Dish Network 2010 Annual Report Download - page 45

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Oral argument on our appeal of the contempt ruling took place on November 2, 2009, before a three-judge panel of
the Federal Circuit Court of Appeals. On March 4, 2010, the Federal Circuit affirmed the District Court’s contempt
order in a 2-1 decision. On May 14, 2010, our petition for en banc review of that decision by the full Federal Circuit
was granted and the opinion of the three-judge panel was vacated. Oral argument occurred on November 9, 2010.
There can be no assurance that the full Federal Circuit will reverse the decision of the three-judge panel. Tivo has
stated that it will seek additional damages for the period from June 2009 to the present. Although we have accrued
our best estimate of damages, contempt sanctions and interest through December 31, 2010, there can be no
assurance that Tivo will not seek, and that the court will not award, an amount that exceeds our accrual.
On October 6, 2010, the Patent and Trademark Office (the “PTO”) issued an office action confirming the validity of
certain of the software claims of United States Patent No. 6,233,389 (the ‘389 patent). However, the PTO only
confirmed the validity of the ‘389 patent after Tivo made statements that we believe narrow the scope of its claims.
The claims that were confirmed thus should not have the same scope as the claims that we were found to have
infringed and which underlie the contempt ruling that we are now appealing. Therefore, we believe that the PTO’s
conclusions are relevant to the issues on appeal. The PTO’s conclusions support our position that our original
alternative technology does not infringe and that we acted in good faith to design around Tivo’s patent.
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 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 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.