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Table of Contents
11. COMMITMENTS AND CONTINGENCIES
Legal Matters
Intellectual Property Litigation. On January 5, 2004, TiVo filed a complaint against EchoStar Communications Corporation and EchoStar DBS
Corporation in the U.S. District Court for the Eastern District of Texas alleging willful and deliberate infringement of U.S. Patent No. 6,233,389, entitled
"Multimedia Time Warping System." The Company subsequently amended its complaint to add related entities (collectively "EchoStar") The Company
alleges that it is the owner of this patent, and further alleges that the defendants have willfully and deliberately infringed this patent by making, selling,
offering to sell and/or selling digital video recording devices, digital video recording device software, and/or personal television services in the United States.
On April 13, 2006, the jury rendered a verdict in favor of the Company in the amount of approximately $74.0 million dollars. The jury ruled that the
Company's patent is valid and that all nine of the asserted claims in the Company's patent are infringed by each of the accused EchoStar products. The jury
also ruled that the defendants willfully infringed the patent. On September 8, 2006 the district court issued an Amended Final and Permanent injunction that
prohibited the defendants from making, using, offering for sale or selling in the United States the following EchoStar DVRs: DP-501, DP-508, DP-510,
DP-721, DP-921, DP-522, DP-625, DP-942, and all EchoStar Communications Corporation DVRs that are not more than colorably different from any of
these products. On October 3, 2006, the United States Court of Appeals for Federal Circuit stayed the district court's injunction pending appeal. On
January 31, 2008, the U.S. Court of Appeals for the Federal Circuit in Washington, D.C. unanimously ruled in favor of the Company in connection with
EchoStar's appeal of the district court judgment of patent infringement against EchoStar with respect to Claims 31 and 61 of the patent (the so called software
claims) of the patent, upholding the full award of damages from the district court, and ordering that the stay of the district court's injunction against EchoStar's
infringing digital video recorders that was issued pending appeal will dissolve when the appeal becomes final. The district court's judgment of infringement
by EchoStar of certain other claims of the patent (the so called hardware claims) were reversed and remanded for further proceedings. On October 6, 2008, the
Supreme Court denied EchoStar's writ of certiorari. On October 8, 2008, the Company received $104.6 million from EchoStar of which approximately $87.8
million represents damages through September 8, 2006 and was recorded as litigation proceeds within the operating expense section of TiVo's statement of
operations. The remaining approximately $16.8 million was recorded as interest income and represented pre- and post-judgment interest through October 8,
2008. With respect to the district court's injunction and damages after September 8, 2006, the district court held a hearing on EchoStar's alleged work around
of the Company's patent on February 17, 2009. On June 2, 2009, the district court found EchoStar in contempt of its permanent injunction regarding
EchoStar's on-going infringement of TiVo's U.S. Patent No. 6,233,389. The Court also awarded TiVo an approximately $103 million plus interest for
EchoStar's continued infringement for the period from September 8, 2006 to April 18, 2008. The Court deferred ruling on the issue of monetary sanctions for
contempt of the permanent injunction as well as certain other damages.
On July 1, 2009, the United States Court of Appeals for the Federal Circuit stayed the district court's ruling pending EchoStar's appeal of the district
court's decision finding EchoStar in contempt of the permanent injunction. On September 4, 2009, the United States District Court for the Eastern District of
Texas awarded TiVo contempt damages in connection with its permanent injunction regarding EchoStar's on-going infringement of TiVo's U.S. Patent
No. 6,233,389 in the form of an on-going royalty of $2.25 per subscriber per month during the contempt period of April 18, 2008 to July 1, 2009, which
amounts to almost $200 million. The Court also awarded TiVo its attorney's fees and costs incurred during the contempt proceedings. Additionally, on
September 4, 2009, the Court awarded TiVo an additional $10.6 million in prejudgment interest in connection with the stay period damages from
September 8, 2006 to April 18, 2008 which was previously awarded to TiVo. Enforcement of these awards is stayed pending resolution of EchoStar's appeal
of the district court's decision finding EchoStar in contempt of the permanent injunction. On February 8, 2010, the Court entered an Order quantifying the
attorney's fees and costs incurred during the contempt proceedings to be $5.8 million. On March 4, 2010, the United States Court of Appeals for the Federal
Circuit in Washington, D.C. fully affirmed the United States District Court for the Eastern District of Texas's finding of contempt of its permanent injunction
against EchoStar, including both the disablement and infringement provisions, regarding EchoStar's on-going infringement of TiVo's U.S. Patent
No. 6,233,389. EchoStar has indicated that it intends to file a petition seeking rehearing en banc. On March 9, 2010, EchoStar filed a motion with the District
Court seeking pre-approval of a new alleged design-around for its Broadcom DVR receivers ("rework2") as well as an emergency motion for expedited
resolution of its pre-approval motion. On March 25, 2010, the United States District Court for the Eastern District of Texas entered an order staying the
injunction until midnight April 30, 2010.
On August 3, 2009, the United States Patent and Trademark Office ("the PTO") issued an office action in a second reexamination filed by EchoStar
preliminarily rejecting Claims 31 and 61 of the Time Warp patent as obvious in light of two references previously considered by the PTO in the first
reexamination. The Company intends to defend this action and the validity of the rejected claims in the PTO reexamination vigorously; however, the
Company is incurring material expenses in connection with this lawsuit, and in the event there is an adverse outcome, the Company's business could be
harmed. At this time, the Company is unable to estimate the likelihood of an adverse outcome or the extent to which the Company's business would be
harmed by an adverse outcome.
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