Dish Network 2012 Annual Report Download - page 92

DISH NETWORK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
F-74
$300 million and the remaining $200 million in six equal annual installments between 2012 and 2017. Pursuant to the
terms and conditions of the agreements entered into in connection with the Spin-off of EchoStar from us, we made the
initial payment to TiVo in May 2011, except for the contribution from EchoStar totaling approximately $10 million,
representing an allocation of liability relating to EchoStar’s sales of DVR-enabled receivers to an international
customer. Future payments will be allocated between us and EchoStar based on historical sales of certain licensed
products, with us being responsible for 95% of each annual payment.
Our total litigation accrual for TiVo was $517 million as of December 31, 2010. As a result of the settlement
agreement, during 2011, we reversed $335 million of this accrual and made a payment of approximately $290
million for our portion of the initial payment to TiVo. Of this amount, approximately $182 million related to
periods prior to 2011 and the remaining $108 million represented a prepayment. Our $108 million prepayment and
our $190 million share of the remaining payments, a total of $298 million, is being expensed ratably as a subscriber-
related expense from April 1, 2011 through July 31, 2018, the expiration date of the ‘389 patent. In connection with
our TiVo settlement, TiVo agreed to advertise and market certain of our products and services. As a result, during
2011, $6 million was recognized as a reduction of litigation expense and we recorded a pre-paid marketing asset on
our Consolidated Statements of Operations and Comprehensive Income (Loss) and our Consolidated Balance
Sheets, respectively, which is being amortized as costs of sales over the term of the agreement.
In addition, under the settlement agreement, TiVo granted us a license under its ‘389 patent and certain related
patents, for the remaining life of those patents, with respect to DISH-branded and co-branded products and services.
We and EchoStar, on the one hand, and TiVo, on the other hand, have also agreed on mutual releases of certain related
claims and agreed not to challenge each other’s DVR technology-related patents that are licensed under the settlement
agreement.
Because both we and EchoStar were defendants in the TiVo lawsuit, we and EchoStar were jointly and severally liable
to TiVo for any final damages and sanctions that could have been awarded by the District Court. As previously
disclosed, we determined that we were obligated under the agreements entered into in connection with the Spin-off to
indemnify EchoStar for substantially all liability arising from this lawsuit. EchoStar contributed an amount equal to its
$5 million intellectual property liability limit under the receiver agreement. We and EchoStar further agreed that
EchoStar’s $5 million contribution would not exhaust EchoStar’s liability to us for other intellectual property claims
that may arise under the receiver agreement. We and EchoStar also agreed that we would each be entitled to joint
ownership of, and a cross-license to use, any intellectual property developed in connection with any potential new
alternative technology. Any amounts that EchoStar is responsible for under the settlement agreement with TiVo are in
addition to the $5 million contribution previously made by EchoStar.
EchoStar XV Launch Service. During 2009, EchoStar assigned certain of its rights under a launch contract to us for
EchoStar’s fair value of $103 million. This amount was paid to EchoStar during the first quarter 2010. We
recorded these rights at EchoStar’s net book value of $89 million and recorded the $14 million difference between
EchoStar’s net book value and our purchase price as a capital transaction with EchoStar. We used these rights to
launch EchoStar XV in July 2010.
Weather Related Programming Agreement. During May 2010, we entered into an agreement pursuant to which,
among other things, EchoStar agreed to develop certain weather related programming and we received the right to
distribute such programming. This agreement was terminated during June 2010. In July 2010, we purchased
EchoStar’s interest in the entity that was developing such weather related programming for $5 million.
International Programming Rights Agreement. During the years ended December 31, 2012 and 2011, we made no
purchases and for the year ended December 31, 2010, we purchased $2 million of certain international rights for
sporting events from EchoStar, included in “Subscriber-related expenses” on the Consolidated Statements of
Operations and Comprehensive Income (Loss), of which EchoStar only retained a certain portion.
Acquisition of South.com, L.L.C. During October 2010, we purchased all of South.com, L.L.C. from EchoStar and
another party for $5 million. South.com, L.L.C. is an entity that holds certain authorizations for multichannel video
and data distribution service (“MVDDS”) spectrum in the United States.
