Although the availability of patents, in general, certainly provides great benefits to small- and medium-sized enterprises and can level the playing field vis-à-vis much larger entities, recent news stories highlight how small and medium sized entities can sometimes find themselves at a disadvantage when it comes time to enter the expensive realm of the patent litigation system. For example, when small companies offer a service or product that threatens to disrupt a large entrenched competitor, they often find themselves vulnerable to patent litigation that they simply do not have the resources to fully defend, regardless of the quality of the patents at issue.
The story is not any better when the smaller entity is the party owning the patents. For example, TiVo has been engaged in intense patent litigation for more than four years with its much bigger competitor Echostar, the second-largest satellite television provider (also known as the “DISH Network”), over the functionality in their respective digital video recorders (DVRs). Even though a jury found that Echostar willfully infringed TiVo’s patents, a finding that was substantially upheld on appeal, and the lower court issued an injunction ordering Echostar to “disable the DVR functionality” in infringing receivers, that may still not be enough to allow TiVo to stave off Echostar.
ACT’s Mark Blafkin recently wrote about the TiVo litigation as an example of why patents are important for smaller innovators to protect their ability to continue to innovate. Unfortunately, however, the TiVo-Echostar litigation also serves to show how the deck can be stacked against these innovators in the litigation arena. Even though Echostar paid TiVo $104 million for its infringement, that amount is pocket change compared to the well-over one billion dollars per year Echostar continues to make on set-top boxes. Furthermore, without telling the court, Echostar claims to have distributed a software work-around to the TiVo patents in an attempt to make the injunction meaningless. TiVo has filed a motion for contempt against Echostar, which is still pending, but no matter the outcome, the incentives make it worth Echostar’s while to engage in this gambit.
Even if Echostar is held in contempt, the court likely will not levy a large-enough fine to dent the very large sums at stake in keeping its DVRs on the market. Whether or not the judge finds that Echostar’s software update also infringes TiVo’s patents, Echostar’s large installed base of DISH Network customers ensures that the effort to keep its DVRs on the market pays off. Moreover, if there is ultimately a finding of infringement based on this initial work-around, there would not appear to be anything to stop Echostar from distributing another “work-around” that would then force TiVo to continue to dip into its R&D funds and/or reduce its profits in order to find resources to fund what could potentially be many more years of costly litigation. Reforms that could help to discourage this type of scenario certainly merit careful consideration in the ongoing debate over patent law reform.