TiVo 2004 Annual Report Download - page 38

Table of Contents
Index to Financial Statements
components or required program guide data from our suppliers, our search for alternate suppliers could result in significant delays, added expense or
disruption in product or service availability.
We are dependent on our major retail partners for distribution of our products to consumers. We currently rely on our relationships with major retail
distributors including Best Buy, Circuit City, Target, and others for distribution of TiVo-enabled DVRs. We do not typically enter into long-term volume
commitments with our major retail distributors. One of our retail customers accounted for 29% of our net revenues in the fiscal year ended January 31, 2005.
If one or several of our major retail partners were to discontinue selling our products, the volume of TiVo-enabled DVRs sold to consumers could decrease
which could in turn harm our business.
Intellectual property claims against us could be costly and could result in the loss of significant rights.
From time to time, we receive letters from third parties alleging that we are infringing their intellectual property. Regardless of their merit, we are
forced to devote time and resources to respond to these letters. In addition, if any of these third parties or others were to sue us, our business could be harmed
because intellectual property litigation may:
• be time-consuming and expensive;
• divert management's attention and resources away from our business;
• cause delays in product delivery and new service introduction;
• cause the cancellation of new products or services; or
• require us to pay significant royalties and/or licensing fees.
The emerging enhanced-television industry is highly litigious, particularly in the area of on-screen program guides. Additionally, many patents
covering interactive television technologies have been granted but have not been commercialized. For example, we are aware of multiple patents for pausing
live television. A number of companies in the enhanced-television industry earn substantial profits from technology licensing, and the introduction of new
technologies such as ours is likely to provoke lawsuits from such companies. A successful claim of infringement against us, our inability to obtain an
acceptable license from the holder of the patent or other right, or our inability to design around an asserted patent or other right could cause our manufacturers
to cease manufacturing DVRs that enable the TiVo service, our retailers to stop selling the product or us to cease providing our service, or all of the above,
which would eliminate our ability to generate revenues.
Under our agreements with many of our manufacturing and licensing partners, we are obligated to indemnify them in the event that our technology
infringes upon the intellectual property rights of third parties. Due to these indemnity obligations, we could be forced to incur material expenses if our
manufacturing and licensing partners are sued. If they were to lose the lawsuit, our business could be harmed. In addition, because the products sold by our
manufacturing and licensing partners often involve the use of other persons' technology, this increases our exposure to litigation in circumstances where there
is a claim of infringement asserted against the product in question, even if the claim does not pertain to our technology.
Pending intellectual property litigations. On September 25, 2001, Pause Technology LLC filed a complaint against us in the U.S. District Court for the
District of Massachusetts alleging willful and deliberate 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-enabled DVR. 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 in the District Court. The court ruled that our software versions 2.0 and above do not infringe Pause Technology's
patent, and accordingly has ordered that judgment be entered in our favor. On June 16, 2004, Pause Technology filed an appeal to the United States Court of
Appeals for the Federal Circuit appealing the February 6, 2004 summary judgment ruling in favor of TiVo. On April 7, 2005, the U.S. District Court for the
District of Massachusetts issued an Amended Final Judgment dismissing without prejudice our remaining cross-claim for patent invalidity as being moot in
light of the February 9, 2004 judgment in favor of TiVo against Pause Technology as to all claims of infringement in Pause Technology's complaint. On April
8, 2005, Pause Technology filed a notice of appeal with the United States Court of Appeals for the Federal Circuit appealing the April 7, 2005 Amended Final
Judgment. We are incurring expenses in connection with this litigation, which may become material, and in the event there is an adverse outcome, our
business could be harmed.
On February 5, 2002, Sony Corporation notified us that Command Audio Corporation had filed a complaint against Sony Electronics, Inc. on February
2, 2002 in the U.S. District Court for the Northern District of California. The complaint alleges that, in connection with its sale of digital video recorders and
other products, Sony infringes upon two patents owned by Command Audio U.S. Patent Nos. 5,590,195 ("Information Dissemination Using Various
Transmission Modes") and 6,330,334 ("Method and System for Information Dissemination Using Television Signals"). The complaint seeks injunctive relief,
compensatory and treble damages and Command Audio's costs and expenses, including reasonable attorneys' fees. On June 15, 2004, the court denied Sony's
motion for summary judgment of invalidity and granted in part and denied in part Command Audio's motion for summary judgment of infringement. The
court found that certain Sony products, including Sony's accused products that enable the TiVo service, literally infringed certain claims of the 334 patent but
did not rule on the validity or unenforceability of the patents. A trial limited to certain of
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