Gemstar Sees Small Gain on Tuesday, Trouble Still Ahead

Trading was heavy again on Gemstar-TV Guide International Tuesday, but the media and technology company that lost 39% of its stock value Monday ended the day with a small gain.

Gemstar, the parent company to the TV Games horse racing network, closed the day up 5.8% gain to $5.29. Morning trades were an extension of the previous days sell-off and share dropped to a new low of $4.75. By mid afternoon, the bargain hunters came out and stock began rising. More than 13.7 million shares were traded Tuesday compared with Gemstar's 90-day average of around 5.8 million shares.

The beating Gemstar took Monday was the result of a an International Trade Commission ruling June 21 that said company's patents for an interactive television program guide had not been infringed upon by competing products. The other companies involved were EchoStar Communications, Pioneer Electronics, Scientific Atlanta, and Samini-SCI, which were importing set-top cable boxes.

Gemstar claims the fight is not over.

"We are obviously disappointed by Judge Luckern's ruling," said Gemstar chief legal officer Jonathan Orlick in a prepared statement on Friday. Gemstar said it believes "the final initial determination is erroneous and that the proper application of the law does not support it." The company said it intends to petition for a review of the final initial determination.

The situation could also get worse because Gemstar has a similar patent case on-going in federal court in Georgia against Scientific-Atlanta. Gemstar claims Scientific-Atlanta owes it $107.6 million for shipping set-top boxes with the interactive guide after a license agreement expired in 1999. Financial publications have reported that Gemstar had hoped the trade commission ruling would establish a "test case" for the three patents in dispute.

A loss in federal court jeopardizes millions of dollars in revenue that Gemstar already reported in previous income statements. In addition to recognizing the $107.6 million as revenue, the company also reported an additional $20.8 million in revenue that was actually $750,000 in cash and some bartered in intellectual property.

Since disclosing these account missteps in its annual report, Gemstar has been inundated with class-action suits filed by angry investors.