The New York TimesThe New York Times BusinessJune 22, 2002  

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Gemstar Loses Initial Ruling on Patents for TV Guides

By SETH SCHIESEL

Gemstar-TV Guide International Inc., the world's leader in developing electronic television program guides, lost a major patent case yesterday, in a victory for four of its competitors.

Gemstar's share price had risen slightly yesterday as some investors apparently expected a different outcome. But the ruling, made after the stock market closed yesterday, could send the company's shares tumbling on Monday. And the patent setback seems certain to intensify a battle for control of Gemstar between its entrepreneurial founder, Henry C. Yuen, and Rupert Murdoch, chairman of the News Corporation, Gemstar's biggest shareholder.

An administrative law judge at the United States International Trade Commission in Washington ruled yesterday afternoon that EchoStar Communications, Pioneer, Sanmina-SCI Systems and Scientific-Atlanta had not infringed Gemstar's patents while importing and selling advanced television set-top boxes that offered on-screen program guides. The judge, Paul Luckern, said that the Gemstar patents in question were valid, but that Gemstar had misused one of them in an effort to thwart competition.

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"It is the administrative law judge's final initial determination that there has been no violation by any of the respondents," the judge's order said. The decision is still subject to approval by the full commission, which oversees import disputes and other foreign trade issues affecting American companies.

Gemstar had filed a complaint against the four other companies in February 2001, contending there had been infringements of some patents. Gemstar holds hundreds of patents relating to the development of electronic program guides, which are meant to allow consumers to navigate the ever-expanding range of programming choices on their cable and satellite television services.

Gemstar has filed a separate suit against Scientific-Atlanta in federal court, accusing it of patent infringement and seeking millions of dollars in damages. In a statement yesterday, Gemstar said that it would continue to pursue that case.

"We are clearly disappointed by today's ruling, which we feel is erroneous," Lauren Snyder, a Gemstar spokeswoman, said yesterday. "We are going to seek a full review of today's ruling by the commission and, if need be, by the U.S. Court of Appeals for the Federal Circuit. The company will continue to vigorously protect its intellectual property by pursuing the federal court case, which involves additional patents as well as these patents, which have been held valid."

In a telephone interview, Wallace G. Haislip, Scientific-Atlanta's chief financial officer, said, "We did not feel like we had violated any of the actions or the claims in the first place, and we were very pleased that the judge reaffirmed that." Mr. Haislip said that he would remain cautious until the final ruling by the full commission, which he said had until Oct. 21 to take action. "But by any interpretation," he said, "this was a very good win for us, for our industry and our customers."

EchoStar, the No. 2 satellite television company after DirecTV, also expressed its satisfaction. "We are pleased with the court's decision that vindicates EchoStar's position that it does not infringe the Gemstar patents at issue and that Gemstar is guilty of patent misuse," the company said in a statement.

Investors and analysts are likely to see the decision as a significant blow to Mr. Yuen, Gemstar's chairman, who founded the company in the 1980's. Mr. Yuen, a scientist and lawyer, has been regarded as an authority on patent law.

For the News Corporation and Mr. Murdoch, the ruling is a blade with two edges. The value of the company's 42.6 percent stake in Gemstar is almost sure to shrink after yesterday's ruling. At the same time, however, the ruling could actually help Mr. Murdoch's campaign against Mr. Yuen. The two men have significant differences of opinion about how Gemstar should be run, yet under Mr. Yuen's contract, his power to run the company as he sees fit has been practically inviolate. On the board, he controls half the seats and also casts tie-breaking votes.

While yesterday's ruling does nothing to change Mr. Yuen's contract or the composition of the board, Mr. Murdoch could exert new leverage with Gemstar's outside shareholders.

The company's stock, which as recently as last summer traded at nearly $50 a share, closed yesterday at $8.20, up 10 cents, before the patent ruling was issued.





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