DIRECTV 2011 Annual Report Download - page 122

DIRECTV
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(continued)
claims of seven United States patents and sought an injunction and a monetary costs we incur when customers cancel service before fulfilling their programming
award including damages for infringement, interest, costs, and attorney’s fees. In commitments.
May, 2003, the suit was stayed pending reexamination by the United States Patent ECAD. Sky Brazil, along with other video distributors in Brazil, is disputing
and Trademark Office of certain claims of the asserted patents. The stay was lifted charges assessed by Escritorio Central de Arrecadacao, or ECAD, the organization
in November, 2011, and trial is presently scheduled for November, 2013. The suit responsible for collecting performance rights fees under Brazilian law. Sky Brazil has
now involves claims of four of the seven patents originally asserted, all of which been withholding payments to ECAD since 2004, and has accrued amounts both
have expired, and the validity and infringement of which are disputed by we and Sky Brazil believe are adequate to satisfy amounts owed to ECAD. In order
DIRECTV. to continue its opposition to ECAD’s claims, in October 2011, Sky Brazil was
Other Intellectual Property Litigation. We are a defendant in several unrelated required to provide a letter of credit in the amount of approximately $85 million
lawsuits claiming infringement of various patents relating to various aspects of our which represents the contested fees plus accrued interest and penalties, for the
businesses. In certain of these cases other industry participants are also defendants, period from January 2004 to September 2009, plus an additional 30% required by
and also in certain of these cases we expect that at least some potential liability Brazilian law. Sky Brazil’s dispute with ECAD is currently pending in the Superior
would be the responsibility of our equipment vendors pursuant to applicable Justice Tribunal, and there are other claims by the Brazilian pay television
contractual indemnification provisions. To the extent that the allegations in these association, known as ABTA, against ECAD before the Brazilian antitrust board, or
lawsuits can be analyzed by us at this stage of their proceedings, we believe the CADE, which may affect ECAD or the rights fees it is attempting to collect.
claims are without merit and intend to defend the actions vigorously. We have From time to time, we receive investigative inquiries or subpoenas from state
determined that the likelihood of a material liability in such matters is remote or and federal authorities with respect to alleged violations of state and federal statutes.
have made appropriate accruals and the final disposition of these claims is not These inquiries may lead to legal proceedings in some cases. DIRECTV U.S. has
expected to have a material effect on our consolidated financial position. However, received a request for information from the Federal Trade Commission, or FTC, on
if an adverse ruling is made in a lawsuit involving key intellectual property, such issues similar to those recently resolved with a multistate group of state attorneys
ruling could result in a loss that would be material to our consolidated results of general. We are cooperating with the FTC by providing information about our sales
operations of any one period. No assurance can be given that any adverse outcome and marketing practices and customer complaints.
would not be material to our consolidated financial position.
Income Tax Matters
Early Cancellation Fees. In 2008, a number of plaintiffs filed putative class
action lawsuits in state and federal courts challenging the early cancellation fees we We have received tax assessments from certain foreign jurisdictions and have
assess our customers when they do not fulfill their programming commitments. agreed to indemnify previously divested businesses for certain tax assessments
Several of these lawsuits are pending, some in California state court purporting to relating to periods prior to their respective divestitures. These assessments are in
represent statewide classes, and some in federal courts purporting to represent various stages of the administrative process or litigation, and we believe we have
nationwide classes. The lawsuits seek both monetary and injunctive relief. While the adequately provided for any related liability.
theories of liability vary, the lawsuits generally challenge these fees under state While the outcome of these assessments and other tax issues cannot be
consumer protection laws as both unfair and inadequately disclosed to customers. predicted with certainty, we believe that the ultimate outcome will not have a
Our motions to compel arbitration have been granted in all of the federal cases, material effect on our consolidated financial statements.
except as to claims seeking injunctive relief under California statutes. The denial of
our motion as to those claims is currently on appeal. We believe that our early During the third quarter of 2010 we entered into an agreement with a former
cancellation fees are adequately disclosed, and represent reasonable estimates of the owner to settle certain uncertain tax positions. As a result of this settlement we
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