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TiVo Inc. (TIVO - Analyst Report) recently won a decisive victory over its Australian competitor Vivo International in a trademark lawsuit. As per the latest Australian Federal Court ruling, Vivo International has been banned from using the “Vivo” trademark going forward.

Earlier, TiVo had sued Vivo International for allegedly infringing its trademark. TiVo’s argument that the “Vivo” trademark used by the Australian company sounded similar to TiVo and could create confusion in the minds of customers was supported by the federal court. The court in its ruling cited the global reputation of the Tivo brand and said that the Tivo brand was well recognized in Australia much earlier than its commercial launch in 2008.

The Federal court agreed with Tivo’s claim that Vivo knowingly adopted a similar-sounding trademark in 2008, which resulted in the infringement of the Tivo brand. Following the ruling, the Australian Federal court ordered the Vivo mark to be removed from the trade registry. The court also warned the Australian company to refrain from using the disputed trademark, as it could result in further penalties going forward.

We believe that the recent lawsuit win in Australia demonstrates TiVo’s increasing popularity in countries outside the U.S. We believe that the favorable court ruling will enhance TiVo’s reputation in Australia thereby boosting its subscriber base over the long term.

In fact, international expansion has been one of the key long term growth catalysts for Tivo. Based on its strategic partnerships with a number of local providers such as Seven Network Limited (Australia), ONO (Spain), Virgin Media (U.K.), Canal Digital (Scandinavia), Comcast (New England) and Cablevision (Mexico), TiVo has been quite successful in expanding its services internationally over the last couple of years.

International growth can significantly offset the effects of decelerating U.S. subscriber growth going forward. We believe that TiVo is well positioned to benefit from this growth attributable to its diversification and significant partnerships globally.

Moreover, the latest lawsuit win will further enhance Tivo’s reputation, justifying the aggression with which it has been defending its intellectual property. Over the last couple of years, Tivo has successfully defended its patents that have resulted in million dollar back-to-back settlements with DISH Network (DISH - Analyst Report), EchoStar Corporation (SATS - Snapshot Report), AT&T (T - Analyst Report) and Microsoft (MSFT - Analyst Report).

These settlements not only resulted in a recurring revenue stream for Tivo but also significantly lowered its litigation expenses. Management expects litigation expenses in the current quarter to decrease significantly with fewer legal disputes compared to previous quarters.

Our Take

We remain optimistic about TiVo’s long-term growth potential due to new partnerships, product launches, international expansion and declining legal hassles. However, rising subscription acquisition costs and higher R&D expenses are expected to impact TiVo’s profitability over the next few quarters. Increasing competition from cable and satellite providers could also hurt profitability over the long term.

Thus, we have a long-term Neutral recommendation on TiVo. Currently, TiVo has a Zacks #3 Rank, which implies a ‘Hold’ rating in the short term.

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