TiVo 2004 Annual Report Download - page 39

Table of Contents
Index to Financial Statements
Sony's allegations that the patents-in-suit are unenforceable was conducted in October 2004. On January 7, 2005, the Court issued a Findings of Fact and
Conclusions of Law ruling that the patents-in-suit are not unenforceable based on the allegations presented in the October 2004 trial. Trial of the remaining
issues, including infringement of certain asserted patent claims, validity of all the asserted patent claims and Sony's remaining allegations regarding the
enforceability of the patents, is scheduled to commence in October 2005. Under the terms of our agreement with Sony governing the distribution of certain
DVRs that enable the TiVo service, we are required to indemnify Sony against any and all claims, damages, liabilities, costs, and expenses relating to claims
that our technology infringes upon intellectual property rights owned by third parties. We believe Sony has meritorious defenses against this lawsuit; however,
due to our indemnification obligations, we are incurring material expenses in connection with this litigation. Since February 2002, we have incurred $5.5
million in legal expenses. The outcome of this matter or range of potential losses is currently not determinable. If Sony were to lose this lawsuit, our business
could be harmed.
On August 5, 2004, Compression Labs, Inc. filed a complaint against TiVo, Acer American Corporation, AudioVox Corporation, BancTec, Inc., BenQ
America Corporation, Color Dreams, Inc. (d/b/a StarDot Technologies), Google Inc., ScanSoft, Inc., Sun Microsystems Inc., Veo Inc., and Yahoo! Inc. in the
U.S. District Court for the Eastern District of Texas alleging infringement, inducement of others to infringe, and contributory infringement of U.S. Patent No.
4,698,672, entitled "Coding System For Reducing Redundancy." The complaint alleges that Compression Labs, Inc. is the owner of this patent and has the
exclusive rights to sue and recover for infringement thereof. The complaint further alleges that the defendants have infringed, induced infringement, and
contributorily infringed this patent by selling devices and/or systems in the United States, at least portions of which are designed to be at least partly
compliant with the JPEG standard. On February 16, 2005, the Court ordered the case transferred to The U.S. District Court for the Northern District of
California. We intend to defend this action vigorously; however, we could be forced to incur material expenses in the litigation and, in the event there is an
adverse outcome, our business could be harmed.
On November 23, 2004, Digital Development Corporation filed a complaint against us in the U.S. District Court for the Southern District of New York
alleging infringement, inducement of others to infringe, and contributory infringement of U.S. Patent Nos. 4,975,950 and 5,121,345, each entitled "System
and Method of Protecting Integrity of Computer Data and Software." On January 27, 2005, we entered into a settlement agreement with Digital Development
Corporation in which we agreed to license the patents at issue for an immaterial amount, and on February 23, 2005, the Court dismissed the case.
In August and September 2004, Phillip Igbinadolor, on behalf of himself, filed complaints against TiVo, Sony Corporation, Sony Electronics, Inc.,
Sony Corporation of America, JVC, Clarrion Corporation of America, and Philips Consumer Electronics Company in the U.S. District Court for the Eastern
District of New York alleging infringement of U.S. Patent Nos. 395,884 and 6,779,196 and U.S. Trademark No. 2,260,689, each relating to an "integrated car
dubbing system." The complaints were consolidated into one action captioned Igbinadolor v. Sony Corporation et al. The complaints allege that Mr.
Igbinadolor is the owner of the patents and trademark allegedly infringed. On November 10, 2004, we filed our answer, affirmative defenses and
counterclaims and on January 31, 2005, we filed a motion for summary judgment. We are incurring expenses in connection with this litigation that may
become material in the future, and in the event there is an adverse outcome, our business could be harmed.
In addition, we are aware that some media companies may attempt to form organizations to develop standards and practices in the digital video recorder
industry. These organizations or individual media companies may attempt to require companies in the digital video recorder industry to obtain copyright or
other licenses. Lawsuits or other actions taken by these types of organizations or companies could make it more difficult for us to introduce new services,
delay widespread consumer acceptance of our products and services, restrict our use of some television content, increase our costs, and adversely affect our
business.
We are dependent on our relationship with DIRECTV for subscription growth.
Our relationship with DIRECTV could be affected in the future by News Corp.'s acquisition of The DIRECTV Group. On December 22, 2003, News
Corp. acquired General Motor's 19.8% economic interest in Hughes, subsequently renamed The DIRECTV Group. Simultaneously, News Corp. acquired an
additional 14.2% of The DIRECTV Group for a total of 34% of its outstanding stock. It is possible that DIRECTV under News Corp. could seek to transition
to an alternative DVR technology platform, such as that created by NDS, which is majority-owned by News Corp. It is also possible News Corp. may slow
the pace of DVR deployment by DIRECTV in an effort to protect its content businesses from perceived threats posed by DVRs. DIRECTV has recently
announced that its core initiatives and new customer acquisition will focus on its new DVR from NDS.
If our current development agreement with DIRECTV expires without being renewed, amended, or replaced, our business could be harmed. A
significant number of our new and existing TiVo service subscriptions are DIRECTV customers with TiVo service. Our current development agreement with
DIRECTV does not expire until February 2007. Neither TiVo nor DIRECTV will have any further obligations to each other if our current development
agreement with DIRECTV expires without being renewed, amended, or replaced. While DIRECTV would have the right to continue to service existing
DIRECTV receivers with TiVo service without payment to us, it would not have the right to add new DIRECTV customers with TiVo service. And while
TiVo would no longer be able to generate additional revenue from the then-current DIRECTV customers with TiVo service, we would have no further
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