Dish Network 2011 Annual Report Download - page 150

DISH NETWORK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
F-56
TiVo Inc.
In connection with our litigation with TiVo Inc. (“TiVo”), which is described in our periodic reports filed with the SEC,
including in our annual report on Form 10-K for the year ended December 31, 2010 under the caption “Item 3. Legal
Proceedings – TiVo Inc.,” on April 20, 2011, the U.S. Court of Appeals for the Federal Circuit vacated the District
Court’s contempt ruling on infringement, articulated a new standard for determining “colorable difference” and
remanded that issue back to the District Court for determination. The Federal Circuit also vacated the District Court’s
amended injunction requiring that we inform the court of any further attempts to design around TiVo’s United States
Patent No. 6,233,389 (the ‘389 patent) and seek approval from the court before any such design-around is implemented.
The Federal Circuit also vacated the infringement damages for the period after we deployed our original alternative
technology (although it did not foreclose that damages may be reinstated if upon remand a new court or jury decision
found that the original alternative technology infringed TiVo’s ‘389 patent). The Federal Circuit affirmed the District
Court’s contempt ruling on disablement, holding that the original 2006 injunction required that we disable DVR
functionality in all but approximately 192,000 digital set-top boxes deployed with customers (the “Disablement
Provision”) and affirmed the $90 million in contempt sanctions awarded against us for violating the Disablement
Provision.
On April 29, 2011, we and EchoStar entered into a settlement agreement with TiVo. The settlement resolves all pending
litigation between us and EchoStar, on the one hand, and TiVo, on the other hand, including litigation relating to alleged
patent infringement involving certain DISH digital video recorders, or DVRs, which litigation is described in our
periodic reports filed with the Securities and Exchange Commission including in our annual report on Form 10-K for the
year ended December 31, 2010 under the caption “Item 3. Legal Proceedings – TiVo Inc.”
Under the settlement agreement, all pending litigation has been dismissed with prejudice and all injunctions that
permanently restrain, enjoin or compel any action by us or EchoStar have been dissolved. We and EchoStar are jointly
responsible for making payments to TiVo in the aggregate amount of $500 million, including an initial payment of $300
million and the remaining $200 million in six equal annual installments between 2012 and 2017. Pursuant to the terms
and conditions of the agreements entered into in connection with the Spin-off of EchoStar from us, we made the initial
payment to TiVo in May 2011, except for a contribution from EchoStar totaling approximately $10 million, representing
an allocation of liability relating to EchoStar’s sales of DVR-enabled receivers to an international customer. Future
payments will be allocated between us and EchoStar based on historical sales of certain licensed products, with us being
responsible for 95% of each annual payment.
As previously disclosed, our total litigation accrual for TiVo was $517 million as of December 31, 2010. As a result of
the settlement agreement, we reversed $335 million of this accrual and made a payment of approximately $290 million
for our portion of the initial payment to TiVo. Of this amount, approximately $182 million relates to prior periods and
the remaining $108 million represents a prepayment. Our $108 million prepayment and our $190 million share of the
remaining payments, a total of $298 million, will be expensed ratably as a subscriber-related expense from April 1, 2011
through July 31, 2018, the expiration date of the ‘389 patent. In connection with our TiVo settlement, TiVo agreed to
advertise and market certain of our products and services. As a result, $6 million was recognized as a reduction of
litigation expense and we recorded a pre-paid marketing asset on our Consolidated Statements of Operations and
Comprehensive Income (Loss) and our Consolidated Balance Sheets, respectively. The amount of the pre-paid license
agreement is being amortized as costs of sales over the six-year term of the agreement.
In addition, under the settlement agreement, TiVo granted us a license under its ‘389 patent and certain related patents,
for the remaining life of those patents, with respect to DISH-branded and co-branded products and services.
We and EchoStar, on the one hand, and TiVo, on the other hand, have also agreed on mutual releases of certain related
claims and agreed not to challenge each other’s DVR technology-related patents that are licensed under the settlement
agreement.