SeaChange Loses Patent Battle With nCube

Caught flat-footed by an adverse jury verdict, video-on-demand firm SeaChange International (SEAC Quote - Cramer on SEAC - Stock Picks) postponed its first-quarter financial release Wednesday night.

SeaChange CEO Bill Styslinger said Wednesday's ruling in a patent infringement suit filed by rival nCube "could be substantial" in the short run, but the company wouldn't be able to calculate the impact on the latest quarter's earnings until next week at the earliest.

Separately, Diva Systems, a privately held company that, like SeaChange, supplies VOD technology to cable system owners and other network operators, filed for bankruptcy protection with a "prepackaged" plan, in which its assets will be acquired by interactive program guide company Gemstar-TV Guide International (GMST Quote - Cramer on GMST - Stock Picks).

SeaChange's shares fell 15% to $10.39 in daytime trading Wednesday following news of the court decision, then fell to $9.09 in after-hours trading after the company discussed the lawsuit's outcome on a conference call that had been scheduled to cover the company's financials for the fiscal first quarter ended April 28.

According to SeaChange and nCube, a Delaware jury awarded nCube $2 million in damages for infringing on a VOD-related patent, plus a 7% royalty on sales of infringing products after Feb. 1, 2002.

SeaChange said Wednesday that the company had racked up VOD sales of $16.1 million in the first quarter, ahead of the $12 million to $14 million range of guidance it had given Wall Street. The company said it didn't yet know whether the 7% would come out of that total revenue figure or out of some subset.

The company also said that it expected to get the verdict overturned on appeal and to implement a method for working around nCube's patent within 90 days.

SeaChange, which delayed the start of its conference call for more than 20 minutes, clearly hadn't expected the ruling. "What we ... considered to be a harassment suit," said Styslinger, "turned out to be a surprise for us."

Other than the decision, the company insisted it had had a great quarter. "It was good all along, until now," said Styslinger.