DIRECTV 2006 Annual Report Download - page 42

THE DIRECTV GROUP, INC.
ITEM 2. PROPERTIES
As of December 31, 2006, we had 32 locations operating in 18 states and 28 cities in the United
States and 17 additional locations operating in 17 cities in eight countries outside the United States. At
such date, we owned 2.3 million square feet of space and leased an additional 1.7 million square feet of
space. The major locations of the DIRECTV U.S. segment include six administrative offices, two
broadcast centers and four call centers. The major locations of the DIRECTV Latin America segment
include six administrative offices, four broadcast centers and five call centers. We consider our
properties adequate for our present needs.
ITEM 3. LEGAL PROCEEDINGS
(a) Material pending legal proceedings, other than ordinary routine litigation incidental to the
business, to which we became or were a party during the year ended December 31, 2006 or subsequent
thereto, but before the filing of this report, are summarized below:
Intellectual Property Litigation. We are a defendant in several unrelated lawsuits claiming
infringement of various patents relating to various aspects of our businesses. In certain of these cases
other industry participants are also defendants, and also in certain of these cases we expect that any
potential liability would be the responsibility of our equipment vendors pursuant to applicable
contractual indemnification provisions. To the extent that the allegations in these lawsuits can be
analyzed by us at this stage of their proceedings, we believe the claims are without merit and intend to
defend the actions vigorously. The final disposition of these claims is not expected to have a material
adverse effect on our consolidated financial position, but could possibly be material to our consolidated
results of operations of any one period. Further, no assurance can be given that any adverse outcome
would not be material to our consolidated financial position.
In this connection, on April 4, 2005, Finisar Corporation filed a patent infringement action in the
United States District Court for the Eastern District of Texas (Beaumont) alleging that DIRECTV
Group, DIRECTV Holdings, DIRECTV Enterprises, LLC, DIRECTV Operations, LLC,
DIRECTV, Inc., and DTV Network Systems, Inc. infringed U.S. Patent No. 5,404,505. On June 23,
2006, the jury determined that we willfully infringed this patent and awarded approximately
$78.9 million in damages. On July 7, 2006, the Court entered its final written judgment which denied
Finisar’s request for an injunction and instead granted us a compulsory license. Under the license we
would be obligated to pay Finisar $1.60 per new set-top box manufactured for use with the DIRECTV
system beginning June 17, 2006 and continuing until the patent expires in 2012 or is otherwise found to
be invalid. The Court also increased the damages award by $25.0 million because of the jury finding of
willful infringement and awarded pre-judgment interest of $13.4 million to Finisar. Post-judgment
interest accrues on the total judgment.
We filed a notice of appeal to the Court of Appeals for the Federal Circuit on October 5, 2006
and Finisar also filed a notice of appeal on October 18, 2006. A bond was submitted to the District
Court in the amount of $126.7 million as required security for the damages awarded but not yet paid
pending appeal plus interest for the anticipated duration of the appeal. We were successful in obtaining
an order that post-judgment royalties pursuant to the compulsory license shall be paid and held in
escrow pending outcome of the appeal. Through December 31, 2006, the amount of the compulsory
license fee amounted to $12.1 million, which has been paid into escrow.
Based on our review of the record in this case, including discussion with and analysis by counsel of
the bases for our appeal, we have determined that we have a number of strong arguments available on
appeal and, although there can be no assurance as to the ultimate outcome, we are confident that the
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