TiVo 2011 Annual Report Download - page 96

Table of Contents
As of January 31,
2012 2011 2010
Unvested restricted stock 1,007,735 4,649,998 4,467,429
Options to purchase common stock 4,286,876 12,667,784 14,918,906
Potential shares to be issued from ESPP — 82,543 46,922
Total 5,294,611 17,400,325 19,433,257
18. DISH NETWORK CORPORATION
On April 29, 2011, TiVo entered into a Settlement and Patent License Agreement with EchoStar Corporation (“EchoStar”) and DISH Network
Corporation (“DISH”). Under the terms of the agreement, DISH and EchoStar agreed to pay TiVo $500.0 million, including an initial payment of $300.0
million received by TiVo on May 2, 2011 with the remaining $200.0 million to be distributed in six equal annual installments of $33.3 million between 2012
and 2017. TiVo, DISH, and EchoStar agreed to dismiss all pending litigation between the companies with prejudice and to dissolve all injunctions against
DISH and EchoStar. The parties also granted certain patent licenses to each other. TiVo granted DISH a license under its Time Warp patent (U.S. Patent No.
6,233,389) and certain related patents, for the remaining life of those patents. TiVo also granted EchoStar a license under the same '389 patent and certain
related patents, for the remaining life of those patents, to design and make certain DVR-enabled products solely for DISH and two international customers.
EchoStar granted TiVo a license under certain DVR-related patents for TiVo-branded, co-branded and ingredient-branded products.
The agreement includes multiple elements consisting of: (i) an exchange of licenses to intellectual property, including covenants not to assert claims of
patent infringement for the period from April 29, 2011 until the expiration of the last to expire of the covered patents, which is July 30, 2018, (ii) an interest
income component related to the past infringement, and (iii) the settlement of all outstanding litigation and claims between TiVo and EchoStar and DISH. The
proceeds of the agreement were allocated amongst the principal elements of the transaction.
The Company estimated the fair value of each element using an income approach. The significant inputs and assumptions used in this valuation included
actual past and projected future subscription base, estimated DVR penetration rates, estimated market-based royalty rates, estimated risk-adjusted discount
rates, and useful lives, among others. The development of a number of these inputs and assumptions in the model requires a significant amount of
management judgment and is based upon a number of factors. Changes in these assumptions may have had a substantial impact on the fair value assigned to
each element. These inputs and assumptions represent management's best estimates at the time of the transaction.
The total consideration of $500.0 million was allocated on a relative fair value basis as $175.7 million to the past infringement and litigation settlement
element, $2.9 million to interest income related to past infringement and $321.4 million to the future license royalties element. The amount related to past
infringement and settlement was recorded under “Litigation proceeds” in the quarter ended April 30, 2011. The amount related to interest income was
recorded under “Interest income” in the quarter ended April 30, 2011. $321.4 million of future license royalties will be recorded as technology revenue on a
straight-line amortization basis over the remaining life of the patent through July 30, 2018.
Revenue from the agreement has been or is expected to be recognized as follows:
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