DIRECTV 2004 Annual Report Download - page 30

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THE DIRECTV GROUP, INC.
refer to together in this paragraph as the “DIRECTV defendants,” The DIRECTV Group, Inc., Thomson Inc., EchoStar
Communications Corporation, EchoStar Satellite Corporation and EchoStar Technologies Corporation, alleging patent
infringement and seeking unspecified damages and injunctive relief. Gemstar Development Corp. was added as a third party
defendant because it asserts to have exclusive control of the patents by reason of a license agreement with SuperGuide
Corporation. On July 3, 2002, the court granted summary judgment of non-infringement to the DIRECTV defendants, us and
DIRECTV system manufacturers under all asserted claims of the patents in the case. Judgment for all defendants dismissing all
claims of infringement and awarding costs to defendants was entered on July 25, 2002. On February 12, 2004, the Court of
Appeals for the Federal Circuit affirmed the decision in part and reversed in part, and remanded the action for further
proceedings.
* * *
On April 18, 1997, International Electronics Technology Corp. filed suit in the U.S. District Court for the Central District of
California against DIRECTV, Inc., Hughes Aircraft Co., and Thomson Inc., alleging infringement of one U.S. patent and
seeking unspecified damages and injunction. Plaintiff has asserted an interpretation of the claims at issue that relates to
conditional access technology, and DIRECTV, Inc. has turned over the defense to NDS Limited. Trial has not yet been
scheduled. DIRECTV, Inc. has raised defenses of non-infringement and/or invalidity.
* * *
CAS 413 Administrative Proceedings. As part of the combination of our defense business with Raytheon Company, or
Raytheon, in 1997 and the sale of our satellite systems manufacturing businesses to The Boeing Company, or Boeing, in 2000,
transfers were made from our retirement plans to the retirement plans of the buyer in each case of actuarial accrued liabilities
and pension assets, including an appropriate portion of any pension surplus attributable to the businesses. The Defense Contract
Management Agency, or DCMA, of the U.S. Department of Defense objected to our calculation of the appropriate pension
surplus transferred in these sales under Cost Accounting Standard 413, or CAS 413, which addresses the treatment of pension
assets in such cases. The DCMA issued a Finding of Noncompliance with CAS 413 on September 30, 2003 in the Raytheon
transaction and on October 6, 2003 in the Boeing transaction. We responded timely to both findings. On December 12, 2003,
the DCMA issued a Final Decision and Demand of Payment related to the Raytheon transaction of approximately $69 million,
including interest. We also anticipate an adverse decision by the DCMA on the Boeing transaction.
On September 3, 2004, we filed a complaint in the U.S. Court of Federal Claims, The DIRECTV Group, Inc. v. United States,
Case No. 04-1414C, seeking a determination that we have no liability for any segment claims adjustment in connection with the
Raytheon and Boeing transactions. The government filed its Answer and Counterclaim on December 17, 2004, seeking an
unspecified segment claims adjustment amount plus interest for the Raytheon transaction. We filed a Reply to Counterclaim on
January 6, 2005.
We contend that we have complied with CAS 413 and no further amount is due to the U.S. government. We believe our
position is supported by the 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.
* * *
Darlene Litigation. On October 18, 2004, Darlene filed suit in the circuit court of Miami-Dade County, Florida, against us
and certain of our subsidiaries (including DLA LLC), News Corporation and others. We and certain of the other defendants
have removed this matter to the U.S. District Court for the Southern District of Florida. The suit alleges fraud and violation of
fiduciary, contractual and other duties owed Darlene and to DLA LLC by one or more of the defendants.
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