Dish Network Corp. (DISH) and its former unit EchoStar Corp. have agreed to pay TiVo Inc. $500 million to settle a patent infringement lawsuit over use of its 'Time Warp' digital video recorder (DVR) technology.

Tivo had slapped Englewood, Colorado-based Dish and EchoStar with a patent infringement lawsuit in 2004 for infringing on patents relating to its 'Time Warp' digital video recorder (DVR) technology. The recorders allow users to digitally record television programs and then play them back, as well as pause, fast-forward and rewind.

At the time of filing the lawsuit, Dish and EchoStar were a single satellite-TV and equipment company called EchoStar Communications Inc. The business split in two in 2008.

Last month, a federal appeals court upheld a lower court's ruling in favor of TiVo stating that EchoStar infringed TiVo's patents.

On Monday, TiVo announced it has it granted Dish a license under its Time Warp patent and other related patents until they conclude. TiVo has also granted EchoStar a license to design and make some DVR-enabled products solely for Dish and two international customers.

Under the terms of the settlement, Dish and EchoStar will provide an initial payment of $300 million to TiVo with the remaining $200 million distributed in six annual installments between 2012 and 2017.

All companies agreed to dismiss pending litigation and dissolve injunctions.

The news boosted Dish's stock up on the NASDAQ by over 15 percent to $28.98 during early morning trade. Analysts said the payout would have no significant impact on Dish's cash balance and it did the right thing by settling the litigation.

Dish, the second-largest U.S. satellite-television provider, is hoping to attract affluent customers who are willing to spend more each month on video and less likely to cancel their service, emulating rival DirecTV Group Inc. (DTV).

So far, Dish has targeted lower-end customers and gained a net 58,000 subscribers during the first quarter. However, the economic downturn is hurting Dish hard.

We are pleased to put this litigation behind us and move forward, Dish CEO Charlie Ergen said in the statement.

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 Dish's DVRs], he said.

In April, Dish agreed to buy nearly all of bankrupt Blockbuster's assets for $320 million. In February, it agreed to acquire DBSD North America Inc., a provider of voice and data services over satellite, for $1.4 billion.

On Monday, Dish said its net income rose to $549 million from $231 million while sales climbed 5.5 percent to $3.22 billion, slightly less than the average analyst estimate of $3.23 billion.

Shares of TiVo, a pioneer in the market for home DVRs, climbed around 5 percent on the NASDAQ to $10.12.

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