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Verizon Communications Inc. pursued a loss-cutting strategy in agreeing to pay $250.4 million to settle patent infringement litigation, while the deal furthers TiVo's strategy of using its patents to enhance its profits, experts say.
Meanwhile, insurance capacity to protect against patent liabilities is limited, experts say.
As part of an agreement announced last week, New York-based Verizon initially will pay Alviso, Calif.-based TiVo $100 million and quarterly payments totaling another $150.4 million through July 2018, TiVo said in a statement about the suit it filed in federal district court in Tyler, Texas, in 2009 concerning three DVR patents.
The settlement “underscores the significant value our distribution partners derive from TiVo's technological innovations and our shareholders derive from our investments in protecting TiVo's intellectual property,” President and CEO Tom Rogers said in a statement.
Verizon said in a statement it is pleased with the settlement.
The settlement is the latest development to reflect TiVo's aggressive strategy.
• In May 2011, it settled patent litigation with Dish Network Corp. and EchoStar Corp., both based in Englewood, Colo., in which they agreed to pay TiVo $500 million through 2017. The settlement also granted certain patent licenses to one another.
• In January, TiVo reached a $215 million settlement and mutual patent licensing arrangement with Dallas-based AT&T Inc.
• Still pending is litigation involving New York-based Times Warner Cable Inc. and San Jose, Calif.-based Cisco Systems Inc., with Cisco and TiVo suing one another.
Commenting on the settlement, attorney Joel W. Mohrman, a member of law firm McGlinchey Stafford P.L.L.C. in Houston, said, “Nobody settles for that amount of money without a real concern there was liability for the allegations that were made” or that “the potential level of damages were so high — even if there was 1% liability — they didn't want to go there.”
The outcome, though, provides little guidance to other companies because there is “never an absolute resolution to an issue” when a case is settled, Mr. Mohrman said.
The litigation has been “a profit center for TiVo,” said E. Leonard Rubin, of counsel at Querry & Harrow Ltd. in Chicago. “TiVo may be making more money by filing these lawsuits than it would make simply licensing its technology to the various defendants who they claim are infringing it.”
The settling companies “aren't necessarily admitting any guilt. What they're really doing is saying, "This is cheaper than pursuing litigation,'” said Mr. Rubin.
“Patents can be a real source of revenue for companies, separate and apart from their business,” said C. Graham Gerst, a partner at Global IP Law Group L.L.C. in Chicago.
Mr. Rubin said the settlement may spur other companies to file patent litigation and hope to “settle for some huge amount,” but he also said “there has to be some sort of credible claim.”
Robert W. Fletcher, president of Louisville, Ky.-based Intellectual Property Insurance Services Corp., a managing general agency that specializes in intellectual property insurance, said the pace of patent litigation has increased in the past two years.
Patent litigation can be costly, said Richard S. Betterley, president of Sterling, Mass.-based Betterley Risk Consultants Inc.
“If you are accused of violating a patent, you in effect are forced to stop selling whatever you're selling, because the damages start accruing” from the day a company is notified of potential patent infringement, he said. “As a defendant, you're just almost forced into either settling right away and staying in business, or really taking a chance that you're going to be taken down in a big way” through years of litigation.
Karl Pedersen, Los Angeles-based senior vp with Willis North America Inc.'s FINEX North American cyber and errors and omissions team, said one strategy defending companies have used is to ask the U.S. Patent and Trademark Office to re-examine the patent's validity and whether it should have been issued in the first place.
As far as patent insurance, observers say capacity and limits offered are low with limited buyer takeup.
“There are a limited number of markets,” said David Lewison, New York-based vp with AmWins Brokerage of New York. “A lot of buyers don't buy after they do a full patent search.”
Furthermore, the amount of settlements that TiVo has reached “probably exceed what's available in the marketplace,” which is only several million dollars, he said.
Mr. Fletcher said his firm can commit to $10 million in coverage as a managing general agent for Lloyd's of London and for Ameritrust Insurance Corp., a unit of Southfield, Mich.-based Meadowbrook Insurance Group Inc.
Adequate coverage generally is not available for entities that have more than $500 million in revenue, said Willis' Mr. Pedersen. Absent insurance, he said companies that want to protect their patent rights instead should take a proactive risk management approach that begins at the research and development stage and goes “all the way through active defense strategies.”
Meanwhile, observers say one recent problem in the patent arena is “non-practicing entities.” Mr. Fletcher said these entities, which also are known as patent trolls, “purchase patents for the sole purpose of suing people” for their violation.