Rovi Corp. (ROVI:US) lost the first round in its patent-infringement case against Netflix Inc. (NFLX:US) and Roku Inc. over interactive television program guides at the U.S. International Trade Commission.
Netflix and Roku didn’t infringe Rovi patents, trade Judge David Shaw said in an notice posted on the Washington agency’s website today. Rovi claimed Netflix infringes four patents and Roku one. It is seeking an order that would block U.S. imports of Roku boxes and stop certain Netflix software applications.
Rovi contends its program-guide inventions were included in Netflix software used on various devices made overseas and brought into the U.S., including the Roku video-streaming television box. Netflix and Saratoga, California-based Roku both denied infringing the patents and argued that the software, developed in the U.S., was never imported. Rovi pledged to challenge the judge’s findings before the full commission, which has set a target to complete the investigation by Oct. 7.
“We continue to believe in the strength, relevance and value of our patent portfolio, which is evident from the extensive licensing we have successfully completed with many leading companies throughout the world,” Samir Armaly, executive vice president of worldwide intellectual property and licensing for Rovi, said in a statement.
Rovi fell $1.07, or 4 percent, to $25.44 at the close of New York trading. Netflix rose 71 cents to $220.93.
The judge said one of the patents was invalid, and rejected challenges of the other three. Rovi, based in Santa Clara, California, said it has patent-infringement cases pending against Netflix and Amazon.com Inc. in district court.
One issue in the case was over where the infringement occurred, and whether the ITC, with its focus on importation, was the appropriate forum. In a March hearing on the case, Rovi argued the agency’s authority covered the electronic transmission of software used in products that are then brought into the U.S.
Netflix countered that the activity occurred on its servers at the company’s headquarters in Los Gatos, California. Netflix provides a software development kit that can be put into various devices. Rather than money, Netflix gets a chance to expand the number of customers, Netflix lawyer Ashok Ramani of Keker & Van Nest told the court.
While the judge’s findings are not yet public, he did say on the notice that the “importation requirement has not been satisfied.”
“We are pleased with the initial determination and look forward to the full commission confirming it.” Joris Evers, a spokesman for Netflix, said in a statement.
Eric Wold, an analyst at B.Riley & Co. in San Francisco, had estimated a licensing deal with Netflix could mean as much as $90 million a year over a three- to five-year period.
“Not only could this opportunity now be at risk, but it could also drive a similar ruling with the complaint against Roku,” he said in a note to clients. Wold downgraded his rating on Rovi shares to neutral, from buy.
The case is In the Matter of Certain Products Containing Interactive Program Guide and Parental Control Technology, 337-845, U.S. International Trade Commission (Washington).
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