DIRECTV 2003 Annual Report Download - page 25

THE DIRECTV GROUP, INC.
We contend that we have complied with CAS 413 and no further amount is due to the U.S. government. Our
position is supported by the recent Teledyne decisions of the U.S. Court of Federal Claims and Court of Appeals
for the Federal Circuit interpreting CAS 413. The U.S. Supreme Court on December 1, 2003, denied a writ of
certiorari challenging the circuit court’s Teledyne decision. We will continue to vigorously defend our position,
including appeals of the DCMA’s decisions.
***
NRTC, Pegasus and Related Litigation. On June 3, 1999 and on August 26, 1999, the NRTC filed
lawsuits against certain of our subsidiaries, including DIRECTV, Inc., in the U.S. District Court for the Central
District of California. For purposes of this section, we refer to all of our subsidiaries involved in these lawsuits
collectively as DIRECTV. The lawsuits alleged that DIRECTV breached its DBS Distribution Agreement with
the NRTC and wrongfully deprived it of the exclusive right to distribute certain programming, and sought
recovery of related revenues. DIRECTV denied the NRTC claims and asserted counterclaims against the NRTC.
A class action was filed in the same court against DIRECTV on behalf of the NRTC’s participating members on
February 29, 2000. The class, which the court certified, asserted claims identical to the claims that Pegasus and
Golden Sky Systems, Inc., or Golden Sky, asserted as described in the next paragraph. On August 11, 2003,
DIRECTV, the NRTC and the class representatives entered into a binding settlement term sheet and on January
5, 2004, the Court approved the class action settlement at a fairness hearing, resulting in the dismissal of all
claims by and between DIRECTV, the NRTC and the class.
Pegasus and Golden Sky, the two largest NRTC affiliates, which we refer to in this paragraph as Plaintiffs,
filed an action on January 11, 2000 against DIRECTV in the same court as the NRTC case. The Plaintiffs
alleged, among other things, that DIRECTV interfered with their contractual relationship with the NRTC. The
Plaintiffs alleged that their rights and damages are derivative of the rights and damages asserted by the NRTC in
its lawsuits against DIRECTV discussed above. On May 22, 2003, the Court granted DIRECTV’s motion for
summary judgment on the interference claims, eliminating all claims for compensatory damages and punitive
damages asserted by Plaintiffs and narrowing other of Plaintiffs’ claims. Plaintiffs have not accepted
DIRECTV’s offer to settle on the same terms as the class settlement described above. However, DIRECTV
believes that the remaining issues regarding the term of Plaintiffs’ contractual rights and its future relationship
with DIRECTV have been determined by the settlement because Plaintiffs’ rights are derived from its contract
with the NRTC. On January 23, 2004, DIRECTV moved to dismiss all of Plaintiffs’ remaining claims and moved
for reconsideration of its summary judgement motion on the term of Plaintiffs’ member agreement.
DIRECTV filed suit in California State Court, Los Angeles County, on June 22, 2001 against Pegasus and
Golden Sky, which we refer to collectively in this paragraph as the Defendants. The lawsuit seeks to recover
approximately $54 million, excluding interest, that Defendants owe DIRECTV under the parties’ Seamless
Marketing Agreement, which provides for reimbursement to DIRECTV of certain costs that resulted from new
subscriber activations in Defendants’ territory. Defendants had ceased making payments, and indicated that they
did not intend to make any further payments due under the agreement. On July 16, 2001, Defendants filed a cross
complaint. Defendants then removed the action to the U.S. District Court for the Central District of California,
where it was transferred to the judge hearing the other cases described above. DIRECTV denies any liability to
Defendants, and intends to vigorously pursue the amounts owed to it, plus interest, from Defendants and defend
against Defendants’ counterclaims. The trial date is set for March 23, 2004. This matter is not affected by the
settlement described above.
On February 1, 2001 and September 19, 2001, the NRTC filed lawsuits in the U.S. District Court for the
Central District of California against DIRECTV seeking a declaration from the court that it is not required to
defend and indemnify DIRECTV for certain litigation pursued by its members. As part of the settlement
described above, these cases were dismissed by the parties on January 8, 2004. The NRTC agreed to waive all
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