Dish Network 2012 Annual Report Download - page 31

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TQP Development, LLC
On April 4, 2012, TQP Development, LLC (“TQP Development”) filed suit against our wholly-owned subsidiary,
DISH Network L.L.C., in the United States District Court for the Eastern District of Texas alleging infringement of
United States Patent No. 5,412,730 titled “Encrypted Data Transmission System Employing Means for Randomly
Altering the Encryption Keys.” TQP Development is an entity that seeks to license an acquired patent portfolio
without itself practicing any of the claims recited therein.
We intend to vigorously defend this case. In the event that a court ultimately determines that we infringe the
asserted patent, we may be subject to substantial damages, which may include treble damages, and/or an injunction
that could cause us to materially modify certain 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.
Tse
On May 30, 2012, Ho Keung Tse filed a complaint against our wholly-owned subsidiary, Blockbuster L.L.C., in the
United States District Court for the Eastern District of Texas alleging infringement of United States Patent No.
6,665,797, which is entitled “Protection of Software Again [sic] Against Unauthorized Use.” Mr. Tse is the named
inventor on the patent. On the same day that he sued Blockbuster, Mr. Tse filed a separate action in the same court
alleging infringement of the same patent against Google, Samsung and HTC. He also has earlier-filed litigation on
the same patent pending in the United States District Court for the Northern District of California against Sony
Connect, Inc., Napster, Inc., Apple Computer, Inc., Realnetworks, Inc., and MusicMatch, Inc.
We intend to vigorously defend this case. In the event that a court ultimately determines that we infringe the
asserted patent, we may be subject to substantial damages, which may include treble damages, and/or an injunction
that could require us to materially modify certain 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.
Vigilos, LLC
On February 23, 2011, Vigilos, LLC (“Vigilos”) filed suit against EchoStar, two EchoStar subsidiaries, Sling Media,
Inc. and EchoStar Technologies L.L.C., and Monsoon Multimedia, Inc. in the U.S. District Court for the Eastern
District of Texas alleging infringement of U.S. Patent No. 6,839,731, which is entitled “System and Method for
Providing Data Communication in a Device Network.” Subsequently in 2011, Vigilos added DISH Network L.L.C.,
our wholly-owned subsidiary, as a defendant in its First Amended Complaint and the case was transferred to the
Northern District of California. Later in 2011, Vigilos filed a Second Amended Complaint that added claims for
infringement of a second patent, U.S. Patent No. 7,370,074, which is entitled “System and Method for Implementing
Open-Protocol Remote Device Control” and Monsoon Multimedia was dismissed. Vigilos is an entity that seeks to
license an acquired patent portfolio without itself practicing any of the claims recited therein. On December 21,
2012, we and the EchoStar defendants entered into a settlement agreement with Vigilos under which we and the
EchoStar defendants made an immaterial payment in exchange for a license to certain patents and patent
applications. The case has been dismissed with prejudice.
Voom HD Holdings
In January 2008, Voom HD Holdings LLC (“Voom”) filed a lawsuit against our wholly-owned subsidiary, DISH
Network L.L.C., in New York Supreme Court, alleging breach of contract and other claims arising from our
termination of the affiliation agreement governing carriage of certain Voom HD channels on the DISH branded pay-
TV service and seeking over $2.5 billion in damages.
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On October 21, 2012, we entered into a confidential settlement agreement and release (the “Voom Settlement
Agreement”) with Voom and Cablevision, and for certain limited purposes, MSG Holdings, L.P., The Madison
Square Garden Company and EchoStar. The Voom Settlement Agreement resolved the litigation between the
parties relating to the Voom programming services. Pursuant to the terms of the Voom Settlement Agreement,
among other things: (i) the litigation between the parties relating to the Voom programming services was dismissed
with prejudice and the parties released each other for all claims against each other related thereto; (ii) we agreed to
pay $700 million in cash to Voom; (iii) DISH Media Holdings Corporation, our wholly-owned subsidiary, agreed to
enter into an agreement to transfer its ownership interest in Voom to Rainbow Programming Holdings, LLC, an
affiliate of Voom; and (iv) an affiliate of Cablevision agreed to enter into an agreement to transfer certain of its
wireless multichannel video distribution and data service licenses (the “MVDDS Licenses”) to us. The transfer of
the MVDDS Licenses is subject to FCC and other regulatory approvals. On October 23, 2012, we paid Voom $700
million.
Separately, we entered into a multi-year affiliation agreement with AMC Network Entertainment LLC, WE:
Women’s Entertainment LLC, The Independent Film Channel, The Sundance Channel L.L.C, each of which are
subsidiaries of AMC Networks Inc., and Fuse Channel LLC, a subsidiary of The Madison Square Garden Company,
for the carriage of AMC, WE, IFC, Sundance Channel and the Fuse channel.
Since the Voom Settlement Agreement and the multi-year affiliation agreement were entered into
contemporaneously, we accounted for all components of both agreements at fair value in the context of the Voom
Settlement Agreement. We determined the fair value of the multi-year affiliation agreement and the MVDDS
Licenses using a market-based approach and a probability-weighted discounted cash flow analysis, respectively.
Based on market data and similar agreements we have with other content providers, we allocated $54 million of the
payments under the multi-year affiliation agreement to the fair value of the Voom Settlement Agreement. The
resulting liability was recorded on our Consolidated Balance Sheets as “Accrued Programming” and will be
amortized as contra “Subscriber-related expenses” on a straight-line basis over the term of the agreement.
Evaluating all potential uses for the MVDDS Licenses, we assessed their fair value at $24 million and recorded
these on our Consolidated Balance Sheets as “FCC Authorizations”. The fair value of the Voom Settlement
Agreement was assessed at $730 million and is recorded as “Litigation expense” on our Consolidated Statement of
Operations and Comprehensive Income (Loss) for the year ended December 31, 2012.
Other
In addition to the above actions, we are subject to various other legal proceedings and claims which arise in the
ordinary course of business, including, among other things, disputes with programmers regarding fees. In our
opinion, the amount of ultimate liability with respect to any of these actions is unlikely to materially affect our
financial position, results of operations or liquidity, though the outcomes could be material to our operating results
for any particular period, depending, in part, upon the operating results for such period.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.