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Judge to EchoStar: Disable your DVRs

But federal appeals court blocks TiVo-favored injunction affecting millions of Dish subscribers.

A federal appeals court on Friday blocked a lower-court ruling that would have forced satellite television provider EchoStar Communications to stop selling many of its digital video recorders, EchoStar said Friday.

The U.S. Circuit Court of Appeals for the District of Columbia temporarily blocked an injunction issued by a U.S. district court judge in Texas that ordered EchoStar to halt the use and sale of DVRs that infringed on TiVo's patents.

"As a result of the stay, EchoStar can continue to sell, and provide to consumers, all of its digital video recorder models," EchoStar said in a statement. "We continue to believe the Texas decision was wrong, and should be reversed on appeal."

On Thursday, Judge David Folsom in Marshall, Texas, had ordered EchoStar to disable the digital video recorders used by several million subscribers to its Dish Network satellite TV service. The ruling demanded that within 30 days, EchoStar basically render useless all but 192,708 of the DVR units it has deployed.

Folsom's decision came four months after a jury ruled that EchoStar should pay TiVo $73.9 million because it willfully infringed TiVo patents that allow the digital storage of TV programming.

An injunction would have made it difficult for EchoStar to continue offering its subscribers' DVR functionality without striking a quick licensing deal with TiVo or another DVR maker.

TiVo, the scrappy pioneer of the DVR industry, also was handed a loss Thursday when Folsom ruled against its request that the jury award be tripled. The judge, however, ordered EchoStar to pay an additional $5.4 million in interest payments and $10.3 million in supplemental damages, bringing the amount EchoStar owes TiVo to nearly $90 million.

In ruling against treble damages, Folsom noted that EchoStar was not allowed to present evidence that it received outside legal advice indicating that the DVRs it created did not infringe TiVo's patents. That EchoStar sought such advice before TiVo sued it "could demonstrate a lack of willfulness" on the part of EchoStar, the judge wrote in denying TiVo's request of treble damages.

"The evidence does not show the defendants acted in bad faith, nor does the jury's willfulness finding amount to a finding of bad faith," Folsom wrote.

In asking for an injunction, TiVo argued that, while it would become extinct if unable to protect its patents and sell its DVRs, EchoStar's primary business of satellite TV transmissions does not depend on its ability to offer DVRs.

EchoStar claimed, among other arguments, that TiVo's motive in filing a lawsuit was to gain additional leverage over EchoStar and other prospective business partners in order to strike lucrative licensing deals.

The vast majority of TiVo subscribers, in fact, come by way of a licensing agreement with EchoStar competitor DirecTV. Another agreement with cable giant Comcast won't bear fruit until later this year, and TiVo has had trouble lining up other big players in the pay-TV market, which mostly have been offering their customers generic DVRs.

Siding with TiVo, Folsom wrote that one thing both companies agreed on is that DVR customers are "sticky," meaning that once they obtain a DVR, they stick with it, so business that TiVo has been losing to EchoStar might not be recovered without a ruling of infringement.

TiVo, the judge wrote, "is losing market share at a critical time in the market's development--market share that it will not have the same opportunity to capture, once the market matures."

EchoStar also claimed that the timing of TiVo's lawsuit--several years after EchoStar began selling DVRs--amounted to proof that it was not suffering irreparable injury. Folsom, though, noted that TiVo hadn't sued EchoStar sooner because it was trying to enter into a business deal with it.

EchoStar also said an injunction would unduly hurt its business, an argument Folsom was not entirely unsympathetic to--though, again, he came down on the side of TiVo.

"Although the injunction will likely result in some degree of customer loss and will impact (EchoStar's) ability to compete in the market, (EchoStar) will not be irreparably harmed," he wrote.

Folsom's ruling was filed after the close of regular and after-hours trading on Wall Street, so it did not affect the share prices of EchoStar and TiVo. When TiVo won its jury trial in April, its shares moved up 23 percent in after-hours trading, though the stock has since given back much of that gain.

TiVo shares closed up fractionally Thursday to $6.49, while EchoStar shares fell 1.1 percent to $32.75.