Netflix Wins Patent Ruling in Rovi Dispute

A U.S. International Trade Commission judge last week ruled that Netflix did not infringe a Rovi patent covering parental controls for TV user interfaces, with hundreds of millions of dollars in licensing fees riding on the ultimate outcome of the case.

Rovi — which has aggressively pursued licensing deals for its TV interactive TV guide patents — filed a federal lawsuit and ITC complaint against Netflix in May 2012. An ITC judge ruled Friday that Netflix did not infringe Rovi patents and also that a Rovi-owned patent covering interactive computerized TV schedules was invalid.

Rovi is expected to appeal the ITC ruling; the company did not immediately respond to requests for comment.

“We are pleased with the initial determination and look forward to the full Commission confirming it,” a Netflix rep said.

Separately, in March, Rovi entered into a patent-licensing agreement with Hulu, and also has reached recent patent deals with LG Electronics, Vizio and Mitsubishi. Rovi has lawsuits pending against Amazon.com and Roku.

In light of the ruling, B. Riley & Co. analyst Eric Wold downgraded his rating on Rovi’s shares from “buy” to “neutral,” and lowered price target on the stock from $31 to $28 per share.

“Following an ITC judge’s ruling in Netflix’s favor on Friday, we are now somewhat less optimistic about Rovi’s chances of prevailing with its complaints against both Netflix and Roku — and believe an air of caution could form around shares similar to last year,” Wold wrote in a research note.

For Rovi, a licensing deal with Netflix could represent as much as $90 million per year in annual revenue over the next three to five years, according to Wold. “Not only could this opportunity now be at risk, but it could also drive a similar ruling with the complaint against Roku (which we estimated to be worth as much as $10-20M in annual revenues over that same period).”

Rovi’s interactive program guide patent holdings come through the $2.8 billion acquisition of Gemstar-TV Guide International in May 2008.

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