TiVo 2011 Annual Report Download - page 83

Table of Contents
as defined by the Company or that establish the parameters defining the Company’s requirements. A significant portion of the Company’s reported purchase
commitments arising from these agreements consists of firm, noncancelable, and unconditional purchase commitments. In certain instances, these agreements
allow the Company the option to cancel, reschedule, and adjust the Company’s requirements based on its business needs prior to firm orders being placed. As
of January 31, 2012 the Company had total purchase commitments for inventory of $21.8 million.
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.
Legal Matters
From time to time, the Company is involved in numerous lawsuits as well as subject to various legal proceedings, claims, threats of litigation, and
investigations in the ordinary course of business, including claims of alleged infringement of third-party patents and other intellectual property rights,
commercial, employment, and other matters. The Company assesses potential liabilities in connection with each lawsuit and threatened lawsuits and accrues
an estimated loss for these loss contingencies if both of the following conditions are met: information available prior to issuance of the financial statements
indicates that it is probable that a liability has been incurred at the date of the financial statements and the amount of loss can be reasonably estimated. While
certain matters to which the Company is a party specify the damages claimed, such claims may not represent reasonably possible losses. Given the inherent
uncertainties of the litigation, the ultimate outcome of these matters cannot be predicted at this time, nor can the amount of possible loss or range of loss, if
any, be reasonably estimated. As of January 31, 2012, the Company has not accrued any liability for any lawsuits filed against the Company, as the Company
has neither determined that it is probable that a liability has been incurred at the date of the financial statements nor that the amount of any loss can be
reasonably estimated. The Company expenses legal costs as they are incurred.
Intellectual Property Litigation.
On August 26, 2009, TiVo filed separate complaints against AT&T Inc. (“AT&T”) and Verizon Communications, Inc. ("Verizon") in the United States
District Court for the Eastern District of Texas for infringement of the following three TiVo patents: U.S. Patent Nos. 6,233,389 B1 ("Multimedia Time
Warping System"); 7,529,465 B2 ("System for Time Shifting Multimedia Content Streams"); and 7,493,015 B1 ("Automatic Playback Overshoot Correction
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