charlie Ergen said Monday that he’s prepared to shut down the DVRs if a court sides with TiVo in a patent-infringement case. The alternative is to pay TiVo, a pioneer in DVR technology, licensing fees.
“The only thing we can control is to shut down boxes, so we have to, obviously, if we were to lose in the court procedures,” he told analysts during a conference call on the company’s earnings. “We’re prepared to do that. That obviously will have a material negative effect on our business.”
Sanford Bernstein analyst Craig Moffett said that 7.3 million DVRs could be affected and that the cost to replace and shut down the boxes could run close to $3 billion.
Moffett noted that $3 billion is significant given Dish’s market value of $10 billion. He also said that Dish could lose millions of customers in weeks if the DVRs were disabled.
TiVo sued Dish in 2004 for infringement of its real-time TV pausing and rewinding features. A three-judge federal appeals panel in Washington sided with TiVo in March. Dish, the nation’s second-largest satellite TV provider, has asked the full appeals court to review the case. But Dish has acknowledged that a review is unlikely.
If the appeals court doesn’t grant the review, the case would return to a federal court in Texas for enforcement of an injunction on Dish’s DVR boxes that infringe TiVo’s patent. A federal judge would have to decide whether redesigned software for Dish’s DVRs still infringe on TiVo’s patents.
Moffett doesn’t believe Dish will agree to pay TiVo “modest monthly fees” of $2 to $3 per subscriber to settle the case.