Dish Network 2013 Annual Report Download - page 55

45
45
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, which the New York State Supreme Court, Appellate Division, First Department
(the “First Department”) affirmed on April 2, 2013. We sought leave to further appeal, which the New York Court
of Appeals denied on August 27, 2013 on jurisdictional grounds. On September 19, 2013, we appealed the trial
court’s final judgment to the First Department. The parties have submitted a stipulation to adjourn our appeal
pending resolution of a motion by ESPN to strike our appeal.
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 was disputed. On December 29, 2010, the First Department affirmed the partial grant of
ESPN’s motion for summary judgment 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 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.
On June 21, 2011, the First Department affirmed the New York State Supreme Court’s ruling that we owe
approximately $66 million under the applicable affiliation agreements and, on October 18, 2011, denied our motion
for leave to appeal that decision to New York’s highest court, the New York Court of Appeals. We sought leave to
appeal directly to the New York Court of Appeals and, on January 10, 2012, the New York Court of Appeals
dismissed our motion for leave on the ground that the ruling upon which we appealed does not fully resolve all
claims in the action. As a result of the First Department’s June 2011 ruling, we recorded $24 million of “Litigation
Expense” on our Consolidated Statements of Operations and Comprehensive Income (Loss) during 2011. On
October 11, 2012, the New York State Supreme Court awarded ESPN $5 million in attorneys’ fees as the prevailing
party on both our claim and ESPN’s counterclaim. As a result, we recorded $5 million of “General and
administrative expenses” and increased our “Litigation accrual” to a total of $71 million related to this case as of
December 31, 2012. During the first quarter 2013, we paid $71 million to ESPN related to the counterclaim and
attorneys’ fees and $12 million for accrued interest, which amounts we may be able to recover if our further appeals
are successful. We intend to vigorously prosecute and defend this case.
Garnet Digital, LLC
On September 9, 2013, Garnet Digital, LLC (“Garnet Digital”) filed a complaint against us and 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. 5,379,421 (the “421 patent”), which is entitled “Interactive Terminal for
the Access of Remote Database Information.” The 421 patent relates to methods for accessing information from a
remote computerized database and related devices. On the same day, Garnet Digital filed similar complaints in the
same court against 15 other defendants, including AT&T Inc., Comcast Corp., DirecTV, TiVo, Inc., and Verizon
Communications, Inc. Garnet Digital 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 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.