TiVo 2003 Annual Report Download - page 15

Table of Contents
distribution of certain DVRs that enable the TiVo service, we are required to indemnify Sony against any and all claims, damages, liabilities, costs, and
expenses relating to claims that our technology infringes upon intellectual property rights owned by third parties. We believe Sony has meritorious defenses
against this lawsuit; however, due to our indemnification obligations, we are incurring material expenses in connection with this litigation. If Sony were to
lose this lawsuit, our business could be harmed.
Pause Technology LLC. On September 25, 2001, Pause Technology filed a complaint against us in the U.S. District Court for the District of
Massachusetts alleging infringement of U.S. Reissue Patent No. 36,801, entitled "Time Delayed Digital Video System Using Concurrent Recording and
Playback." Pause Technology alleges that it is the owner of this patent, and further alleges that we have willfully and deliberately infringed this patent by
making, selling, offering to sell, and using within the United States the TiVo digital video recorder. Pause Technology seeks unspecified monetary damages as
well as an injunction against our operations. It also seeks attorneys' fees and costs. On February 6, 2004, we obtained a favorable summary judgment ruling in
the case filed against us in 2001 by Pause Technology LLC in the United States District Court for the District of Massachusetts. The court ruled that our
software versions 2.0 and above do not infringe Pause's patent, and accordingly has ordered that judgment be entered in our favor. On March 3, 2004, Pause
Technology filed a notice of appeal to the United States Court of Appeal for the Federal Circuit, appealing the February 6, 2004 summary judgment ruling in
favor of TiVo.
IPO Litigation. We and certain of our officers and directors are named as defendants in a consolidated securities class action lawsuit filed in the U.S.
District Court for the Southern District of New York. This action, which is captioned Wercberger v. TiVo et al., also names several of the underwriters
involved in our initial public offering as defendants. This class action is brought on behalf of a purported class of purchasers of our common stock from
September 30, 1999, the time of our initial public offering, through December 6, 2000. The central allegation in this action is that our IPO underwriters
solicited and received undisclosed commissions from, and entered into undisclosed arrangements with, certain investors who purchased our common stock in
our IPO and in the after-market. The complaint also alleges that the TiVo defendants violated the federal securities laws by failing to disclose in our IPO
prospectus that the underwriters had engaged in these allegedly undisclosed arrangements. More than 150 issuers have been named in similar lawsuits. In July
2002, an omnibus motion to dismiss all complaints against issuers and individual defendants affiliated with issuers (including the TiVo defendants) was filed
by the entire group of issuer defendants in these similar actions. On October 8, 2002, our officers were dismissed as defendants in the lawsuit. On February
19, 2003, the court in this action issued its decision on defendants' omnibus motion to dismiss. This decision dismissed the Section 10(b) claim as to TiVo but
denied the motion to dismiss the Section 11 claim as to TiVo and virtually all of the other issuer-defendants.
On June 26, 2003, the plaintiffs announced a proposed settlement with us and the other issuer defendants. The proposed settlement provides that the
insurers of all settling issuers will guarantee that the plaintiffs recover $1 billion from non-settling defendants, including the investment banks who acted as
underwriters in those offerings. In the event that the plaintiffs do not recover $1 billion, the insurers for the settling issuers will make up the difference. Under
the proposed settlement, the maximum amount that could be charged to our insurance policy in the event that the plaintiffs recovered nothing from the
investment banks would be approximately $3.9 million. We believe that we have sufficient insurance coverage to cover the maximum amount that we may be
responsible for under the proposed settlement. Our board of directors approved the proposed settlement at a meeting held on June 25, 2003. It is possible that
the parties may not reach agreement on the final settlement documents or that the Federal District Court may not approve the settlement in whole or part. In
the event that the parties do not reach agreement on the final settlement, we believe we have meritorious defenses and intend to defend this action vigorously;
however, we could be forced to incur material expenses in the litigation, and in the event there is an adverse outcome, our business could be harmed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter ended January 31, 2004.
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