TiVo 2006 Annual Report Download - page 21

Table of Contents
manufacturers were unable to obtain sufficient quantities of these components or required program guide data from our suppliers, our search for alternate
suppliers could result in significant delays, added expense or disruption in product or service availability.
We depend upon third parties to provide supply chain services related to inventory management, order fulfillment, and direct sales logistics. We rely on
third party vendors to provide cost-effective and efficient supply chain services. Among other activities, these outsourced services relate to direct sales
logistics, including order fulfillment, inventory management and warehousing, and distribution of inventory to third party retailers. If one or several of our
third party supply chain partners were to discontinue services for us, our ability to fulfill direct sales orders and distribute inventory timely, cost effectively, or
at all, would be hindered which could in turn harm our business.
We are dependent on our major retail partners for distribution of our products to consumers. We currently rely on our relationships with major retail
distributors including Best Buy, Circuit City, Radio Shack, and others for distribution of TiVo-enabled DVRs. We do not typically enter into long-term
volume commitments with our major retail distributors. If one or several of our major retail partners were to discontinue selling our products, the volume of
TiVo-enabled DVRs sold to consumers could decrease which could in turn harm our business.
Intellectual property claims against us could be costly and could result in the loss of significant rights.
From time to time, we receive letters from third parties alleging that we are infringing their intellectual property. Regardless of their merit, we are
forced to devote time and resources to respond to these letters. In addition, if any of these third parties or others were to sue us, our business could be harmed
because intellectual property litigation may:
• be time-consuming and expensive;
• divert management's attention and resources away from our business;
• cause delays in product delivery and new service introduction;
• cause the cancellation of new products or services; or
• require us to pay significant royalties and/or licensing fees.
The emerging enhanced-television industry is highly litigious, particularly in the area of on-screen program guides. Additionally, many patents
covering interactive television technologies have been granted but have not been commercialized. For example, we are aware of multiple patents for pausing
live television. A number of companies in the enhanced-television industry earn substantial profits from technology licensing, and the introduction of new
technologies such as ours is likely to provoke lawsuits from such companies. A successful claim of infringement against us, our inability to obtain an
acceptable license from the holder of the patent or other right, or our inability to design around an asserted patent or other right could cause our manufacturers
to cease manufacturing DVRs that enable the TiVo service, our retailers to stop selling the product or us to cease providing our service, or all of the above,
which would eliminate our ability to generate revenues.
Under our agreements with many of our manufacturing and licensing partners, we are obligated to indemnify them in the event that our technology
infringes upon the intellectual property rights of third parties. Due to these indemnity obligations, we could be forced to incur material expenses if our
manufacturing and licensing partners are sued. If they were to lose the lawsuit, our business could be harmed. In addition, because the products sold by our
manufacturing and licensing partners often involve the use of other persons' technology, this increases our exposure to litigation in circumstances where there
is a claim of infringement asserted against the product in question, even if the claim does not pertain to our technology.
For example, on September 27, 2005, we received a notification and request for indemnification from DIRECTV concerning a complaint served on
DIRECTV by Forgent Networks, Inc. alleging infringement of U.S. Patent No. 6,285,746 (the "746 Patent"). On September 30, 2005, we responded that we
did not believe the matter warranted our indemnification given that there was no indication that Forgent's infringement allegations concerned technology
provided by us to
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