TiVo 2004 Annual Report Download - page 45

Table of Contents
Index to Financial Statements
seek unspecified monetary damages as well as an injunction against the defendants' further infringement of the patent. We could incur material expenses in
this litigation.
We could be prevented from selling or developing our TiVo software if the GNU General Public License governing the Linux operating system
and Linux kernel and similar licenses under which our product is developed and licensed is not enforceable.
The Linux kernel and the Linux operating system have been developed and licensed under the GNU General Public License and similar open source
licenses. These licenses state that any program licensed under them may be liberally copied, modified, and distributed. The GNU General Public license is a
subject of litigation in the case of The SCO Group, Inc. v. International Business Machines Corp., pending in the United States District Court for the District
of Utah. SCO Group, Inc., or SCO, has publicly alleged that certain Linux kernels contain unauthorized UNIX code or derivative works. Uncertainty
concerning SCO's allegations, regardless of their merit, could adversely affect our manufacturing and other customer and supplier relationships. It is possible
that a court would hold these licenses to be unenforceable in that litigation or that someone could assert a claim for proprietary rights in our TiVo software
that runs on a Linux-based operating system. Any ruling by a court that these licenses are not enforceable, or that Linux-based operating systems, or
significant portions of them, may not be liberally copied, modified or distributed, would have the effect of preventing us from selling or developing our TiVo
software and would adversely affect our business.
If there is an adverse outcome in the class action litigation that has been filed against us, our business may be harmed.
We and certain of our officers and directors are named as defendants in a consolidated securities class action lawsuit filed in the U.S. District Court for
the Southern District of New York. This action, which is captioned Wercberger v. TiVo et al., also names several of the underwriters involved in our initial
public offering as defendants. This class action is brought on behalf of a purported class of purchasers of our common stock from September 30, 1999, the
time of our initial public offering, through December 6, 2000. The central allegation in this action is that our IPO underwriters solicited and received
undisclosed commissions from, and entered into undisclosed arrangements with, certain investors who purchased our common stock in our IPO and in the
after-market. The complaint also alleges that the TiVo defendants violated the federal securities laws by failing to disclose in our IPO prospectus that the
underwriters had engaged in these alleged arrangements. More than 150 issuers have been named in similar lawsuits. In July 2002, an omnibus motion to
dismiss all complaints against issuers and individual defendants affiliated with issuers (including the TiVo defendants) was filed by the entire group of issuer
defendants in these similar actions. On October 8, 2002, our officers were dismissed as defendants in the lawsuit. On February 19, 2003, the court in this
action issued its decision on defendants' omnibus motion to dismiss. This decision dismissed the Section 10(b) claim as to TiVo but denied the motion to
dismiss the Section 11 claim as to TiVo and virtually all of the other issuer-defendants.
On June 26, 2003, the plaintiffs announced a proposed settlement with the Company and the other issuer defendants. The proposed settlement provides
that the plaintiffs will be guaranteed $1.0 billion dollars in recoveries by the insurers of the Company and other issuer defendants. Accordingly, any direct
financial impact of the proposed settlement is expected to be borne by the Company's insurers in accordance with the proposed settlement. In addition, the
Company and the other settling issuer defendants will assign to the plaintiffs certain claims that they may have against the underwriters. If recoveries in
excess of $1.0 billion dollars are obtained by the plaintiffs from the underwriters, the Company's and the other issuers defendants' monetary obligations to the
class plaintiffs will be satisfied. Furthermore, the settlement is subject to a hearing on fairness and approval by the Federal District Court overseeing the IPO
Litigation. On February 15, 2005, the Court issued an order preliminarily approving the terms of the proposed settlement. The Court also certified the
settlement classes and class representatives for purposes of the settlement only. Due to the inherent uncertainties of litigation and assignment of claims against
the underwriters, and because the settlement has not yet been finally approved by the Federal District Court, the ultimate outcome of the matter cannot
presently be predicted. In the event that the Court does not approve the final settlement, we believe we have meritorious defenses and 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.
Legislation, laws or regulations that govern the television industry, the delivery of programming and the collection of viewing information
from subscriptions could expose us to legal action if we fail to comply or could require us to change our business.
The delivery of television programming and the collection of viewing information from subscriptions via the TiVo service and a DVR represent a
relatively new category in the television and home entertainment industries. As such, it is difficult to predict what laws or regulations will govern our
business. Changes in the regulatory climate, the enactment of new legislation, or the expansion, enforcement or interpretation of existing laws could expose us
to additional costs and expenses and could require changes to our business. For example, legislation regarding customer privacy or copyright could be enacted
or expanded to apply to the TiVo service, which could adversely affect our business. New or existing copyright laws could be applied to restrict the capture of
television programming, which would adversely affect our business. It is unknown whether existing laws and regulations will apply to the digital
42