Dish Network 2010 Annual Report Download - page 24

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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 subject to substantial liability and would be prohibited from
offering DVR functionality that would result in a significant loss of subscribers and place us at a significant
disadvantage to our competitors.
In June 2009, the United States District Court granted Tivo’s motion for contempt finding that our next-generation
DVRs continue to infringe Tivo’s intellectual property and awarded Tivo an additional $103 million in supplemental
damages and interest for the period from September 2006 through April 2008. In September 2009, the District
Court partially granted Tivo’s motion for contempt sanctions. In partially granting Tivo’s motion for contempt
sanctions, the District Court awarded $2.25 per DVR subscriber per month for the period from April 2008 to July
2009 (as compared to the award for supplemental damages for the prior period from September 2006 to April 2008,
which was based on an assumed $1.25 per DVR subscriber per month). By the District Court’s estimation, the total
award for the period from April 2008 to July 2009 is approximately $200 million (the enforcement of the award has
been stayed by the District Court pending DISH Network’s appeal of the underlying June 2009 contempt order). As
previously disclosed, we increased our accrual for the Tivo litigation to reflect both the supplemental damages
award for the period September 2006 to April 2008 and for the estimated cost of alleged software infringement for
the period from April 2008 through June 2009.
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 may 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 awards described above do 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 would 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 contributed 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.