Dish Network 2007 Annual Report Download - page 127

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Table of Contents
ECHOSTAR COMMUNICATIONS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — Continued
consumers. We cannot predict with any degree of certainty the outcome of the suit or determine the extent of any potential liability or damages.
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.
F-40