TiVo 2005 Annual Report Download - page 29

Table of Contents
We could be prevented from selling or developing our TiVo software if the GNU General Public License governing the GNU/Linux operating
system and Linux kernel and similar licenses under which our product is developed and licensed is not enforceable or changed substantially.
Our TiVo software includes parts of the Linux kernel and the GNU/Linux operating system. The Linux kernel and the GNU/Linux operating system
have been developed and licensed under the GNU General Public License, version 2 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 versions of the Linux kernel contain unauthorized UNIX code or derivative works of UNIX code. 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 open source 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 GNU/Linux-based operating system. Any ruling by a court that these licenses are not enforceable, or that GNU/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.
In addition, the GNU Public License is subject to occasional revision. A proposal for changing the license from its current form (GPLv2) into a newer,
more restrictive version called GPLv3 has been proposed and is currently undergoing community review. If the currently proposed version of GPLv3 is
widely adopted, we may be unable to incorporate future enhancements to the GNU/Linux operating system into our software, which could 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 were 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 was 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 was 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. On August 31, 2005, the Court issued an order scheduling a fairness hearing
for April 2006 to determine whether the proposed settlement should be approved. 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.
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