Dish Network 2009 Annual Report Download - page 75

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS - Continued
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If we are unsuccessful in overturning the District Court’s ruling on Tivo’s motion for contempt, we are not
successful in developing and deploying potential new alternative technology and we are unable to reach a license
agreement with Tivo on reasonable terms, we would be required to eliminate DVR functionality in all but
approximately 192,000 digital set-top boxes in the field and cease distribution of digital set-top boxes with DVR
functionality. In that event we would be at a significant disadvantage to our competitors who could continue
offering DVR functionality, which would likely result in a significant decrease in new subscriber additions as well
as a substantial loss of current subscribers. Furthermore, the inability to offer DVR functionality could cause certain
of our distribution channels to terminate or significantly decrease their marketing of DISH Network services. The
adverse effect on our financial position and results of operations if the District Court’s contempt order is upheld is
likely to be significant. Additionally, the supplemental damage award of $103 million and further award of
approximately $200 million does not include damages, contempt sanctions or interest for the period after June 2009.
In the event that we are unsuccessful in our appeal, we could also have to pay substantial additional damages,
contempt sanctions and interest. Depending on the amount of any additional damage or sanction award or any
monetary settlement, we may be required to raise additional capital at a time and in circumstances in which we
would normally not raise capital. Therefore, any capital we raise may be on terms that are unfavorable to us, which
might adversely affect our financial position and results of operations and might also impair our ability to raise
capital on acceptable terms in the future to fund our own operations and initiatives. We believe the cost of such
capital and its terms and conditions may be substantially less attractive than our previous financings.
If we are successful in overturning the District Court’s ruling on Tivo’s motion for contempt, but unsuccessful in
defending against any subsequent claim in a new action that our original alternative technology or any potential new
alternative technology infringes Tivo’s patent, we could be prohibited from distributing DVRs or could be required
to modify or eliminate our then-current DVR functionality in some or all set-top boxes in the field. In that event we
would be at a significant disadvantage to our competitors who could continue offering DVR functionality and the
adverse effect on our business could be material. We could also have to pay substantial additional damages.
Because both we and EchoStar are defendants in the Tivo lawsuit, we and EchoStar are jointly and severally liable
to Tivo for any final damages and sanctions that may be awarded by the District Court. We have determined that we
are obligated under the agreements entered into in connection with the Spin-off to indemnify EchoStar for
substantially all liability arising from this lawsuit. EchoStar has agreed to contribute an amount equal to its $5
million intellectual property liability limit under the Receiver Agreement. We and EchoStar have further agreed that
EchoStar’s $5 million contribution would not exhaust EchoStar’s liability to us for other intellectual property claims
that may arise under the Receiver Agreement. We and EchoStar also agreed that we would each be entitled to joint
ownership of, and a cross-license to use, any intellectual property developed in connection with any potential new
alternative technology.
From time to time we evaluate opportunities for strategic investments or acquisitions that may complement our
current services and products, enhance our technical capabilities, improve or sustain our competitive position, or
otherwise offer growth opportunities. We may make investments in or partner with others to expand our business
into mobile and portable video, IPTV, data and voice services. Future material investments or acquisitions may
require that we obtain additional capital, assume third party debt or incur other long-term obligations.
In 2008, we paid $712 million to acquire certain 700 MHz wireless licenses, which were granted to us by the FCC in
February 2009. To commercialize these licenses and satisfy FCC build-out requirements, we will be required to
make significant additional investments or partner with others. Depending on the nature and scope of such
commercialization and build-out, any such investment or partnership could vary significantly. Part or all of our
licenses may be terminated for failure to satisfy FCC build-out requirements. We are currently performing a market
test to evaluate different technologies and consumer acceptance.
Recent developments in the financial markets have made it more difficult for issuers of high-yield indebtedness,
such as us, to access capital markets at acceptable terms. These developments may have a significant effect on our
cost of financing and our liquidity position.
A portion of our investment portfolio is invested in auction rate securities, mortgage backed securities, and strategic
investments and as a result a portion of our portfolio has restricted liquidity. Liquidity in the markets for these
investments has been impacted in the past year and these market conditions have adversely affected our liquidity. In