TiVo Shares Drop 19% After Settlement Terms Revealed

TiVo shares dipped 19% Friday as investors expressed their apparent disappointment in a $490 million lump sum the DVR pioneer will get via its settlements with Google’s Motorola Mobility and Cisco.

The multi-company settlement, which also resolves TiVo’s dispute with Time Warner Cable, was significantly lower than what some analysts were expecting. Earlier estimates figured that the Motorola suit alone would fetch TiVo more than $1 billion.

“It is surprising that TiVo decided not to take the case to a jury if this was the best settlement number they could achieve at this point,” Susquehanna International Group analyst Thomas Claps said in a research note issued Friday, after TiVo announced the terms of the settlement. “In addition, TiVo arguably has the best patent attorney in the U.S. on its side (Morgan Chu), so it is surprising that TiVo would not take their chances at trial and hope for a more favorable outcome.”

With the latest settlement factored in, TiVo said it has been awarded a total of $1.6 billion in awards and settlements, which include more than $1 billion raked in from previous settlements with Dish Network, AT&T, and Verizon Communications.

Cisco revealed in an 8-K filing that it will pay TiVo a single lump sum of $294 million upon execution of the settlement agreement. As a result, Cisco  expects to recognize charges of 3 cents per share to GAAP earnings per share in its fiscal fourth quarter results, recognized as consideration of past damages. Cisco said the remaining balance of the anticipated charges will be recognized in future fiscal years as licensing fees, but does not believe those charges will have a material impact on its future results, operations, cash flows, or financial position.

It was not immediately known how much of the balance of the lump sum owed to TiVo will be shared by Google, Motorola Mobility, and Arris. Per a condition of its acquisition of Motorola Home from Google, Arris is responsible for no more than $50 million in damages and royalties linked to the TiVo lawsuit.

In a separate 8-K, TiVo has also agreed to enter into certain patent licensing arrangements with Google, Cisco, and Arris. Those include TiVo patent Nos. 6,233,389 (the "Time Warp" patent); 7,529,465 ("System for Time Shifting Multimedia Content Stream"); 6,792,195 ("Method And Apparatus Implementing Random Access And Time-Based Functions On A Continuous Stream Of Formatted Digital Data"); and 7,493,015 ("Automatic Playback Overshoot Correction System").

TiVo said it has agreed to grant Arris a limited license to those patents that will expire on the date of the expiration of the last to expire of the TiVo patents-in-suit. Its agreement with Google will expire on July 31, 2018, while the accord with Cisco will expire ten years from the effective date.

TiVo, Google, and Cisco have also agreed to a limited cross-license to all other patents and patent applications of each party applicable to the "video field." TiVo, on one hand, and Google and Cisco on the other, have likewise agreed not to sue the other party for infringement of any other patents for a period of five years.

TiVo closed Friday at $11.10 each, down $2.61 (19.07%).