DISH NETWORK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
F-75
Patent Cross-License Agreements. During December 2011, we and EchoStar entered into separate patent cross-
license agreements with the same third party whereby: (i) EchoStar and such third party licensed their respective
patents to each other subject to certain conditions; and (ii) we and such third party licensed our respective patents to
each other subject to certain conditions (each, a “Cross-License Agreement”). Each Cross License Agreement
covers patents acquired by the respective party prior to January 1, 2017 and aggregate payments under both Cross-
License Agreements total less than $10 million. Each Cross License Agreement also contains an option to extend
each Cross-License Agreement to include patents acquired by the respective party prior to January 1, 2022. If both
options are exercised, the aggregate additional payments to such third party would total less than $3 million.
However, we and EchoStar may elect to extend our respective Cross-License Agreement independently of each
other. Since the aggregate payments under both Cross-License Agreements were based on the combined annual
revenues of us and EchoStar, we and EchoStar agreed to allocate our respective payments to such third party based
on our respective percentage of combined total revenue.
Sprint Settlement Agreement. On November 3, 2011, we and Sprint entered into the Sprint Settlement Agreement
pursuant to which all disputed issues relating to the DBSD Transaction and the TerreStar Transaction were resolved
between us and Sprint, including, but not limited to, issues relating to the costs allegedly incurred by Sprint to
relocate users from the spectrum then licensed to DBSD North America and TerreStar (the “Sprint Clearing Costs”).
EchoStar was a party to the Sprint Settlement Agreement solely for the purposes of executing a mutual release
between it and Sprint relating to the Sprint Clearing Costs. EchoStar was a holder of certain TerreStar debt
instruments. In March 2012, EchoStar’s remaining debt instruments were exchanged for a right to receive a
distribution in accordance with the terms of the liquidating trust established pursuant to TerreStar’s chapter 11 plan
of liquidation. Pursuant to the terms of the Sprint Settlement Agreement, we made a net payment of approximately
$114 million to Sprint.
Hughes Broadband Distribution Agreement. Effective October 1, 2012, dishNET Satellite Broadband L.L.C.
(“dishNET Satellite Broadband”), our wholly-owned subsidiary, and HNS entered into a Distribution Agreement
(the “Distribution Agreement”) pursuant to which dishNET Satellite Broadband has the right, but not the obligation,
to market, sell and distribute the HNS satellite Internet service (the “Service”). dishNET Satellite Broadband pays
HNS a monthly per subscriber wholesale service fee for the Service based upon the subscriber’s service level, and,
beginning January 1, 2014, certain volume subscription thresholds. The Distribution Agreement has a term of five
years with automatic renewal for successive one year terms unless either party gives written notice of its intent not
to renew to the other party at least 180 days before the expiration of the then-current term. Upon expiration or
termination of the Distribution Agreement, the parties will continue to provide the Service to the then-current
dishNET subscribers pursuant to the terms and conditions of the Distribution Agreement. During the year ended
December 31, 2012, we paid $1 million for these services from HNS, included in “Subscriber-related expenses” on
the Consolidated Statements of Operations and Comprehensive Income (Loss). Since this Distribution Agreement
was entered into effective October 1, 2012, we incurred no expenses in prior periods.
Voom Settlement Agreement. On October 21, 2012, we entered into 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. EchoStar was a party to the Voom Settlement Agreement solely for the purposes of
executing a mutual release of claims with Voom, Cablevision, MSG Holdings, L.P. and The Madison Square
Garden Company relating to the Voom programming services.
Radio Access Network Agreement. On November 29, 2012, we entered into an agreement with HNS pursuant to
which HNS will construct for us a ground-based satellite radio access network (“RAN”) for a fixed fee. The
completion of the RAN under this agreement is expected to occur on or before November 29, 2014. This agreement
generally may be terminated by us at any time for convenience. As of December 31, 2012, we capitalized $3
million for these services, included in “Property and equipment, net” on our Consolidated Balance Sheets.