Dish Network 2009 Annual Report Download - page 137

DISH NETWORK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued
F-47
On September 4, 2009, the District Court partially granted Tivo’s motion for contempt sanctions. In partially
granting Tivo’s motion for contempt sanctions, the District Court awarded $2.25 per DVR subscriber per
month for the period from April 2008 to July 2009 (as compared to the award for supplemental damages for the
prior period from September 2006 to April 2008, which was based on an assumed $1.25 per DVR subscriber
per month). By the District Court’s estimation, the total award for the period from April 2008 to July 2009 is
approximately $200 million (the enforcement of the award has been stayed by the District Court pending DISH
Network’s appeal of the underlying June 2009 contempt order). The District Court also awarded Tivo its
attorneys’ fees incurred during the contempt proceedings. On February 8, 2010, we and Tivo submitted a
stipulation to the District Court that the attorneys’ fees and costs, including expert witness fees and costs, that
Tivo incurred during the contempt proceedings amounted to $6 million. During the year ended December 31,
2009, we increased our total reserve by $361 million to reflect the supplemental damages and interest for the
period from implementation of our original alternative technology through April 2008 and for the estimated
cost of alleged software infringement (including contempt sanctions for the period from April 2008 through
June 2009) for the period from April 2008 through December 2009 plus interest. Our total reserve at December
31, 2009 was $394 million and is included in “Tivo litigation accrual” on our Consolidated Balance Sheets.
In light of the District Court’s finding of contempt, and its description of the manner in which it believes our
original alternative technology infringed the ‘389 patent, we are also developing and testing potential new
alternative technology in an engineering environment. As part of EchoStar’s development process, EchoStar
downloaded several of our design-around options to less than 1,000 subscribers for “beta” testing.
If we are unsuccessful in overturning the District Court’s ruling on Tivo’s motion for contempt, we are not
successful in developing and deploying potential new alternative technology and we are unable to reach a
license agreement with Tivo on reasonable terms, we would be required to eliminate DVR functionality in all
but approximately 192,000 digital set-top boxes in the field and cease distribution of digital set-top boxes with
DVR functionality. In that event we would be at a significant disadvantage to our competitors who could
continue offering DVR functionality, which would likely result in a significant decrease in new subscriber
additions as well as a substantial loss of current subscribers. Furthermore, the inability to offer DVR
functionality could cause certain of our distribution channels to terminate or significantly decrease their
marketing of DISH Network services. The adverse effect on our financial position and results of operations if
the District Court’s contempt order is upheld is likely to be significant. Additionally, the supplemental damage
award of $103 million and further award of approximately $200 million does not include damages, contempt
sanctions or interest for the period after June 2009. In the event that we are unsuccessful in our appeal, we
could also have to pay substantial additional damages, contempt sanctions and interest. Depending on the
amount of any additional damage or sanction award or any monetary settlement, we may be required to raise
additional capital at a time and in circumstances in which we would normally not raise capital. Therefore, any
capital we raise may be on terms that are unfavorable to us, which might adversely affect our financial position
and results of operations and might also impair our ability to raise capital on acceptable terms in the future to
fund our own operations and initiatives. We believe the cost of such capital and its terms and conditions may
be substantially less attractive than our previous financings.
If we are successful in overturning the District Court’s ruling on Tivo’s motion for contempt, but unsuccessful
in defending against any subsequent claim in a new action that our original alternative technology or any
potential new alternative technology infringes Tivo’s patent, we could be prohibited from distributing DVRs or
could be required to modify or eliminate our then-current DVR functionality in some or all set-top boxes in the
field. In that event we would be at a significant disadvantage to our competitors who could continue offering
DVR functionality and the adverse effect on our business could be material. We could also have to pay
substantial additional damages.