By Liana B. Baker and Himank Sharma
NEW YORK (Reuters) - Dish Network and EchoStar Corp will pay TiVo Inc $500 million to settle a patent infringement lawsuit involving TiVo's video recording technology, putting an end to a long and costly legal battle.
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Shares of TiVo rose 18 percent in premarket trading following the announcement.
Dish and EchoStar, both controlled by Charlie Ergen, will make an initial payment of $300 million to TiVo, with the remaining $200 million to be paid in six equal annual installments between 2012 and 2017, the companies said.
TiVo will license its technology to Dish and EchoStar, while EchoStar would license to TiVo certain DVR-related patents.
TiVo said on Monday it will help Dish promote the Blockbuster digital video service. TiVo already offers Netflix and other services on its DVR. Dish paid $320 million for Blockbuster in a bankruptcy auction in April.
Monday's settlement benefits all parties, said Kaufman Bros analyst Todd Mitchell.
"It's positive for Dish in the sense that they're done with this case and it's positive for TiVo because it will receive a lump sum of cash, which it needs to finance their business," Mitchell said.
Mitchell added that the payout will have "no significant impact" on Dish's cash balance. He said the amount was within his expectations but acknowledged it was lower than what most Wall Street analysts expected TiVo to receive.
Some analysts had projected Dish's costs to range as high $3 billion and were expecting TiVo to strike potentially rich ongoing licensing agreements.
The legal battle dates back to 2004, when TiVo accused satellite TV provider EchoStar's Dish Network of violating TiVo's patent for Time Warp software that allows users to record one TV program while watching another.
Last month, a federal appeals court had upheld a ruling in favor of TiVo stating that EchoStar infringed TiVo's patents.
TiVo shares were up $1.68 at $11.48 in premarket trading.
(Reporting by Liana B. Baker in New York and Himank Sharma in Bangalore; Editing by Maju Samuel and Derek Caney)