Dish Network 2012 Annual Report Download - page 83

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Patents and Intellectual Property
Many entities, including some of our competitors, have or may in the future obtain patents and other intellectual
property rights that cover or affect products or services that we offer or that we may offer in the future. We may not be
aware of all intellectual property rights that our products or services may potentially infringe. Damages in patent
infringement cases can be substantial, and in certain circumstances can be trebled. Further, we cannot estimate the
extent to which we may be required in the future to obtain licenses with respect to patents held by others and the
availability and cost of any such licenses. Various parties have asserted patent and other intellectual property rights
with respect to components within our direct broadcast satellite system. We cannot be certain that these persons do not
own the rights they claim, that our products do not infringe on these rights, and/or that these rights are not valid.
Further, we cannot be certain that we would be able to obtain licenses from these persons on commercially reasonable
terms or, if we were unable to obtain such licenses, that we would be able to redesign our products to avoid
infringement.
Contingencies
Separation Agreement
In connection with the Spin-off, we entered into a separation agreement with EchoStar that provides, among other
things, for the division of certain liabilities, including liabilities resulting from litigation. Under the terms of the
separation agreement, EchoStar has assumed certain liabilities that relate to its business including certain designated
liabilities for acts or omissions that occurred prior to the Spin-off. Certain specific provisions govern intellectual
property related claims under which, generally, EchoStar will only be liable for its acts or omissions following the
Spin-off and we will indemnify EchoStar for any liabilities or damages resulting from intellectual property claims
relating to the period prior to the Spin-off as well as our acts or omissions following the Spin-off.
Litigation
We are involved in a number of legal proceedings (including those described below) concerning matters arising in
connection with the conduct of our business activities. Many of these proceedings are at preliminary stages, and
many of these proceedings seek an indeterminate amount of damages. We regularly evaluate the status of the legal
proceedings in which we are involved to assess whether a loss is probable or there is a reasonable possibility that a
loss or an additional loss may have been incurred and to determine if accruals are appropriate. If accruals are not
appropriate, we further evaluate each legal proceeding to assess whether an estimate of the possible loss or range of
possible loss can be made.
For certain cases described on the following pages, management is unable to provide a meaningful estimate of the
possible loss or range of possible loss because, among other reasons, (i) the proceedings are in various stages; (ii)
damages have not been sought; (iii) damages are unsupported and/or exaggerated; (iv) there is uncertainty as to the
outcome of pending appeals or motions; (v) there are significant factual issues to be resolved; and/or (vi) there are
novel legal issues or unsettled legal theories to be presented or a large number of parties (as with many patent-
related cases). For these cases, however, management does not believe, based on currently available information,
that the outcomes of these proceedings will have a material adverse effect on our financial condition, though the
outcomes could be material to our operating results for any particular period, depending, in part, upon the operating
results for such period.
c4cast.com, Inc.
On May 7, 2012, c4cast.com, Inc. filed a complaint against us and 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. 7,958,204 (the “204 patent”), which is entitled “Community-Selected Content.” The 204 patent relates
to systems, methods and techniques for providing resources to participants over an electronic network.
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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.
Channel Bundling Class Action
During 2007, a purported class of cable and satellite subscribers filed an antitrust action against our wholly-owned
subsidiary, DISH Network L.L.C., in the United States District Court for the Central District of California. The suit
also names as defendants DirecTV, Comcast, Cablevision, Cox, Charter, Time Warner, Inc., Time Warner Cable,
NBCUniversal, Viacom, Fox Entertainment Group and Walt Disney Company. The suit alleges, among other
things, that the defendants engaged in a conspiracy to provide customers with access only to bundled channel
offerings as opposed to giving customers the ability to purchase channels on an “a la carte” basis. On October 16,
2009, the District Court entered an order granting the defendants’ motion to dismiss with prejudice. On June 3,
2011, the U.S. Court of Appeals for the Ninth Circuit affirmed the District Court’s order. The plaintiff class sought
rehearing en banc. On October 31, 2011, the Ninth Circuit issued an order vacating the previous June 3, 2011
order, directing that a 3-judge panel be reconstituted, and denying the plaintiff class’ motion for rehearing. On
March 30, 2012, the reconstituted panel of the Ninth Circuit again affirmed the District Court’s order. On April 10,
2012, the plaintiff class again filed a petition for rehearing en banc, which was denied on May 4, 2012. On August
2, 2012, the plaintiff class filed a petition seeking review by the United States Supreme Court, which was denied on
November 5, 2012. The matter is now concluded.
Cyberfone Systems, LLC (f/k/a LVL Patent Group, LLC)
On September 15, 2011, LVL Patent Group, LLC filed a complaint against our wholly-owned subsidiary, DISH
Network L.L.C., as well as EchoStar, EchoStar Technologies L.L.C., a wholly-owned subsidiary of EchoStar, and
DirecTV in the United States District Court for the District of Delaware alleging infringement of United States
Patent No. 6,044,382, which is entitled “Data Transaction Assembly Server.” DirecTV was dismissed from the case
on January 4, 2012. On July 12, 2012, Cyberfone Systems, LLC (f/k/a LVL Patent Group, LLC) filed the operative
second amended complaint making the same claim. On January 24, 2013, Cyberfone Systems, LLC voluntarily
dismissed the action against us and the EchoStar entities without prejudice, and the matter is now concluded.
ESPN
During 2008, our wholly-owned subsidiary, DISH Network L.L.C., filed a lawsuit against ESPN, Inc., ESPN
Classic, Inc., ABC Cable Networks Group, Soapnet L.L.C. and International Family Entertainment (collectively,
“ESPN”) for breach of contract in New York State Supreme Court. Our complaint alleges that ESPN failed to
provide us with certain HD feeds of the Disney Channel, ESPN News, Toon and ABC Family. In October 2011,
the jury returned a verdict in favor of the defendants. We have appealed.
ESPN had asserted a counterclaim alleging that we owed approximately $35 million under the applicable affiliation
agreements. On April 15, 2009, the New York State Supreme Court granted, in part, ESPN’s motion for summary
judgment on the counterclaim, finding that we are liable for some of the amount alleged to be owing but that the
actual amount owing is disputed. On December 29, 2010, the New York State Supreme Court, Appellate Division,
First Department affirmed the partial grant of ESPN’s motion on the counterclaim. After the partial grant of
ESPN’s motion for summary judgment, ESPN sought an additional $30 million under the applicable affiliation
agreements. On March 15, 2010, the New York State Supreme Court affirmed the prior grant of ESPN’s motion
and ruled that we owe the full amount of approximately $66 million under the applicable affiliation agreements. As
of December 31, 2010, we had $42 million recorded as a “Litigation accrual” on our Consolidated Balance Sheets.