Netflix Is A Fan of Alice; Rovi Rather Never See Her Again
July 20, 2015 (Mimesis Law) — Way back in April we highlighted the case between Rovi and Netflix on these pages. The decision is in, and unfortunately for Rovi and its investors it was an extremely negative one. Netflix argued that all five of the patents at issue were invalid under the Supreme Court’s Alice decision, and the Judge agreed, ending the case pending appeal. A saving grace for Rovi was that the decision came out after market hours, which may have stanched the panic selling that often accompanies negative intra-day court decisions. As the chart shows, however, Rovi did get punished by the market, despite their best efforts to spin the result favorably in their press release and through friendly analysts.
Now that the Judge has ruled, its important for investors to realize that the case is over pending appeal. Despite Rovi’s confidence in the appeal process, the Federal Circuit has not been very sympathetic to patents thrown out on Alice grounds, as seen in the recent Intellectual Ventures decision, as just one example. Timing-wise, the appeal process will likely take 12-18 months to resolve itself.
This setback aside, Rovi hopes to get Netflix to pony up a hefty licensing fee. To that end, they will apparently be “selecting patents from [our] diverse patent portfolio” to bring further cases against Netflix. A noble pronouncement, but one that would have carried more weight if the company had actually pointed to a few actual patents that it contends Netflix is infringing and are less susceptible to invalidation under Alice than the ones it had at issue in the losing case. Rovi knows its own portfolio, and has had plenty of time to identify its next warheads to launch at Netflix.
Of course Netflix’s victory has emboldened them, and made the prospect of a substantial payout to Rovi for a portfolio license less likely at this point. You can be sure that Netflix will respond to any new Rovi cases vigorously, and dive back under the Alice shield as early in the process as possible.
Turning to Rovi’s prospects, it will be interesting to see if this ruling causes collateral damage to any ongoing licensing discussions with other entities. There is no doubt that Alice has been a game-changer for many companies, and now that the aura of value around Rovi’s patent portfolio has been punctured, it is unclear whether they will continue to have the same level of licensing success in this post-Alice world.
As always we hope you get a chance to catch our “Markman Minute” videos (available at www.mimesislaw.com/intellectual-property) for a deeper look at some of the biggest current patent stories of interest to investors. Finally, we want your feedback and suggestions, so feel free to send it along to firstname.lastname@example.org or to @markmanadvisors on Twitter. You can also visit our website at www.markmanadvisors.com. Questions from the readership are always welcome as well; we will try to get you answers in future issues of the Markman Note.
Disclosures and Disclaimers:
Nothing in this material is intended to constitute legal or investment advice of any kind, nor is any of this material based on any non-public information of any kind. In addition to my work at Markman Advisors, I am also a name partner at a NYC-based intellectual property litigation boutique firm, Kroub Silbersher & Kolmykov PLLC (www.kskiplaw.com). Markman Advisors is affiliated with a Houston-based investment management firm, Perdix Capital Management, which may have existing or potential positions relating to situations discussed in this material. Markman Advisors also provides consulting services to buy-side investors, including hedge funds and family offices, that may also have or enter into positions relating to situations discussed in this material. Questions or comments can be directed to me at email@example.com. All suggestions are welcome.