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ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – Continued
F–40
Tivo Inc.
During April 2006, a Texas jury concluded that certain of our digital video recorders, or DVRs, infringed a patent
held by Tivo. The Texas court subsequently issued an injunction prohibiting us from offering DVR functionality. A
Court of Appeals has stayed that injunction during the pendency of our appeal.
In accordance with Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies” (“SFAS
5”), we recorded a total reserve of $94.0 million in “Tivo litigation expense” on our Condensed Consolidated
Statement of Operations to reflect the jury verdict, supplemental damages and pre-judgment interest awarded by the
Texas court through September 8, 2006. Based on our current analysis of the case, including the appellate record
and other factors, we believe it is more likely than not that we will prevail on appeal. Consequently, we are not
recording additional amounts for supplemental damages or interest subsequent to the September 8, 2006 judgment
date. If the verdict is upheld on appeal, the $94.0 million amount would increase by approximately $35.0 million
through 2007.
If the verdict is upheld on appeal and we are not able to successfully implement alternative technology (including the
successful defense of any challenge that such technology infringes Tivo’s patent), we would owe substantial additional
damages and we could also be prohibited from distributing DVRs, or be required to modify or eliminate certain user-
friendly DVR features that we currently offer to consumers. In that event we would be at a significant disadvantage
to our competitors who could offer this functionality and, while we would attempt to provide that functionality
through other manufacturers, the adverse affect on our business could be material.
Acacia
In June 2004, Acacia Media Technologies (“Acacia”) filed a lawsuit against us in the United States District Court
for the Northern District of California. The suit also named DirecTV, Comcast, Charter, Cox and a number of
smaller cable companies as defendants. Acacia is an intellectual property holding company which seeks to license
the patent portfolio that it has acquired. The suit alleges infringement of United States Patent Nos. 5,132,992 (the
‘992 patent), 5,253,275 (the ‘275 patent), 5,550,863 (the ‘863 patent), 6,002,720 (the ‘720 patent) and 6,144,702
(the ‘702 patent). The ‘992, ‘863, ‘720 and ‘702 patents have been asserted against us.
The patents relate to various systems and methods related to the transmission of digital data. The ‘992 and ‘702
patents have also been asserted against several Internet content providers in the United States District Court for the
Central District of California. During 2004 and 2005, the Court issued Markman rulings which found that the ‘992
and ‘702 patents were not as broad as Acacia had contended, and that certain terms in the ‘702 patent were
indefinite. During April 2006, EchoStar and other defendants asked the Court to rule that the claims of the ‘702
patent are invalid and not infringed. That motion is pending. In June and September 2006, the Court held Markman
hearings on the ‘992, ‘863, ‘720 and ‘275 patents, and issued a ruling during December 2006. We believe the
decision is generally favorable to us, but we can not predict whether it will result in dismissal of the case.
Acacia’s various patent infringement cases have been consolidated for pre-trial purposes in the United States District
Court for the Northern District of California. We intend to vigorously defend this case. In the event that a Court
ultimately determines that we infringe any of the patents, we may be subject to substantial damages, which may
include treble damages and/or an injunction that could require us to materially modify certain user-friendly features
that we currently offer to consumers. We cannot predict with any degree of certainty the outcome of the suit or
determine the extent of any potential liability or damages.