Dish Network and EchoStar Corporation will pay TiVo a total of half a billion dollars to settle long-standing patent litigation with TiVo over digital video recorder patents. That includes an initial payment of $300 million and a further six annual instalments of $200 million each over the lifetime of the patent up to 2017. After being trapped in a Time Warp patent dispute, it frees Dish and EchoStar to focus on a bigger picture, described as a Seinfeld strategy in which nothing seems to happen for a while but everything comes together in the end.

TiVo first sued EchoStar Communications for infringing its Time Warp digital video recorder patent back in 2004, before it split into two companies, EchoStar and Dish Network. TiVo won the original suit, which went through a number of appeals until ultimately a federal appeals court upheld the ruling two weeks before this announcement.

There were concerns that Dish Network could have had to pay significantly more in damages and be forced to disable its digital video recorder service. The settlement draws a line under the litigation allowing Dish Network to move on. The market responded positively, with Dish stock rising nearly 20% on the news.

“The results of TiVo’s formidable intellectual property enforcement program speak for themselves, and consequently, we are pleased to put this litigation behind us and move forward,” said Charlie Ergen, the chairman and chief executive of Dish Network.

The parties have agreed to drop all pending litigation and cross licence certain patents. TiVo is granting Dish Network a licence to its Time Warp patent and allowing EchoStar to produce digital video recorder products solely for Dish Network and two international customers.

“We believe that our agreement with TiVo provides us a competitive advantage as one of the few multichannel operators with rights to operate under TiVo’s Time Warp patent, which ultimately will allow us to enhance the performance of our award-winning DVRs,” the Dish executive added.

TiVo will also help Dish Network promote the Blockbuster digital video service., after the satellite service acquired the bankrupt assets of the video rental chain for $320 million in April.

“Resolving the patent infringement case allows us to further engage with TiVo on a variety of exciting strategic initiatives, like Blockbuster,” he said, “where we are uniquely positioned to collaborate.”

Dish Network has over 14 million satellite television subscribers in the United States. EchoStar, its sister company, provides broadcast services, operating 10 satellites and designs set-top boxes for Dish Network and other operators.

Through the acquisition of Sling Media, a pioneer of place-shifting remote video viewing, and Move Networks, an early developer of adaptive streaming technology, together with the spectrum it acquired by buying the assets of satellite provider DBSD, formerly part of ICO Global, EchoStar has many elements of a strategy that could see it extend its video services beyond the dependency on a satellite signal.

Charlie Ergen has hinted that there is a plan to tie together the various strands of strategy. He referred to the television show Seinfeld in which nothing seems to happen but the various story lines resolve in the final minutes of an episode.

“Everything we do has a purpose, and we feel like it ultimately fits together,” he told analysts. “You’ll have to just wait and see where it all comes together. It’s a little hard to explain it this early in the show, so to speak.”

The settlement also secures the future for TiVo, which has yet to produce a profit apart from previous damage payments of $200 million it received from EchoStar. It brings the total compensation it has negotiated for its Time Warp patents to over £600 million.

“The compensation from this settlement, including the resulting reduction in legal expenditures, puts TiVo in an enviable financial and strategic position,” said Tom Rogers, the president and chief executive of TiVo. The company has outstanding legal claims against AT&T, Verizon and Microsoft, which he promised to pursue “aggressively”.

The outcome appeared to disappoint investors, with TiVo stock trading down on the news. They may have been hoping that Dish would be forced to buy TiVo at a premium. As it is TiVo remains a possible acquisition target.

Despite having a widely admired user interface, TiVo has been steadily losing subscribers as other operators have launched their own digital video recorders. TiVo has been attempting to do deals with operators, including a partnership with Virgin Media in the United Kingdom, through which it has developed a new digital video recorder platform.