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Rovi Shares Plunge on Court's Netflix Decision

Rovi shares were down more than 16% Thursday morning after a California court moved on Wednesday (July 15) to invalidate five Rovi patents and entered a judgement in favor of Netflix in the case.

Rovi intends to appeal.

“While we are pleased that the Court sided with Rovi on the key claim construction issues, we are disappointed in, and strongly disagree with, the Court’s decision finding the five patents invalid and plan to appeal that decision,” Samir Armaly, Rovi's EVP of intellectual property and licensing, said in a statement.

Update: Netflix issued this statement: "We are gratified by the Court’s judgment, which confirmed that Rovi’s patents are so broad and abstract as to be invalid."

Rovi and Netflix have been battling in the Northern District Court in Oakland even though the U.S. International Trade Commission, in November 2013, affirmed an earlier rulingthat Netflix’s streaming software did not infringe on Rovi patents tied to IPG technology.

Rovi noted that Judge Phyllis J. Hamilton found that the patents were invalid on the ground that they are not directed to patentable subject matter based on the Supreme Court’s 2014 ruling in Alice Corp. Pty. Ltd. v. CLS Bank International.

In a statement, Armaly pointed out that Netflix’s litigation with Rovi was filed in 2011, more than two years before the Alice ruling.

“We are committed to enforcing our intellectual property against Netflix until the necessary licenses are in place,” he said. “As we do so, we will be selecting patents from our diverse patent portfolio with the benefit of having the Alice decision and its reasoning factored into that patent selection.”

Rovi also said Judge Hamilton also issued a claim construction ruling in the case in which the Court construed the nine disputed claim terms in the case, but only adopted Netflix’s proposed construction of a single term. The court, Rovi, added, also rejected attempts by Netflix to limit the scope of the patents to set-top box implementations.

Rovi, Amraly added, has been successful in licensing its technology to other OTT providers, including Apple, Google and Hulu, “and we remain confident that Netflix requires a similar license.”

Rovi recently renewed its deal with Charter Communications, and is in discussions to do the same with its so-called “big four” -- Comcast, Time Warner Cable, DirecTV and Dish Network.

Rovi shares were down $2.85 (16.25%) to $14.69 each in mid-day trading Thursday.