TiVo 2010 Annual Report Download - page 28

parts and labor from the date of consumer purchase, and from 91-365 days for parts only, also known as the Limited Warranty. Within the limited warranty
period, consumers are offered a no-charge exchange for TiVo-enabled DVRs returned due to product defect, within 90 days from the date of consumer
purchase. Thereafter, consumers may exchange a TiVo-enabled DVR with a product defect for a charge. As of January 31, 2011 and January 31, 2010 , the
accrued warranty reserve was $419,000 and $233,000 , respectively. The Company’s accrued warranty reserve is included in accrued liabilities in the
accompanying consolidated balance sheets.
The Company also offers customers separately priced optional 2-year and 3-year extended warranties. The Company defers and amortizes cost and
revenue associated with the sales of the extended warranties over the warranty period or until a warranty is redeemed. As of January 31, 2011 , the extended
warranty deferred revenue and cost was $891,000 and $269,000 , respectively. As of January 31, 2010 , the extended warranty deferred revenue and cost was
$234,000 and $70,000 , respectively.
Indemnification Arrangements
The Company undertakes indemnification obligations in its ordinary course of business. For instance, the Company has undertaken to indemnify its
underwriters and certain investors in connection with the issuance and sale of its securities. The Company has also undertaken to indemnify certain customers
and business partners for, among other things, the licensing of its products, the sale of its DVRs, and the provision of engineering and consulting services.
Pursuant to these agreements, the Company may indemnify the other party for certain losses suffered or incurred by the indemnified party in connection with
various types of claims, which may include, without limitation, intellectual property infringement, advertising and consumer disclosure laws, certain tax
liabilities, negligence and intentional acts in the performance of services and violations of laws, including certain violations of securities laws with respect to
underwriters and investors. The term of these indemnification obligations is generally perpetual. The Company’s obligation to provide indemnification would
arise in the event that a third-party filed a claim against one of the parties that was covered by the Company’s indemnification obligation. As an example, if a
third-party sued a customer for intellectual property infringement and the Company agreed to indemnify that customer against such claims, its obligation
would be triggered.
The Company is unable to estimate with any reasonable accuracy the liability that may be incurred pursuant to its indemnification obligations, if any. A
few of the variables affecting any such assessment include but are not limited to: the nature of the claim asserted; the relative merits of the claim; the financial
ability of the party suing the indemnified party to engage in protracted litigation; the number of parties seeking indemnification; the nature and amount of
damages claimed by the party suing the indemnified party; and the willingness of such party to engage in settlement negotiations. Due to the nature of the
Company’s potential indemnity liability, its indemnification obligations could range from immaterial to having a material adverse impact on its financial
position and its ability to continue operation in the ordinary course of business.
Under certain circumstances, the Company may have recourse through its insurance policies that would enable it to recover from its insurance company
some or all amounts paid pursuant to its indemnification obligations. The Company does not have any assets held either as collateral or by third parties that,
upon the occurrence of an event requiring it to indemnify a customer, the Company could obtain and liquidate to recover all or a portion of the amounts paid
pursuant to its indemnification obligations.
10. COMMITMENT 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
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