DIRECTV 2007 Annual Report Download - page 109

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THE DIRECTV GROUP, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(continued)
In order to replace its broadcast capacity on a satellite that was nearing the end of its useful life,
Sky Brazil entered into a transponder capacity agreement on a replacement satellite. The replacement
satellite launched in October 2007 and the agreement began following successful in-orbit testing of the
satellite and transfer of services from the existing satellite in January 2008. The present value of
minimum payments under this estimated 15 year agreement, based on the life of the satellite, is
approximately $247 million. We expect to account for this agreement as a capital lease.
As part of an amended arrangement with Telesat Canada, a Canadian telecommunications and
broadcast services company, DIRECTV U.S. has agreed to provide Telesat the use of three of their
satellites, beginning in 2004, which were previously used as in-orbit spares, through the end of their
useful lives and in return, Telesat agreed to allow DIRECTV U.S. to use its 72.5west longitude, or
WL, orbital location through 2009. As part of these transactions, we recorded a $208 million 72.5WL
orbital license intangible asset and an accrual for deferred lease revenues of $117 million. We are
amortizing the 72.5WL orbital license intangible asset over an approximate five year period ending in
2009 and are recognizing the deferred lease revenues in ‘‘Revenues’’ in the Consolidated Statements of
Operations over an approximate two year period ending in the first quarter of 2009.
Contingencies
Litigation
Litigation is subject to uncertainties and the outcome of individual litigated matters is not
predictable with assurance. Various legal actions, claims and proceedings are pending against us arising
in the ordinary course of business. We have established loss provisions for matters in which losses are
probable and can be reasonably estimated. Some of the matters may involve compensatory, punitive, or
treble damage claims, or demands that, if granted, could require us to pay damages or make other
expenditures in amounts that could not be estimated at December 31, 2007. After discussion with
counsel representing us in those actions, it is the opinion of management that such litigation is not
expected to have a material adverse effect on our consolidated results of operations or financial
position.
Finisar Corporation. 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 The
DIRECTV Group, DIRECTV Holdings LLC, 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 $79 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 million
because of the jury finding of willful infringement and awarded pre-judgment interest of $13 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 $127 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 held in escrow
pending outcome of the appeal. Through December 31, 2007, the compulsory license fee amounted to
100